It is the role of politics to support people struggling with high prices, but it must not descend into irresponsible handouts.

Policy discussions among the Liberal Democratic Party (LDP), Komeito and the Democratic Party for the People (DPFP) have moved into full swing. The primary focus is the threshold for payment of income tax, referred to as the "1.03-million-yen annual income ceiling."

Part-time workers have conspicuously limited their working hours to keep their income below this threshold and avoid the burden of paying tax, which has in turn hindered efforts among smaller businesses, eateries and other enterprises to solve labor shortages.

The DPFP has proposed raising the annual amount of income exempt from income tax to 1.78 million yen (roughly $11,650), up from the current 1.03 million yen (about $6,750). The party explained that the minimum wage has risen by over 70% since the 1.03-million-yen threshold was set in 1995, and that the tax reduction would increase take-home pay.

The scope of tax-free income was originally established to cover the minimum necessary living expenses. Due to deflation and other reasons, it was left unchanged for decades, but it has become necessary to increase it by a certain amount to address rising prices.

Having said that, there are multiple problems with the DPFP's plans, which would also shift the tax brackets for higher incomes.

First of all, the proposed increase is excessive. If the aim is to supplement living costs, then it would be reasonable to set the increase to a level commensurate with the rate of price hikes. And this is the common approach internationally. In such a case, the increase would be around 10%.

We also cannot ignore that the higher the person's income, the greater their benefit from the tax break would be. A person with an annual income of 2 million yen (about $13,000) would save about 80,000 yen (about $520) per year, while someone earning 10 million yen (approx. $65,500) could save over 220,000 yen (around $1,440). It is the people on low incomes who suffer the most from price hikes, yet the proposed system would benefit the rich more.

There are also concerns that the measure could severely worsen public finances. The government has calculated that tax revenue would fall by 7 trillion to 8 trillion yen (around $45.84 billion to $52.39 billion) a year. The DPFP argues that the move would stimulate consumption and increase tax revenue, but this is an overly optimistic view. If government bonds were issued to cover the shortfall, exacerbating the nation's debt-ridden finances, it would saddle future generations with an even heavier financial burden.

Furthermore, even if the threshold were raised to 1.78 million yen, the "ceiling" problem would still not be solved. When a worker's part-time income exceeds a certain level, the 1.06-million-yen and 1.3-million-yen thresholds where workers become liable for pension and insurance premium payments reduce their take-home pay further, having a large impact. A review of the entire system is necessary.

The LDP and Komeito coalition, which lost their majority in the House of Representatives, is eager to draw in the DPFP. But if the issue becomes a bargaining chip to maintain power, it will end up distorting policy. Officials should carefully assess the effects of the move and the financial resources.