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P a g e | 1 [email protected]
Make Japan Great Again
Tax reform & halting mass migration out of Japan’s prefectures January 10th, 2017 Mike Newman
Yubari City’s population
has shrunk 92% in the
last 50 years
Economic woes
Hokkaido is home to 6 of
the top 15 shrinking cities
Akita is dying
The state of inter-prefectural migration – a disturbing summary The campaign poster above is from Yubari City in Hokkaido – “No money but love.” Yubari is notable for five
things. First, it is the region that produces Japan’s most expensive melons, the type you see beautifully encased in
a satin-lined pine box with a price label of US$200. Second, it had to declare bankruptcy in 2007. Third, its
population has fallen from 117,000 in the 1960s to around 21,000 in the 1990s to less than 8,900 today, falling
19% in the last 5 years alone. Fourth, the average age of the city’s residents is set to hit 65 by 2020. Fifth, taxable
income continues to fall with estimates that government coffers will swell by a woozy 25% of the levels seen 20
years ago.
Their claim that Yubari has the lowest divorce rate in Japan doesn’t seem to be stopping residents from divorcing
it. In fact, as we learnt in our Crime in Japan series, economic woes are preventing more couples from divorcing
but even some that break their vows end up living under the same roof. The problem is so prevalent that the
National Police Agency had to invent a new category for domestic violence to tally the sharp rise in cases in 2014
of divorced couples living together.
Hokkaido’s woes are not just limited to Yubari. Sadly, the northern island holds 6 of the top 15 prefectures across
Japan experiencing an exodus of its citizens. Hokkaido has 85 villages with less than 5,000 residents. Over the
last 5 years in percentage terms, Yubari has seen a greater flood of people than Minamisoma, a town in
Fukushima Pref. on the 30km exclusion zone border to the north of the crippled Fukushima Daiichi nuclear reactor.
Akita Prefecture has the highest percentage of 65yo+ citizens in Japan at 33.2% of the prefectural total. Over 27%
of its workforce is in construction and manufacturing. In what world, can a community avert such a skewed
employment picture? If the working aged populace is leaving with their kids (high school enrolment is down 22% in
5 years), one of the highest natural population declines and Akita has the second highest prefectural debt per
capita what need is there for new construction projects or the rationale for a corporate to expand local production?
Perhaps not surprising, many citizens are seeking new fortunes in the major cities – Tokyo, Osaka, Nagoya,
P a g e | 2 [email protected]
Fleeing to the Big Smoke
Merging cities and towns
Tohoku exodus
greatest
Our biggest concern
Revitalising regions is
failing
Financial Strength Index
(FSI)
Looking at Detroit
Yokohama, Saitama and Chiba are capturing the socio-economic spoils. One name that did surprise was Fukuoka
in the southern island of Kyushu. Fukuoka Pref. can claim 3 of the top 20 fastest growing cities in Japan.
Around 20 years ago, the Japanese government embarked on a program known as ‘Shichosongappei’ 市町村合併 which loosely translates as mergers of cities and towns. However as much as that plan to sensibly merge
public services was – e.g. waste collection, councils, schools and hospitals – the cities (especially to the north)
have continued to shrink. Age is a big factor which shows up in prefectural GDP/capita as well as suicide rates.
Cities in the northern prefectures (Tohoku) face the biggest challenges. The Great East Japan Disaster of March
2011 has only exacerbated the move out of these areas. Eight of the top 10 places for fastest rates of
depopulation are in Tohoku. Shikoku, and cities on the Japan Sea coast are also at the mercy of residents pulling
up roots. We colour code these prefectures to show how our ‘basket’ correlates highly.
Our biggest concern in summary
Our biggest concern remains that of rapid acceleration of depopulation going forward. Things seem normal until
the Rubicon is crossed. Then the damned flood can’t be dammed. As the productive workforce looks to abandon
its roots in search of sustainability we fear that corporates also face a big dilemma. As was experienced with
German reunification workers flocked to more economically viable areas in the West scorching those businesses
in the East. East German regions had to hike wages significantly to stem the tide, ruining profitability. Even today
the East has significantly higher unemployment rates than the former West as businesses in the former communist
bloc went to the wall (no pun intended).
The Japanese government’s plans to revitalise the regions are not working because economic reversals all hinges
on confidence. The chicken and egg argument is simple. If corporates fear not enough workers will remain to
justify production and workers think long term quality of life will be far more sustainable in economically healthier
areas, growth won’t happen in the regions.
As regional Japan continues to shrink, the pressure will then be put back on the fiscal status of the prefectural
governments. The Japan Local Government Bond Association (JLGBA) highlights that the financial strength index
(FSI) of Shimane is the poorest in Japan. To put that in the context of Detroit, which declared bankruptcy in 2013.
