June 2000 Reform of the Child Allowance

1. Title

   Reform of the Child Allowance

2. Initiators

   The then Coalition Government of Jimin-To (Liberal Democratic Party), Jiyu-To and Komei To. Especially, Komei To which is backed by a large Buddhist sect, was a strong advocator.

3. Funding

   Tax revenue from reduction of "Child Raring Tax Deduction" which was raised just last year

4. Beginning, expected end and duration

   June 2000

5. In one sentence: what are the essentials of the reform ?

   The reform may benefit some low-income families with children while marginally hurting families of wider income margin, with children.

6. Country-specific institutional setting

   In Japan, the beneficiary of Child Allowance had been fairly limited. Only families who are raising children of less then 3 years old, and whose income is less than specified amount. As a result, fairly small number of families received the Child Allowance.
   At the same time, there has been a fairly extensive tax deduction schemes for families with children.
   On the private side, large enterprises often played a large role in supporting families with children.

7. Background of and problems driving the reform

   Japan has been experiencing ever declining fertility rate, and as a result, declining number of children. This has alarmed the government and the public because it will diminish the size of the labour force and aggravate the financial situation of social security systems.

8. Basic approach and objectives of the reform

   Extend the applicable age for Child Allowance from 3 to 6 years old, and therefore, reduce the burden of low-income families with small children.

9. Target groups and target regions

   Families with children under 6 years old and whose income is below a threshold.

10. Concrete changes vis-a-vis the status quo
    • Child Allowance

      The age of applicable children is raised from 3 years old to the entrance of elementary school (6 years old).�@�@Income threshold will be raised to Yen 6,700,000 (for a family with two children under 6). About 70% of children of the applicable age is expected to be covered. The amount of applicable children is expected to increase from 2.6 million to 5.7 million.

    • Child Raring Deduction

      The deductible income for tax purposes will be reduced from 4,800,000 to 3,800,000.

11. Major conditions for success

    The effect of raising the Child Allowance alone on increasing the number of children is expected to be marginal. It must be accompanied with other policies to expand the day care, housing and education policies.

12. Expected results

    The burden of raising children for low-income families will be reduced.

13. First results

    Not seen yet.

14. Effects on other policy fields

    Tax code

15. Arguments raised by opponents of the reform

    Some, for example the Communist Party, are critical of the reform because they claim that the most of children (about 16 million children) are no longer applicable for tax deduction, while, the number of children benefiting from the reform is only about 3 million.

16. Personal judgement

    The attempt to reform the current Child Allowance is noteworthy, but the accompanying tax increase cancels out some of the benefit (not all). The effect on the fertility, however, seems marginal, if any.

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