Nowhere has his indecision been more infuriating than when it comes to capital gains tax – levies on dividends and stock sales, which currently stand at 20%. (That compares to the 15% that applies to most individual investors in the United States.) Having strongly suggested he would raise taxes while campaigning for leader of Japan’s ruling party with an ally proposing a rate of 25%, Kishida appeared to backtrack after the markets. tumbled. Another aide suggested earlier this year that the policy was a no-start, only for Kishida to go and say earlier this month talks were underway. The debate is “certainly not over”, he said in May.
Investors don’t like uncertainty. The good news is that election season is officially underway in Japan and the capital gains tax increase is not in the party manifesto. But the lack of clarity clearly affects sentiment. Kishida talks about doubling the country’s income from investment in assets, as part of a well-intentioned goal to increase the country’s wealth. But the cloud of potentially higher taxes hangs over every comment — and makes it hard for investors to trust him.
Just when the markets have had enough of Kishida’s hesitation, an unexpected counterexample arrives: neighboring South Korea. Within three months of his election, President Yoon Suk Yeol unveiled an economic policy that includes eliminating capital gains taxes for all but the wealthiest retail investors, as well as reducing the tax on stock market transactions.
Yoon’s move is populist politics, of course — retail investing is big business in South Korea. So large, in fact, that the amateur investment base has become an important constituency in this year’s presidential election for both Yoon and his opponent Lee Jae-myung. The number of stock trading accounts in the country has doubled over the past five years.
While retail investment has increased in Japan, the majority of the population remains indifferent. Kishida is far from the first prime minister to promise to shift money from under the futon to performing assets. But he is the first to promise it in the face of inflation. An “all-Japan” effort to funnel this money into the many well-run, high-performing Japanese companies would be a start.
Inflation is low in Japan compared to other countries, but it is real. Staple prices rose a meager 2.1% in May, but that masks the real pain of the average consumer: a 13% rise in vegetable prices, a 19% rise in electricity bills and a 9% of the price of potato chips. This means the country’s longstanding pact is in danger of breaking: bank accounts are still earning next to nothing, a situation acceptable only in times of deflation, when cash is an appreciating asset.
There are few signs of permanent wage increases. Bonuses at big companies jumped this summer, rising 14% – but the problem with bonuses is that they are fickle and, unlike regular wages, companies can withdraw them at will. A book released this week captured the zeitgeist and made waves promising to explain how to live a prosperous life on just 2 million yen a year, or less than $15,000. Does rising dividend income in Japan not look attractive in this context?
Details of Kishida’s asset, investment and revenue doubling plan are expected to be unveiled this year. This will be to promote the use of tax-free NISA accounts – another well-intentioned scheme (in this case copied from the UK), but complex and confusing. A survey found that only 23% of people knew more than the name, a number that hasn’t budged for five years.
Kishida is expected to embrace investing, just like his Korean counterpart. A first step would be to shelve the idea of raising capital gains taxes – publicly and once and for all. If Kishida and Yoon meet for the first time at the NATO leaders’ summit in Madrid next week, perhaps Kishida could ask for stock advice.
More from Bloomberg Opinion:
The Japanese must invest before it’s too late: Gearoid Reidy
An actual K-Drama is streaming on your Samsung: Daniel Moss
Yen won’t be moved by 1990s nostalgia: Reidy and Moss
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Gearoid Reidy is a Bloomberg News editor covering Japan. He previously led the breaking news team in North Asia and was the deputy chief of the Tokyo bureau.
More stories like this are available at bloomberg.com/opinion