(Bloomberg) -- A shortage of students willing to work at bars, restaurants or karaoke joints in the busy year-end season — even as pay rises — is a conundrum Japanese Prime Minister Shigeru Ishiba must address to shore up his leadership.
While Ishiba managed to stay on as premier in a parliamentary vote on Monday, the chances he’ll remain at the helm of his minority government in the longer term will partly depend on his ability to deliver policies including an economic package. His Liberal Democratic Party-led coalition will need the backing of at least one opposition party.
In exchange, his most likely opposition ally is pushing to raise a ¥1.03 million ($6,700) threshold for paying income tax. The ceiling discourages part-timers, including students, from working toward the year-end, making it a hot-button issue among younger voters who turned their backs on Ishiba’s LDP in the general election.
“Even if minimum pay rates are raised, it’s meaningless if the ceiling isn’t changed,” said Shoei Soga, a college senior living in Tokyo, who works part-time at a clinic in the capital.
His monthly pay sometimes reaches ¥170,000 ($1,115), putting him on course to hit the tax threshold. Exceeding that limit means parents of students lose entitlement to a ¥650,000 tax break. Soga says he’s been told by his parents to stay under the tax ceiling.
The tax deduction for dependents between 19 and 22 years of age is a strong incentive for students to limit their earnings, according to Ayako Kondo, professor at Institute of Social Science at the University of Tokyo.
Many businesses struggle with staff shortages — in December, there were 3.19 jobs available to every job seeker in customer-facing roles, with data from the labor ministry showing the market tightening toward year-end.
For the students, staying below the ceiling means a maximum monthly income of around ¥80,000 ($526.6). That covers less of their outlays as inflation pushes up living costs, especially for students who aren’t living at home.
The ¥1.03 million level is one of many ceilings that kick in as income rises. Health insurance and some public pension contributions kick in from ¥1.06 million, while wider social security payments start at the ¥1.3 million mark.
Ishiba touched on the need to look at these ceilings in a briefing on Monday. A draft of his economic package seen Tuesday by Bloomberg shows that the government intends to take some action to relieve the problem, while a poll published by the Yomiuri newspaper Tuesday found 78% of respondents were in favor of the move.
Yuichiro Tamaki’s Democratic Party for the People has demanded the change in return for support for some of Ishiba’s policies. While the DPP only has 28 seats out of 465 in Japan’s lower house, its presence quadrupled in last month’s election as younger voters propelled the party from the fringes to make it the key swing vote in parliament.
Tamaki argues that the tax threshold should be raised to ¥1.78 million to align it with the increase in the minimum wage since the last revision in 1995. He has said this would help relieve a chronic labor shortage that is exacerbated at the year-end while stimulating the economy through extra business, economic growth and by extension more tax receipts.
The Finance Ministry says the move would initially chop ¥8 trillion off the nation’s annual tax receipts. That’s equivalent to more than 10% of total tax revenue for a deeply indebted government that is still looking for ways to pay for extra defense and child support spending. Ishiba will need to strike a deal that maintains DPP support, without creating a gaping hole in the country’s finances.
In the meantime, students and their families will be watching closely to see if they can consider working through the year-end in future.
“Karaoke venues are closing their doors when they could be making money at the end of the year because they can’t hire people,” the DPP’s Tamaki said last week in an interview with Bloomberg. “I think that’s a wasted opportunity.”
©2024 Bloomberg L.P.