Statement by Takeshi Niinami, Chairperson of Keizai Doyukai on FY2025 Tax Reform Outline

December 21, 2024

Takeshi Niinami
Chairperson, Keizai Doyukai

PDF

1. The fiscal 2025 tax reform outline (the "Outline") was finalized. After the ruling coalition lost its majority in the parliament as a result of the last lower house election, the Liberal Democratic Party, Komeito, and the opposition Democratic Party For the People have continued their tense discussions on the Outline. That process is viewed as positive. We request the matters that failed to reach agreements to have deliberations during the discussions over the relevant bills, in tandem with the FY2025 government budget draft.
2. Japanese economy is now undergoing a remarkable shift from prolonged deflation to inflation. Going forward, it is vital to achieve private-sector-oriented economic growth, while breaking away from the mindset of the government financing the negative GDP gap. For that to happen, the norm "Wage hikes beat CPI growth" must take root, together with higher disposable income.
3. The focal point of the Outline was the "annual income ceiling of 1.03 million yen." The Outline set out a higher tax-free ceiling of 1.23 million yen that consists of larger basic personal exemption and salary income deduction, effective in 2025. The revision intends to address higher prices, decline of real disposable income, and workers' intentional cut of working hours. While we understand the policy intention, the inclusion of high-income workers to enjoy tax reductions is not considered appropriate. In the first place, the study is not sufficient enough about the potential growth of disposable income and labor supply as a result of this policy measure, as well as about how to practically finance this in light of fiscal consolidation.
4. Growth of disposable income largely depends on wage hikes of SMEs that provide roughly 70% of total employment in Japan. Amid the worsening labor shortages, we need corporations to gain further momentum to pursue transformation to those with higher productivity, leveraging capital investment tax cuts enhanced and extended for SMEs in the Outline.
5. On the defense-capabilities buildup front, the Outline stipulates the increase of corporate tax and tobacco tax in April 2026 to finance it from taxation, postponing the conclusion on income tax as a source. As the defense budget is what the public should share evenly as a beneficiary, the stipulation here is not considered appropriate.
6. The regional revitalization support tax system (corporate-type hometown donation) is an important scheme, where a corporation assists the "collaborative capitalism" that contributes to solving social issues, in cooperation with social sectors. We appreciate that the Outline set out three-year extension of the special measures that raise tax break to maximum 90% of the donation amount. However, we will seek further enhancement of the system that allows for a donation to the site of the headquarters, leading to a realization of the inclusive society.

> 日本語版