Japan’s Bigger Tax Breaks Seen Struggling to Spur 3% Pay Gains

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Bigger tax breaks won’t likely prompt Japanese companies to raise wages by 3% as sought by Prime Minister Fumio Kishida, according to economists commenting after the latest data showed how weak pay gains remain. 

Reported tax deduction rates for companies that raise wages -- up to 30% for large companies and 40% for smaller ones -- are an extension of similar efforts tried over recent years with little success, according to Yuichi Kodama at Meiji Yasuda Research Institute. 

Kishida’s ruling party is set to finalize by Friday its tax proposals, including the measures aimed at boosting pay, according to the Sankei newspaper.  

“These measures won’t be a game changer,” Kodama said. “The bar remains high for companies to raise wages unless they see an environment where productivity improves and their profits grow in a sustainable manner.”

Wage figures released earlier Tuesday showed overall cash earnings rose just 0.2% in October from a year ago. Adjusted for inflation, they fell 0.7%. The last time the gauge gained more than 3% was in January 1997. 

Kishida has asked companies to give workers raises exceeding 3% as he tries to change their behavior. He says he wants to ensure that the benefits of economic growth are shared more widely and lead to sustainable gains in consumer spending. The premier has already promised higher pay for certain public workers such as nurses and caregivers. 

The nation’s biggest business lobby, Keidanren, has ruled out an across-the-board increase in wages in annual labor negotiations. The Japanese Trade Union Confederation, also known as Rengo, seeks raises of about 4%, the same target it has had for several years. 

“The key is how much base wages rise during the spring negotiations,” said economist Takeshi Minami at Norinchukin Research Institute, flagging the timing when a shift in pay trends could get spotted. “Unless we have at least a 2% rise it’s difficult for people to feel there’s been a change in spending power.”

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