Detroit has approximately $30,000 debt per resident today. Looking at Shimane Prefecture its citizens carry
around $14,000 prefectural government debt per resident. Given the working age population of 54% (and falling)
that number balloons to around $26,000 per working age resident. Debt servicing (around 16% in Shimane) is one
thing but in the last 6 months, yields have begun to climb. As we know debt financing can turn on a dime.
Source: Custom Products Research, Japan Statistics Bureau
Although Detroit is incomparable on most measures to Japan it does highlight what a city can look like when
economic fortunes reverse. 30% of Detroit’s residents disappeared in 15 years. From the highest per capita
income in America during the 1960s it now languishes toward the bottom. 40% live in poverty and the state
suffered the ignominy of half the 350,000 home owners paid no property taxes in 2011.
The Solution – Polish style tax reform
3,719,103
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
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kyo
Fig. 1 - Prefectural Debt/30% fall in working age Citizens (¥)
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
P a g e | 3 [email protected]
Poles apart
Fukuoka is not on many
radars but it looks a no
brainer
Yubari is a rotting melon
Our solution is to adopt a Polish style tax reform which simplifies the system and gets the 70% of corporations that
don’t pay tax to contribute. Poland doubled corporate tax revenues on a halving of tax rates in short order as a
result of making tax avoidance (not evasion) no longer worth it. Japan must take risks – it has nothing to lose.
Source: Custom Products Research
Let’s look at the problem and solutions more deeply.
Here yesterday, gone today
Yubari City is a tragedy. Its population is 90% lower than it was in the 1960s. Yet its legacy is likely to be repeated
as other cities fade out. These ghost towns are not merely dying because its elderly citizens are shuffling off this
mortal coil, the youth and working aged population are seeing little prospects for the future and are congregating in
the more populous areas which offer much more viable economic scope.
Let us begin with the fastest depopulating cities in Fig.3.
Source: Custom Products Research, Japan Statistics Bureau
While many of these cities in Fig. 3 are relatively small (ranging from 3,500 to 65,000) the larger cities in Hokkaido
-0.027
-0.295
0.619
0.559
0.260
0.184 0.175
0.059
-0.400
-0.200
0.000
0.200
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Jap
an
Fig. 2: 10yr current bond yields by prefecure (%) vs 10yr yields 6mths prior
Generic 10yr Yield - July 2016 Generic 10yr Yield - Jan 2017
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
-19.0 -18.5
-18.2
-15.2
-14.0
-12.2 -12.1 -11.9 -11.7 -11.7 -11.5
-20.0
-19.0
-18.0
-17.0
-16.0
-15.0
-14.0
-13.0
-12.0
-11.0
-10.0
Yubari Minamisoma Utashinai Rikuzentakata Tosashimizu Akabira Oga Kumano Ashibetsu Kesennuma Bibai
Hokkaido Fukushima Pref Hokkaido Iwate Pref Kochi Pref Hokkaido Akita Pref Mie Pref Hokkaido Miyagi Pref Hokkaido
Fig.3 : % Rate of population change (2010-15)
Wiped out by tsunami in Mar 2011
On the 30km exclusion zone border north of Fukushima Daiichi nuclear plant
P a g e | 4 [email protected]
Disappearing
Akita
Akita oldest prefecture in
Japan
15-year average telling
Osaka
(Chitose and Sapporo have moved a mere +2% in the past 5 years) while all others are at stall speed or falling. In
the case of Akita Pref. all cities are in retreat, Fig.4.
Source: Custom Products Research, Japan Statistics Bureau
When we analyse the population pyramid we note that Akita tops the highest 65yo+ population in the nation at
33%, Fig. 8. In the following charts, we’ll highlight Fukuoka (especially Fukuoka City) as a hot spot outside the
main metropoles. As the largest city in Kyushu it seems to be attracting firm population growth which looks
sustainable.
Source: Custom Products Research, Japan Statistics Bureau
We can see in Fig. 5 that quite a lot of Fukuokan towns have seen solid growth over the past 5 years. If we roll out
the 15-year average we can clearly see that Fukuoka Pref has been the strongest regional area of all. It should
come as no surprise that the metropoles of Tokyo, Yokohama (Kanagawa Pref), Saitama, Chiba Pref and Nagoya
(Aichi Pref) has claimed the bulk of the exodus. As Fig.6 shows, only 9 out of 47 prefectures have experienced net
annual population inflows over the last 15 years.
Even Osaka saw average outflows of 7,200 per annum although part of that is to do with its close proximity to
Hyogo & Nara prefectures and rising numbers of commuters taking advantage of cheaper property and relatively
short journeys to work in Japan’s second largest city.
