TOKYO (Kyodo) -- Like Satsuki Morita, many university students are closely watching political negotiations that could raise Japan's tax-free threshold for annual income, with its current level of 1.03 million yen ($6,800) seen as a key factor discouraging part-time employees from working more hours amid labor shortage in the country.

A sophomore at Hosei University in Tokyo, Morita has several part-time jobs, including working as a teacher at a cram school and as a convenience store clerk. By the end of November, her earnings this year stood at around 900,000 yen.

But Morita, 20, hopes to work, and earn, more, to pursue her dream of engaging in volunteer activities abroad to demonstrate traditional dance and other aspects of Japanese culture, having made trips so far to Vietnam and Spain.

Complicating matters is the fact that a householder with a dependent aged 19 to 22 who earns more than 1.03 million yen is ineligible for a special tax exemption for that dependent. Without the deduction, the householder's taxable income increases, eventually reducing the household's total income.

Morita welcomes a proposal from the Democratic Party for the People, a minor opposition party whose support the ruling coalition is courting for its minority government, to raise the threshold to 1.78 million yen to bolster people's disposable income.

"If that happens, I could earn more and do what I want without feeling bad about not being able to take on more part-time shifts," she said.

Known as one of several "annual income barriers" that disincentivize part-time workers, the issue has gained wider attention after the DPP made it the centerpiece of its platform for October's House of Representatives election, seeing a significant boost in its seats.

DPP leader Yuichiro Tamaki has claimed that the plan would bolster people's disposable income and consumer spending, while helping Japan deal with its chronic labor shortage.

Some analysts, however, argue that the proposal could negatively impact the economy, warning that stimulating private consumption through such a tax reduction could lead to inflation, ultimately squeezing households already struggling with rising prices.

The government, led by Prime Minister Shigeru Ishiba's Liberal Democratic Party, meanwhile, has long remained reluctant to review the threshold for fear of a possible decline in tax revenue.

But Ishiba has promised to raise the nontaxable income level, yielding to the DPP whose cooperation is crucial for passing bills in parliament given that the ruling coalition lost its majority in the lower chamber in the election.

The LDP, its junior coalition partner Komeito and the DPP are seeking to find common ground on raising the threshold before compiling tax reforms for fiscal 2025 from April.

The DPP, which has labor union backing, argues that 1.78 million yen is the right figure for the threshold as the minimum wage has been increased 1.73-fold since 1995, when the 1.03 million cap was introduced.

However, the government estimates that the proposal would cause state and local tax revenues to drop by between 7 trillion yen and 8 trillion yen per year.

Many governors and mayors have also expressed concerns that a potential decline in tax revenues could reduce their ability to provide services to residents, pressing the central government to come up with measures to cover up such revenue shortfalls.

"If tax reduction steps are implemented in fiscal 2025, it would be difficult for the government to achieve its goal of a surplus in the primary balance in that year," Saisuke Sakai, chief Japan economist at Mizuho Research & Technologies Ltd., said, referring to a key indicator of fiscal health.

The analysts also emphasized the need to review other annual income thresholds that normally discourage dependent family members, mainly housewives, from increasing their working hours so they can avoid paying social security premiums.

Such thresholds include 1.06 million yen for employees at workplaces with 51 or more employees, and 1.30 million yen for those at workplaces with 50 or fewer employees. If their annual salaries exceed those levels, their net incomes would decrease.

Shunsuke Kobayashi, chief economist at Mizuho Securities Co., points to a potential side effect of the stimulus step, saying that fueling private consumption with a tax cut at a time when Japan's economy faces a supply shortage would only lead the country to increase imports.

As the yen has already weakened to historic levels against other major currencies, negatively affecting the country's trade balance, "implementing such a step would be of no use," Kobayashi said, warning higher imports costs could accelerate inflation.

Sakai of Mizuho Research echoed the view, saying, "Consumer spending is feared to slow if households tighten their budgets because of a rise in daily necessity prices such as food and energy bills."

(By Satoshi Iizuka)