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Saturday, Dec. 11, 2010


Child allowance needs legs

The government and the Democratic Party of Japan are facing difficulty in finding funds to finance the child allowance, an important pillar of the DPJ's election promises. They should make strenuous efforts to make the child allowance a sustainable system.

Currently the government is giving a monthly allowance of ¥13,000 per child, covering children who are third-year junior high school students or younger. The allowance is provided regardless of the level of the recipient family's income. The DPJ's manifesto for the 2009 Lower House election called for doubling the allowance from fiscal 2011. The government has recently decided to raise the allowance by ¥7,000 to ¥20,000 for children under age 3.

The fund for the ¥13,000 portion will be created by abolishing a deduction for dependents 15 years old or younger on taxable income for income tax. Thus income tax will increase from January 2011 and resident tax will increase from June 2012.

Explaining why the government decided to add ¥7,000 for children younger than three years in age, national strategy minister Koichiro Genba said that since young parents raising infants are usually of low-income, they need strong support from society as a whole. The real reason is that the planned increase in income and resident tax due to the abolition of the dependent's deduction will cause many families to suffer a drop in disposable income.

To pay for the additional ¥7,000 portion, the government needs some ¥245 billion yearly. To create a fund to pay for the increase, the government at first considered abolishing the deduction for spouses of high-income earners on taxable income. But it gave up on this approach because of fear that housewives who are now benefiting from the deduction would revolt against the DPJ in local elections next year.

The government and the DPJ are now discussing other means such as raising the inheritance tax and abolishing other deductions on taxable income. They should make efforts to find a permanent source of funds. They also should improve day-care facilities for children along with making the child allowance sustainable.

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