28,395 33,230
46,620 25,330
54,746
32,057 27,530
82,773 92,214
79,993 74,153
33,098
315,374
-12.1
-8.7 -8.3 -8.0
-7.3 -7.0 -6.9 -6.3 -6.3 -6.1 -6.1
-3.9 [値]
-14.0
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0.0
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Oga Kitaakita Yuzawa Nikaho Noshiro Kazuno Semboku Daisen Yokote Yurihonjo Odate Katagami Akita
Fig. 4: Disappearing Akita Prefecture (2010-2015) - fall in population over 5 years
Population % Rate of population change (2010-15)
192,554 228,200 206,974
58,808
1,538,510
306,014
99,575 110,767
255,852 217,943
72,200
7.9 7.4 7.1
6.1
[値] 4.7 4.7
3.7 3.5
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5.0
6.0
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9.0
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400,000
600,000
800,000
1,000,000
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1,800,000
Chuo-ku Hakata-ku Nishi-ku Fukutsu Fukuoka Higashi-ku Onojo Kasuga Minami-ku Sawara-ku Dazaifu
Fig. 5: Fighting Fukuoka Pref (2010-2015)
Population % Rate of population change (2010-15)
P a g e | 5 [email protected]
anomaly
Tohoku is suffering
Okinawa the youngest but
city growth still tepid
Source: Custom Products Research, Japan Statistics Bureau
Boiling down deeper into the data we see how age is a factor. When looking at the 0-14yo and 65yo+ populations
by prefecture there is little surprise, Figs. 7-8. All of Tohoku has a 0-14yo population below the national average
and 5 out of 6 have 65yo+ populations above the national average. Fukuoka Prefecture is the opposite. Hokkaido
falls on the wrong side of both categories.
Source: Custom Products Research, Japan Statistics Bureau
Okinawa is the prefecture with the youngest population. As far as its towns are concerned, Okinawa is still seeing
mild net migration. The largest city of Naha has grown 1.1% over the last 5 years although smaller towns are
growing faster. Only Miyakojima is sliding.
66,653
3,650
903
-9,772
-20,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
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Fig. 6: Average Annual Prefectural Migration over the last 15 years
17.0%
12.9%
12.5% 12.4% 12.1%
11.9%
11.3%
11.2%
11.2%
10.5%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
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Fig.7: Japan's 2015 Population - 0-14yo
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
P a g e | 6 [email protected]
Shimane Prefecture
hasn’t grown in c.100yrs
Tohoku behind in GDP/Cap
Source: Custom Products Research, Japan Statistics Bureau
When we look at population growth in the period since 1920, some sad tales are told. Shimane Prefecture on the
Japan Sea coast has not grown at all in almost 100 years. Kanagawa Prefecture on the other hand has ballooned
almost 6x, Fig.9. All prefectures in Tohoku, bar Miyagi (Sendai) have seen population growth rates under the
national average over the respective period.
Source: Custom Products Research, Japan Statistics Bureau
When digging a bit deeper into the economics of the prefectures, it is clear to see that those with a GDP/capita
below the national average are those seeing an exodus of population, Fig.10. Naturally all of Tohoku and Hokkaido
are on the wrong side of the curve.
33.2%
30.5% 30.2% 29.5%
28.9% 28.7%
26.3% 25.5%
25.0%
19.5%
15.0%
17.0%
19.0%
21.0%
23.0%
25.0%
27.0%
29.0%
31.0%
33.0%
35.0%
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wa
Fig.8: Japan's 2015 Population - 65yo+
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
58
3.9
%
44
5.1
%
36
5.3
%
25
5.7
%
25
4.6
%
24
2.5
%
14
8.0
%
14
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%
14
3.5
%
14
2.9
%
14
2.7
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13
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%
13
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%
12
8.8
%
12
0.0
%
11
6.7
%
10
4.8
%
94
.5%
92
.0%
90
.7%
85
.5%
81
.6%
74
.3%
73
.5%
59
.7%
57
.2%
56
.6%
51
.0%
48
.9%
48
.0%
47
.4%
46
.9%
39
.4%
39
.2%
37
.7%
36
.7%
34
.6%
33
.7%
33
.6%
29
.5%
26
.1%
25
.6%
20
.8%
20
.6%
20
.5%
17
.2%
13
.9%
0.3
%
0.0%
100.0%
200.0%
300.0%
400.0%
500.0%
600.0%
700.0%
Ka
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a
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ta
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go
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chi
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ima
ne
Fig.9: Population change in the prefectures between 1920 & 2013 (%)
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
P a g e | 7 [email protected]
Counter intuition in crime stats
Suicide trends confirm lack of opportunity in
the regions
Source: Custom Products Research, Japan Statistics Bureau, Ministry of Finance
Two other sets of data to analyse the plight of these regions is the incidence of crime and suicide rates by
prefecture, Figs. 11-12.
In a somewhat counter-intuitive looking chart for a law-abiding country, perhaps a good indicator for relative
economic strength is crimes committed. The economic rationale for crime would be the ability for the ‘second hand’ grey market to thrive in stolen goods. In the Tohoku region, crimes committed per 100,000 population take the
bottom four places which is unlikely to be solely down to the inability of pensioners to literally outrun the law.
