Moral hazard with Furusato Nosei

[Deep Blue]

Setagaya lost over 100 million yen

The figure is 10 billion yen, not 100 million. Only off by two orders of magnitude!

100 million would be far too low for an entire city, I “spend” about two million yen most years on hometown tax gifts.

[ChapInTokyo]

If there is a problem with the relative funding levels of municipal governments in Japan… (and I have no idea on this) then surely the better option is to reform the system so funding is allocated better?

Rather than have taxes randomly sprayed from municipality to municipality willy-nilly with no rhyme or reason, incurring a 30% direct loss and a further unknown cost associated with all the forms, paperwork and bureaucracy……. Fix the system so it works rather than this ludicrous Furusato Nozei scheme.

It isn’t as if the Japanese Government has an excess of taxpayer money to waste in the first place….

Exactly. In fact, that is what 地方交付税 Local Allocation Tax part of taxes collected by the National Tax Agency is for (below explanation from the Ministry of Internal Affairs and Communications website):

‘Adjusting funding through local allocation taxes
Local governments should ideally be financed by their own funds, such as local taxes collected by themselves. However, in reality, fund sources are regionally unevenly distributed. A mechanism is therefore needed for adjusting this uneven distribution and for ensuring general fund sources (fund sources with their uses unidentified and which can be used for any kind of expenses) to organizations with low local tax revenues. Established for that purpose is the local allocation tax.

The local allocation taxes in fiscal 2014 totaled 16.8855 trillion yen.‘

https://www.soumu.go.jp/english/lpfb/index.html

When Yoshihide Suga launched Furusato Nozei under the first Abe administration, the premise was that country boys/girls who made good in the big city could give back to the communities that they grew up in via the Furusato nozei. Since then, the Furusato nozei system has morphed into something that threatens municipal services.

‘ During the first Abe administration, I unexpectedly became Minister of Internal Affairs and Communications and began creating the system I had been working on. When I became Minister of Internal Affairs and Communications and researched it, I found that at that time, local governments spent approximately 16 million yen on administrative services from birth until graduation from high school. Even though he spent so much time raising me, when it comes to working and paying taxes, it becomes where I live, the city. I was once again convinced that such a system was necessary, and announced the creation of the system with the firm determination that we should not do it now, but when.’

https://furusato-nippon.com/column/detail/164

[Hanimal]

However, the term 'Moral Hazard' has an entirely different meaning than the way you used it.

I used it a figurative sense. According to an online dictionary;

A a situation in which people or organizations do not suffer from the results of their bad decisions.

[zeroshiki]

I'm pretty sure Setagaya, Chiyoda, Chuo and its trillions in tax revenue can survive some tax going to other prefectures. If losing max 10% of their revenue (and it's not like everyone uses Furusato nozei) is threatening basic services then that ward has more problems than Furusato nozei.

I will say though that I don't mind the Tokyo or Osaka wards losing tax revenue this way but I feel the complete opposite about smaller towns losing money to Furusato because those places definitely do need the money.

[ChapInTokyo]

However, the term 'Moral Hazard' has an entirely different meaning than the way you used it.

I used it a figurative sense. According to an online dictionary;

A a situation in which people or organizations do not suffer from the results of their bad decisions.

I think that it’s a system that brings out the worst in people. I hope that Yuriko Koike will be able to shame the government into abolishing the Furusato nozei altogether.


ふるさと納税「廃止も」　東京都税調が報告書「住民税移され受益と負担の関係ゆがめる」(Abolish the Furusato Nozei? Tokyo Metropolitan Taxation Commission reports ''Resident tax transferred distorts the relationship between beneficiaries and burdens.'')

2024/10/30 20:06

https://www.sankei.com/article/20241030 ... OLPIGIDYA/

On the 30th, the Tokyo Metropolitan Tax Investigation Committee (chairman: Takehiko Ikegami, professor at Rikkyo University), made up of experts, submitted this year's report to Governor Yuriko Koike. He points out that ''a fundamental review of hometown tax payments, including its abolition, should be carried out.''.

