Furusato Nozei Revisited:
Beyond the Early Questions of Neoliberal Ideology versus Supporting a Place
Volume 21, Issue 1 (Discussion Paper 1 in 2021). First published in ejcjs on 14 April 2021.
Recent news articles have brought the Furusato Nozei tax allocation system back into focus as a potentially problematic mechanism for distributing tax revenues to smaller rural economies. These articles present an opportunity to revisit analysis of this tax system, once again to question its effectiveness.
Keywords: Furusato nozei, taxation, rural economies.
In a previous paper (Japan’s Furusato Nozei Tax Program: Neoliberal Policy or Hometown Sentiment, ejcjs volume 19, Issue 3; published on 24 December 2019), I questioned the necessity of the Furusato Nozei program as a tax payment and redistribution option that operates under private sector management at the behest of taxpayers themselves, while also pointing to the Furusato Nozei program as administration camouflage for a neoliberal policy agenda aimed at addressing fiscal revitalisation for rural Japan. Many problems with the program have been identified: the fact that it favours areas blessed with popular local products over those without; the fact that the bulk of donors, from urban and heavily-populated areas, are engaging in what amounts to government subsidised shopping for local delicacies; the fact that this outflow of tax revenue from these urban areas to rural areas in exchange for gifts has left some of these urban areas struggling fiscally; and the fact that Furusato Nozei is a government-instituted tax program that ultimately provides commissions to private Internet platform service providers and advertisers as well as funneling money to transport service providers. Putting it succinctly, Kinoshita Hitoshi, a regional revitalisation expert, defines Furusato Nozei as “bad competition leading to bad results.” Two recent Furusato Nozei news items add new dimensions to these arguments.
The first is an article outlining a legal showdown over Furusato Nozei between the central Japanese government and the Osaka prefectural city of Izumisano. Reporting that the government had, in 2019, tightened regulations on the program to rein in what it viewed as abuse of the system pointed toward the first hint of trouble with Furusato Nozei. Taxpayer participation in the tax program exploded in 2015 after the maximum allowable donation was doubled to 20 percent of tax burden, which accordingly increased the competition among local governments to garner some of the spoils. Izumisano, through an aggressive campaign, became Japan’s top Furusato Nozei donation recipient in 2019, bringing in ¥50 billion, a sum that represented nearly one-tenth of all donations nationwide and more than double the city’s average annual local tax revenues. As criticism of the program mounted, along with the fact that Izumisano and three other municipalities were dominating in attracting donations, the central government issued guidelines that advised localities to limit the value of return gifts to no more than 30 percent of the donation and to restrict gifts to locally sourced goods and services, while also excluding Izumisano and the other municipalities from the program. And so Izumisano sued the government.
In an interview reported on in the article, Izumisano’s mayor, Chiyomatsu Hiroyasu, points out that not only have such guidelines, originating in the central government, reversed the aims of administrative decentralisation as well as the local autonomy and fiscal independence for local governments that was sought by the central government itself with the Furusato Nozei program, they also punished municipalities that had taken initiative in setting up attractive gifts so as to gain tax donations. Quoting from the article, Chiyomatsu said: “The government envisioned the hometown tax as a clever way of encouraging local communities to come up with ideas to attract extra funding. But, when competition over-heated and brash local governments like ours appeared, the Ministry of Internal Affairs feared things were getting out of control and, in a panic, changed the law.” It seems that, after the initial rush of good press about the Furusato Nozei program, the longer-term results are in. If you believe that the Furusato Nozei tax program was inherently bad policy to start with, merely a cover for neoliberal decentralization, then the guidelines attempting to rein in its worst traits are simply band-aids on a festering wound. However, if you saw promise in the government’s attempt to realize a decentralized and locally-autonomous approach to local areas pursuing their own futures in a rough and tumble and winner-take-all market approach, then it appears that the leaders of such a neoliberal agenda just blinked, and backed away from Furusato Nozei’s success.
The second news item was a report pointing out that the coronavirus pandemic has been something of a boon for the Furusato Nozei program. The article reports that operators of the Websites that mediate between municipalities and the tax-paying donors estimate that the amount donated for fiscal 2020 will top the record ¥512.7 billion in tax revenues that were redistributed in 2018. The reason is obvious: with most of the population homebound and restrictions on dining out common in most urban areas, taxpayers are using the Furusato Nozei program to acquire special local products to be enjoyed at home. And while the benefit to some local areas is clear—the article points to record-setting orders for New Year’s osechi meals from high-end Kyoto restaurants as well as orders for Hanamaki’s (Iwate prefecture) offerings of beef tongue and wine tripling over last year—data provided by Satofull Co., a hometown tax Website, indicate that notable increases are reported by only 59 out of the 221 local governments that participate through the company—just 27 percent. The article also points out that the workload borne by the municipal officials who must process these donations has increased accordingly, without, however, also noting the potentially heightened coronavirus risk profile that could result for workers all along the production and delivery supply chain associated with the increased demand for such products.
That noted, one bright spot was alluded to in the reporting. Hokkaido and Osaka prefecture have been asking for donations without the reward of a return gift, with the donated funds going to supporting their local medical communities as they respond to the coronavirus pandemic. While such adjustments do not signal a full return to a centralised taxation-redistribution system that would manage the flow of such funding where it is needed most, particularly true during a national pandemic, it would seem to be a step toward recognition of taxation as a system to provide for the common good rather than a way for individuals to get specialty items subsidised by the government.
Taken together, these two news items seem to indicate that there is a moment of pause taking place regarding the trajectory of Furusato Nozei. On the one hand, the legal battle being waged by Izumisano, while based in the central government’s attempt to re-regulate the autonomy and decentralised approach to local revitalisation that the policy originally espoused, has also forced both the operational and the ideological flaws that plague the program—inequality across geographical diversity and the full implications of a competition-based tax redistribution approach, for example—into full view. And on the other, use of the tax program to procure high-end specialty items during the coronavirus pandemic should force objective observers to fully accept that the Furusato Nozei tax program is, at its inevitable endpoint, really just a government subsidised shopping program, which allows people to obtain an attractive array of specialty items from the corners of Japan, all without leaving their home: just like online shopping, but provided for with a tax break. Whether one views the extreme circumstances of the pandemic as justifying such use of the program or not, one can hope that the example set by Hokkaido and Osaka, through which the true intent of taxation as responding to public need and policy priority is in force, will be noted throughout Japan, both by politicians and public officials, but perhaps more importantly, also by individual taxpayers. A local government suing the central government because the latter penalised the former for fully utilising a policy promulgated by the government itself is a sad enough saga of bad policy, but recognition of citizens using the tax system to subsidise purchases of high-end New Year’s osechi meals and local foods would, one would hope, be a bridge too far for most fair-minded citizens. Where these two trails will lead in terms of public opinion about Furusato Nozei will be an interesting question going forward.
Hijino, Ken Victor Leonard “Hometown Tax Showdown: Interview with Izumisano Mayor Chiyomatsu Hiroyasu,” Nippon.com, April 24, 2020, https://www.nippon.com/en/japan-topics/c07702/
The Japan Times, “Pandemic a boon for Japan's hometown tax donation program,” January 30, 2021, https://www.japantimes.co.jp/news/2021/01/30/national/hometown-tax-donation-rise/
Article copyright Patrick Foss.