Source: Custom Products Research, Japan National Police Agency
Perhaps a more depressing statistic is to analyse the incidence of suicides in the prefectures. Sadly, our worst
fears are confirmed yet again. All of Tohoku is above the national average. Clearly, many see little way out of
hardship. We note the Japanese National Police Agency records that suicides by age group show the 65yo+ age
group to represent 40% of the total in 2014 up from 27% in the early 1980s. Tohoku as we showed earlier has
population rates of elderly above the national average.
4,423
2,972
2,795
2,035
2,000
2,500
3,000
3,500
4,000
4,500
5,000T
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ga
no
Fu
ku
shim
a
Iwa
te
Ya
ma
ga
ta
Oit
a
Ho
kka
ido
Eh
ime
Ak
ita
Ku
ma
mo
to
Ao
mo
ri
Sa
ga
Na
ga
sak
i
Na
ra
Ka
go
shim
a
Sh
ima
ne
Miy
aza
ki
Ko
chi
To
tto
ri
Ok
ina
wa
Fig. 10: GDP/Capita by Prefecture (¥1,000)
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
1424.4
831
394.8
0
200
400
600
800
1000
1200
1400
1600
1800
Osa
ka
Fu
ku
oka
Aic
hi
Hy
og
o
To
kyo
Ch
iba
Sa
ita
ma
Iba
rak
i
Ky
oto
Gif
u
Mie
Ok
aya
ma
Sh
iga
Wa
ka
ya
ma
To
chig
i
Gu
nm
a
Eh
ime
Ko
chi
Ya
ma
na
shi
Ka
ga
wa
Sa
ga
Na
ra
Sh
izu
ok
a
Ka
na
ga
wa
Miy
ag
i
Hir
osh
ima
Ho
kka
ido
Ok
ina
wa
Nii
ga
ta
Ka
ga
wa
Ya
ma
gu
chi
Miy
aza
ki
Fu
ku
shim
a
To
tto
ri
Ku
ma
mo
to
Na
ga
no
Fu
ku
i
Ish
ika
wa
Sh
ima
ne
Ka
go
shim
a
To
yam
a
Na
ga
sak
i
Oit
a
Ao
mo
ri
Ya
ma
ga
ta
Iwa
te
Ak
ita
Fig. 11: Crimes Committed per 100,000 by Prefecture (%) in 2014
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
P a g e | 8 [email protected]
Population to teacher ratios
too high in Kyushu
Teachers per school
Source: Custom Products Research, Japan National Police Agency
We took a slightly more abstract way of looking at the state of prefectures using the incidence of the number of
residents per teacher. Once again, the idea that teachers would look to seek schools in regions with a sustained
future, Fig. 13. Fukuoka is once again the standout among the regional areas by a substantial margin. Despite
Kyushu possessing higher than national average 0-14yo populations, the teacher numbers seem to be lagging
growth.
Source: Custom Products Research, Ministry of Education, Culture, Sports, Science and Technology.
Teachers per school in each prefecture paints a similar picture. Fukuoka comes up positively on this measure.
Much of Kyushu on the other hand slips below the national average. Shikoku and the Japan Sea prefectures also
feature poorly.
30
.3
28
.9
26
.4
26
.1
24
.8
24
.7
24
.5
23
.8
23
.6
22
.7
22
.6
22
.4
22
.3
22
.3
22
.1
22
.1
21
.9
21
.8
21
.8
21
.6
21
.3
21
.2
21
.1
20
.6
20
.3
20
.3
20
.3
20
.1
20
.0
19
.8
19
.8
19
.8
19
.7
19
.5
19
.4
19
.4
19
.1
19
.1
18
.9
18
.9
18
.7
18
.3
18
.2
18
.1
17
.2
16
.9
15
.7
15
.7
15
17
19
21
23
25
27
29
31
33
Ya
ma
na
shi
Iwa
te
Ak
ita
Nii
ga
ta
Miy
aza
ki
To
yam
a
Fu
ku
shim
a
Ko
chi
Sh
ima
ne
Ka
go
shim
a
Na
ga
no
Ao
mo
ri
Miy
ag
i
Eh
ime
Gif
u
Ya
ma
ga
ta
To
ku
shim
a
Jap
an
To
chig
i
Gu
mm
a
Fu
ku
oka
Ho
kka
ido
Na
ga
sak
i
Hy
og
o
Sh
izu
ok
a
Sh
iga
Wa
ka
ya
ma
Ok
ina
wa
Hir
osh
ima
To
kyo
Oit
a
Sa
ga
To
tto
ri
Ch
iba
Iba
rak
i
Mie
Sa
ita
ma
Ya
ma
gu
chi
Ky
oto
Ku
ma
mo
to
Aic
hi
Ka
ga
wa
Fu
ku
i
Na
ra
Ish
ika
wa
Ok
aya
ma
Ka
na
ga
wa
Osa
ka
Fig. 12: Suicide rates by Prefecture (per 100,000) - 2014
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
2823.6
2411.3
2195.9
1968.6
1848.6
1686.7
1379.3
1000.0
1200.0
1400.0
1600.0
1800.0
2000.0
2200.0
2400.0
2600.0
2800.0
3000.0
Ko
chi
Ka
go
shim
a
Sh
ima
ne
Sa
ga
Okin
aw
a
Iwa
te
Miy
aza
ki
Na
ga
saki
Ya
ma
na
shi
Ao
mo
ri
To
tto
ri
Wa
ka
ya
ma
Ya
ma
ga
ta
Oit
a
Fu
ku
shim
a
Ka
ga
wa
To
ku