Regarding hometown tax payments, the report argues that ''resident tax, which should be borne as compensation for administrative services, has been transferred to other local governments, distorting the relationship between beneficiaries and burdens.''. Furthermore, in light of the current situation where there is a competition for return gifts, ''in order to bring donations closer to their original form without asking for anything in return, it is possible to reduce the proportion of return gifts.''.

Hometown tax payments began in fiscal 2008 to revitalize rural areas such as birthplaces. The amount excluding 2,000 yen of co-payment will be deducted from resident tax and income tax up to a certain upper limit. According to the Tokyo Metropolitan Government, the amount of revenue decline between the Tokyo Metropolitan Government and the cities, wards, towns and villages in Tokyo is increasing year by year, reaching a total of approximately 189.9 billion yen this fiscal year.

[Tkydon]

Hometown tax payments began in fiscal 2008 to revitalize rural areas such as birthplaces. The amount excluding 2,000 yen of co-payment will be deducted from resident tax and income tax up to a certain upper limit. According to the Tokyo Metropolitan Government, the amount of revenue decline between the Tokyo Metropolitan Government and the cities, wards, towns and villages in Tokyo is increasing year by year, reaching a total of approximately 189.9 billion yen this fiscal year.

"189.9 billion yen this fiscal year"

Compared to what? Is that significant, or a rounding error?

On its own, the number is meaningless...

Tokyo, Osaka and the other Big Cities benefit from huge economies of scale due to the population density.

[Hanimal]

I think that it’s a system that brings out the worst in people. I hope that Yuriko Koike will be able to shame the government into abolishing the Furusato nozei altogether.

If people were only allowed to 'donate' to their actual hometowns it wouldn't be so bad. With the current system, I suspect places with good marketing teams and / or thriving local industries are the ones who benefit the most. The areas which need the money the most probably don't actually get much out of the scheme.

[zeroshiki]

Hometown tax payments began in fiscal 2008 to revitalize rural areas such as birthplaces. The amount excluding 2,000 yen of co-payment will be deducted from resident tax and income tax up to a certain upper limit. According to the Tokyo Metropolitan Government, the amount of revenue decline between the Tokyo Metropolitan Government and the cities, wards, towns and villages in Tokyo is increasing year by year, reaching a total of approximately 189.9 billion yen this fiscal year.

"189.9 billion yen this fiscal year"

Compared to what? Is that significant, or a rounding error?

On its own, the number is meaningless...

Tokyo, Osaka and the other Big Cities benefit from huge economies of scale due to the population density.

It doesn't even mean anything as a sentence. Tokyo wards recorded lower revenue and...? Is it preventing the wards from providing health services for its citizens or is it just preventing MoneyMatters' ward from getting that chrome plated statue?

[ChapInTokyo]

Hometown tax payments began in fiscal 2008 to revitalize rural areas such as birthplaces. The amount excluding 2,000 yen of co-payment will be deducted from resident tax and income tax up to a certain upper limit. According to the Tokyo Metropolitan Government, the amount of revenue decline between the Tokyo Metropolitan Government and the cities, wards, towns and villages in Tokyo is increasing year by year, reaching a total of approximately 189.9 billion yen this fiscal year.

"189.9 billion yen this fiscal year"

Compared to what? Is that significant, or a rounding error?

On its own, the number is meaningless...

Tokyo, Osaka and the other Big Cities benefit from huge economies of scale due to the population density.

That is why the Big Cities which can carry their own weight are not subsidized out of the 地方交付税 (local allocation tax).

地方交付税とは？概要と交付されない不交付団体について解説
What is the local allocation tax? An overview, and explanation of non-allocation entities:

The local allocation tax is a financial system in which the national government distributes funds to local governments to ensure balanced public services across regions. This tax helps municipalities with insufficient tax revenues maintain stable administration and essential services. However, some local governments, known as "non-allocation entities," do not receive this tax because they can sustain themselves using their own tax revenues without financial support from the national government.