Editorial: Kishida’s ‘Working Income Doubling Plan’ Needs Action to Reduce Disparities

The Financial Services Agency (FSA) has compiled measures to promote investment in preparation for the formulation of Japanese Prime Minister Fumio Kishida’s “asset income doubling plan”. This includes the expansion of the Nippon Individual Savings Account (NISA) program, which provides tax exemptions for profits made through small investments in mutual funds and stocks. The system must be designed in such a way that many members of the public can benefit from it, rather than being one that simply gives preferential treatment to the wealthy class. The position of the administration is questioned.

There are currently three types of NISA, with differences in investment methods and applicable periods. Tax-free annual investment amounts range from 400,000 to 1.2 million yen (approximately $2,800 to $8,500), with totals of 4 to 8 million yen (approximately $28,500 to $57,000).

The FSA has proposed to unify the system and grant accounts unlimited tax exemptions. The investment quota will also be increased, with the specific amount to be determined by the end of the year.

Household financial assets in Japan amount to some 2 trillion yen (about $14 trillion), with cash and deposits accounting for just over half of this amount. The asset income doubling plan supports a shift “from savings to investment” and aims to stimulate spending and energize the economy by increasing income through investment.

Building assets for the future is important, especially for the younger generation. NISA accounts, which were first introduced in 2014, now number around 18 million, but there are many cases where the investment amount remains zero.

There are still a lot of people without an account. According to a securities industry survey, the reasons people gave for not opening a NISA included “I don’t plan to invest”, “The system is complicated”, which together accounted for about half some answers. The small size of permitted investments was cited by less than 10% of respondents.

To increase the number of users, the current system, which is complicated and difficult to understand, must be simplified and made more user-friendly.

At the same time, if the investment quota is easily increased, then it would only become a system benefiting the wealthy class, which could widen the gap with those without assets.

Kishida initially called for the disparity to be changed. During the Liberal Democratic Party leadership race last fall, he made distribution policies a mainstay of his economic policy. He also referred to breaking the “100 million yen barrier”, whereby the tax rate decreases for annual incomes above 100 million yen (about $710,000).

However, after stock prices plunged in response to his ratings, he shelved plans to increase taxation of financial income to maintain fairness in taxation.

The proposal to expand the NISA program should be discussed alongside enhanced taxation for the wealthy class, which benefits from gains through financial and real estate assets. Otherwise, the measure could run counter to efforts to correct the disparities.

Michael J. Birnbaum