shim
a
Akit
a
Fu
ku
i
To
ya
ma
Ku
ma
mo
to
Ish
ika
wa
Na
ga
no
Ya
ma
gu
chi
Oka
ya
ma
Mie
Eh
ime
Sh
iga
Ky
oto
Gif
u
Ho
kka
ido
Miy
ag
i
Iba
raki
Niig
ata
Gu
nm
a
Na
ra
Hir
osh
ima
To
chig
i
Sh
izu
ok
a
Hy
og
o
Na
tio
na
l A
ve
rag
e
Osa
ka
Fu
ku
ok
a
Aic
hi
Ch
iba
Sa
ita
ma
To
kyo
Ka
na
ga
wa
Fig. 13 - Population: Teacher ratio per prefecture (2015)
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
P a g e | 9 [email protected]
Bleeding teachers and
schools
The decline in high school
students
Source: Custom Products Research, Ministry of Education, Culture, Sports, Science and Technology
Analysing the net change in the number of middle/high schools in 2015 vs 2009 also backs up the claim that many
of the identified regions are not only bleeding teachers and students but scuttling schools. The sixteen highest
percentage school closures by prefecture in that period were in Tohoku, Shikoku, Kyushu and Japan Sea coast
towns, Fig. 15.
Source: Custom Products Research, Ministry of Education, Culture, Sports, Science and Technology
If we dig one level deeper into students enrolled in middle/high school, the impacts are even worse, Fig. 16. Akita
has seen a 22% decline in high school students over the last 6 years versus the national average of -4% and
Fukuoka at -2.2%. 18 of the worst 21 prefectures once again fall into the basket of what we have identified as
depopulating zones.
58.6
52.2
47.6
37.4
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
Osa
ka
Sa
ita
ma
Ok
ina
wa
Aic
hi
Ka
na
ga
wa
Ch
iba
Fu
ku
oka
Ka
ga
wa
Mie
Sh
izu
ok
a
Ky
oto
Ya
ma
na
shi
Miy
aza
ki
Na
ra
Hy
og
o
To
chig
i
Sh
iga
Miy
ag
i
Ku
ma
mo
to
Iba
rak
i
Na
tio
na
l A
vera
ge
Sa
ga
Gu
nm
a
Ok
aya
ma
Ka
go
shim
a
Wa
ka
ya
ma
Ya
ma
na
shi
Fu
ku
i
To
kyo
Ko
chi
To
ku
shim
a
Oit
a
Ish
ika
wa
Na
ga
no
To
yam
a
Eh
ime
Nii
ga
ta
To
tto
ri
Ya
ma
ga
ta
Hir
osh
ima
Na
ga
sak
i
Ak
ita
Ao
mo
ri
Fu
ku
shim
a
Iwa
te
Sh
ima
ne
Ya
ma
gu
chi
Ho
kka
ido
Fig.14 - Teachers per school by prefecture (2015)
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
-17.5%
-10.5%
-4.9%
-2.3% -1.6%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
Ya
ma
ga
ta
Iwa
te
Akit
a
Ka
go
shim
a
Ka
ga
wa
Ku
ma
mo
to
Na
ga
saki
Ish
ika
wa
Ho
kka
ido
Ko
chi
Fu
ku
shim
a
Eh
ime
Miy
ag
i
Ao
mo
ri
Sa
ga
Sh
ima
ne
Okin
aw
a
Iba
raki
Hir
osh
ima
To
chig
i
Ya
ma
gu
chi
Wa
ka
ya
ma
Gu
mm
a
Mie
Gif
u
Oka
ya
ma
Na
tio
na
l A
ve
rag
e
Oit
a
Niig
ata
Ya
ma
na
shi
Na
ra
Fu
ku
ok
a
Hy
og
o
Miy
aza
ki
To
ya
ma
Ka
na
ga
wa
Na
ga
no
Ky
oto
To
kyo
Ch
iba
Osa
ka
To
tto
ri
To
ku
shim
a
Sa
ita
ma
Sh
iga
Sh
izu
ok
a
Aic
hi
Fu
ku
i
Fig. 15 - % change in number of Middle/High schools (2015 vs 2009) by prefecture
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
P a g e | 10 [email protected]
Fiscal health of prefectures and the risk of people leaving
Future burden ratio
Source: Custom Products Research, Ministry of Education, Culture, Sports, Science and Technology
The Statistics Bureau also posts some interesting subject matter on the fiscal state of the prefectures. Put simply,
the danger faced by state and local governments is simple. While everyone faces a national tax levy in some form
(income and/or consumption tax), local taxes are only paid if one lives there on Dec 31st. This paints a rather
disturbing picture because the worse off fiscally a prefecture is, the higher the likelihood of crimped services
thanks to higher debt burdens. However, a resident can pull up the tent pegs and relocate to a healthier prefecture
and there is nothing the incumbent prefecture can do about it. Therefore, the future burden is exacerbated and the
likelihood of further local bankruptcies is heightened.
