Mortgage tax breaks in Japan penalize low-income earners

When people in Japan want to take out a mortgage, the tax break system has become indispensable for them. These simplifications will also be retained in 2022, but low earners will be disadvantaged.

Buying a home is arguably the biggest purchase of a person’s life. The first home-buying tax break was introduced in Japan in 1972, when the “baby boomer” generation started their own families. The system at the time provided that part of the sum needed to buy a house could be deducted from income tax.

Ask about the purpose of the tax breaks

When consumption tax rates were raised from 5 percent to 8 percent in 2014, the ceiling on outstanding mortgage payments rose from 20 million yen (about $155,057) to 40 million yen (about 310,115 euros).

Under the current system of tax breaks will be 1 percent over a ten-year period of mortgage payments outstanding at year-end deducted from income tax and resident tax.

Beginning with tax year 2022, the withholding rate will be reduced to 0.7 percent, but the deductible period for a newly built home will typically be extended to 13 years.

According to calculations by the Ministry of Finance, the changes in the system, such as For example, longer deduction periods cost the government an average of 2 billion yen more each year.

In view of the worsening of Japan’s financial situation, the ministry is therefore questioning whether there must be continued extensive measures to support home buyers.

The deterioration has increased in recent years as the birth rate falls and the population ages.

More houses than families in Japan

The main target group of tax breaks, families consisting of a married couple and their children, accounted for 40 percent in 1985. By 2020, this proportion had fallen to around 25 percent. The main target group of house buyers, mainly the younger generation, is also becoming smaller and smaller.

At the same time, however, the housing stock is increasing. According to the Ministry of Internal Affairs and Communications (Housing and Land Survey), in 1968 there were more houses in Japan than households living in them. In 2018 there were about 54 million households and about 62.4 million apartments.

So the vacancy rate is increasing significantly, which raises the question of why you actually need funding?

In addition, the system is limited to people with middle to high incomes, as only they can take out a mortgage. Low earners therefore have no benefit from it.

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