Source: Custom Products Research, Japan Statistics Bureau, Ministry of Finance
The future burden ratio is the ratio of the debt currently held by local governments (the amount of repayment of
municipal bonds and the amount equivalent thereto) as a percentage of fiscal intake. It is considered to be
dangerous waters if it exceeds 400% in prefectural governments and 350% in the municipalities. In FY2011,
Yubari City had a future burden ratio of 891%.
-21.6%
-16.7%
-10.2%
-4.0%
-2.2%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
Ak
ita
Ao
mo
ri
Fu
ku
shim
a
Na
ga
sak
i
Ya
ma
na
shi
Nii
ga
ta
Wa
ka
ya
ma
Miy
aza
ki
Ya
ma
ga
ta
Ka
go
shim
a
Iwa
te
Sh
ima
ne
Ho
kka
ido
Eh
ime
Ko
chi
Fu
ku
i
Oit
a
To
ku
shim
a
Ku
ma
mo
to
Ya
ma
gu
chi
Sa
ga
Na
ra
Na
ga
no
Gu
mm
a
To
tto
ri
Iba
rak
i
Miy
ag
i
Hir
osh
ima
Mie
Gif
u
Na
tio
na
l A
vera
ge
To
chig
i
Sh
izu
ok
a
To
yam
a
Ok
ina
wa
Ish
ika
wa
Ok
aya
ma
Hy
og
o
Fu
ku
oka
Ky
oto
Sa
ita
ma
Osa
ka
To
kyo
Ch
iba
Aic
hi
Ka
ga
wa
Ka
na
ga
wa
Sh
iga
Fig. 16: Net % change in students enrolled in High School 2015 vs 2009
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
333.0
247.7 241.2
187.0
49.7
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
Hy
og
o
Ho
kka
ido
Niig
ata
To
ya
ma
Ky
oto
Fu
ku
ok
a
Hir
osh
ima
Akit
a
Iba
raki
Iwa
te
Ya
ma
ga
ta
Sh
izu
ok
a
Ka
go
shim
a
Ish
ika
wa
Ya
ma
gu
chi
Ya
ma
na
shi
Aic
hi
Osa
ka
Sa
ita
ma
Oka
ya
ma
Sh
iga
Gif
u
Ku
ma
mo
to
Ka
ga
wa
Mie
Wa
ka
ya
ma
To
ku
shim
a
Miy
ag
i
Na
tio
na
l A
ve
rag
e
Na
ga
saki
Na
ga
no
Sh
ima
ne
Fu
ku
i
Na
ra
Oit
a
Ch
iba
Gu
nm
a
Eh
ime
Ko
chi
Ao
mo
ri
Ka
na
ga
wa
Fu
ku
shim
a
Miy
aza
ki
Sa
ga
To
tto
ri
To
chig
i
Okin
aw
a
To
kyo
Fig. 17: Future Burden Ratio by Prefecture (%)
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
P a g e | 11 [email protected]
Financial Strength Index
Divergence in bond yields by
prefecture
Source: Custom Products Research, Japan Statistics Bureau, Ministry of Finance
The financial strength index (FSI) reflects the financial strength of local and prefectural governments. It is derived
by dividing basic financial revenue by financial spending. An FSI closer to or exceeding one is considered healthy.
Closer to zero is a poor score. Once again, the FSI by prefecture shows the depopulating prefectures are suffering
much greater than those growing. It makes sense. Higher populations should lead to improving tax take.
Looking at the current 10-year bond yields we note that the usual suspects have seen the sharpest rises and
highest levels, Fig.19. While the Japan Local Government Bond Association (JLGBA)
Source: Custom Products Research
Switching gears to the prevalence of marriage during pregnancy or post child-birth (i.e. shotgun weddings) our
depopulating prefectures have a higher incidence. With a falling population, businesses find it harder to justify
operating there no doubt leaving residents with fewer things to do compared to the cities.
0.93
0.60
0.47
0.40
0.28 0.23
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
To
kyo
Aic
hi
Ka
na
ga
wa
Ch
iba
Sa
ita
ma
Osa
ka
Sh
izu
ok
a
Iba
raki
Hy
og
o
Fu
ku
ok
a
To
chig
i
Gu
nm
a
Hir
osh
ima
Mie
Miy
ag
i
Ky
oto
Sh
iga
Gif
u
Oka
ya
ma
Na
tio
na
l A
ve
rag
e
Fu
ku
shim
a
Na
ga
no
Ish
ika
wa
Ka
ga
wa
To
ya
ma
Niig
ata
Ya
ma
gu
chi
Na
ra
Ho
kka
ido
Eh
ime
Ya
ma
na
shi
Fu
ku
i
Ku
ma
mo
to
Oit
a
Ya
ma
ga
ta
Iwa
te
Ao
mo
ri
Sa
ga
Wa
ka
ya
ma
Ka
go
shim
a
Miy
aza
ki
Na
ga
saki
To
ku
shim
a
Okin
aw
a
Akit
a
To
tto
ri
Ko
chi
Sh
ima
ne
Fig. 18: Financial strength index by Prefecture (%) - 2015
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
-0.027
-0.295
0.619
0.559
0.260
0.184 0.175
0.059
-0.400
-0.200
0.000
0.200
0.400
0.600
0.800
Iw
ate
Akit
a
Ao
mo
ri
Ya
ma
gu
chi
Ya
ma
ga
ta
Okin
aw
a
To
tto
ri
To
ya
ma
Na
ga
no
Sh
ima
ne
Ho
kka
ido
Eh
ime
Osa
ka
Hyo
go
Ka
go
shim
a
Na
ra
Ku
ma
mo
to
Oit
a
Fu
ku
shim
a
Ko
chi
Sa
ga
To
ku
shim
a
Fu
kui
Na
ga
sak
i
Nii
ga
ta
Sh
iga
Ka
ga
wa
Ya
ma
na
shi
Ib
ara
ki
Oka
ya
ma
Mie
Miy
aza
ki
Gu
mm
a
Hir
osh
ima
Fu
ku
oka
Ka
na
ga
wa
Kyo
to
Ch
iba
Sh
izu
oka
To
chig
i
Sa
ita
ma
Gif
u
Miy
ag
i
Wa
ka
ya
ma
Aic
hi
Ish
ika
wa
To
kyo
Jap
an
Fig.19: 10yr current bond yields by prefecure (%) vs 6m prior yields
Generic 10yr Yield - July 2016 Generic 10yr Yield - Jan 2017
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
P a g e | 12 [email protected]
Shotgun wedding index
Work security dwindles
The tale in Nagano of
trying to cling onto workers
Source: Custom Products Research, Ministry of Health, Labor & Welfare (MHLW)
This would also point to the prevalence of job opportunities in each prefecture. As two extreme examples, we look
at Akita and Aomori and look at Tokyo and Kanagawa as bellwethers. Fukuoka is for illustrative purposes only.
What sort of jobs employ in each prefecture?
Source: Custom Products Research, Ministry of Health, Labor & Welfare (MHLW)
It is evident that Akita has too large a percentage of its populace in agriculture and with over one quarter of
workers in construction and manufacturing, the risk of depopulation should mean that building projects (especially
private sector) and manufacturing sustainability would be poor. Visits several years back to companies such as
Takeuchi (6432) and Hokuto (1379) in Nagano Pref have highlighted the risks of losing employees and escalating
wages to keep them. In Takeuchi’s case line workers needed to have special qualifications to move its digging
equipment which meant that they had to hike wages double digit percentages to keep workers from moving out of
Nagano. On top of that it was actively hiring foreign labourers to address the looming shortfall. Akita will
undoubtedly face more acute problems.
42
.4
37
.5
36
.7
36
.2
36
.0
34
.6
33
.5
33
.0
32
.9
32
.6
31
.4
31
.2
30
.6
30
.2
30
.1
29
.9
29
.8
29
.4
29
.4
29
.2
27
.9
27
.7
27
.7
27
.7
27
.6
27
.4
27
.3
26
.9
26
.7
26
.6
26
.6
26
.2
25
.3
25
.2
24
.9
24
.8
24
.3
24
.0
22
.9
22
.8
22
.8
22
.6
22
.5
21
.8
21
.7
21
.6
19
.5
19
.5
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Okin
aw
a
Sa
ga
Fu
ku
shim
a
Ao
mo
ri
Ku
ma
mo
to
Na
ga
saki
Miy
aza
ki
Akit
a
Iwa
te
Ya
ma
ga
ta
Iba
raki
Ka
go
shim
a
Oit
a
Sh
ima
ne
Ko
chi
To
tto
ri
Fu
ku
ok
a
Miy
ag
i
Wa
ka
ya
ma
Eh
ime
Fu
ku
i
Ho
kka
ido
Gu
nm
a
Niig
ata
Oka
ya
ma
To
chig
i
Ya
ma
gu
chi
To
ku
shim
a
Mie
Ish
ika
wa
Ya
ma
na
shi
Sh
izu
ok
a
Na
tio
na
l A
ve
rag
e
Ka
ga
wa
Hir
osh
ima
Gif
u
Na
ga
no
Osa
ka
To
ya
ma
Sa
ita
ma
Ch
iba
Na
ra
Hy
og
o
Aic
hi
Sh
iga
Ky
oto
To
kyo
Ka
na
ga
wa
Fig. 20: % of Marriages as a result of unplanned pregnancy (shotgun wedding) - 2009
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
Ag/Fishery MiningConstructi
on
Manufact
uringUtilities IT/Comm Transport
Wholesale
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Financial/I
nsurance
Real
Estate
Science
Related
Hotel/Bar/
restaurant
Daily
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Health/W
elfare
Compoun
d ServicesOther
Aomori 1.63% 0.12% 10.34% 12.72% 0.42% 1.25% 6.16% 22.86% 2.98% 1.81% 2.19% 8.55% 5.37% 2.39% 13.52% 0.82% 7.16%
Akita 1.62% 0.12% 10.26% 16.95% 0.41% 0.93% 5.01% 21.24% 2.86% 1.41% 1.89% 8.35% 4.53% 2.22% 14.08% 1.22% 6.68%
Fukuoka 0.39% 0.03% 7.26% 11.68% 0.41% 2.67% 6.53% 22.34% 2.99% 2.62% 2.53% 9.70% 4.51% 3.31% 13.79% 0.46% 8.78%
Japan 0.64% 0.04% 6.94% 16.56% 0.36% 2.91% 5.91% 21.04% 2.85% 2.64% 2.98% 9.71% 4.56% 3.08% 11.07% 0.61% 8.10%
Kanagawa 0.19% 0.01% 6.41% 14.45% 0.25% 3.35% 6.17% 19.61% 2.05% 3.26% 4.54% 10.41% 4.84% 3.56% 12.04% 0.42% 8.42%
Tokyo 0.04% 0.01% 5.41% 8.17% 0.36% 9.09% 5.41% 22.18% 4.78% 3.97% 4.88% 9.84% 4.04% 3.72% 7.45% 0.23% 10.41%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Fig. 21: Employment sectors by prefecture as % of total (2012)
Aomori Akita Fukuoka Japan Kanagawa Tokyo
P a g e | 13 [email protected]
2.67%
0.64%
0.39%
0.06%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
Miy
aza
ki
Iw
ate
Ka
go
shim
a
Ho
kka
ido
Sh
ima
ne
Ko
chi
Oit
a
Ao
mo
ri
Ak
ita
Nii
ga
ta
Na
ga
no
To
tto
ri
Na
ga
saki
Ku
ma
mo
to
Eh
ime
To
ku
shim
a
To
ya
ma
Ya
ma
ga
ta
Sa
ga
Ya
ma
gu
chi
Ka
ga
wa
Fu
kui
Ib
ara
ki
Fu
kush
ima
Mie
Gif
u
Ish
ika
wa
Gu
mm
a
Hir
osh
ima
Wa
ka
ya
ma
Miy
ag
i
To
chig
i
Sh
iga
Ya
ma
na
shi
Jap
an
Ok
ay
am
a
Ok
ina
wa
Ch
iba
Sh
izu
ok
a
Fu
kuo
ka
Ky
oto
Hy
og
o
Na
ra
Aic
hi
Sa
ita
ma
Ka
na
ga
wa
Osa
ka
To
kyo
Fig. 22: Agriculture/Fisheries - Employment as a % of total by prefecture (2012)
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
10.34%
9.20%
7.26%
6.94%
5.10%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
11.00%
Ao
mo
ri
Sh
ima
ne
Akit
a
Nii
ga
ta
Iw
ate
Miy
ag
i
Fu
ku
shim
a
Ya
ma
ga
ta
Fu
ku
i
Ho
kka
ido
Oit
a
Ya
ma
gu
chi
Ko
chi
To
ya
ma
To
tto
ri
Ka
go
shim
a
Miy
aza
ki
Sa
ga
Ib
ara
ki
Na
ga
sak
i
Okin
aw
a
Wa
ka
ya
ma
Na
ga
no
Ya
ma
na
shi
Eh
ime
Ish
ika
wa
Oka
ya
ma
Ku
ma
mo
to
Ch
iba
To
ku
shim
a
Ka
ga
wa
Fu
ku
oka
Gif
u
To
chig
i
Sa
ita
ma
Jap
an
Gu
mm
a
Hir
osh
ima
Sh
izu
oka
Ka
na
ga
wa
Mie
Aic
hi
Sh
iga
Osa
ka
Hyo
go
To
kyo
Na
ra
Kyo
to
Fig.23: Construction - Employment as a % of total by prefecture (2012)
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
P a g e | 14 [email protected]
Germany saw similar trends after
1989
Source: MHLW
It also brings to light the subject of the reunification of Germany in 1989. Workers in the former East saw the
employment opportunities in the West were far more lucrative and abandoned on masse leading to large
employment shortages and rising bankruptcies in the former communist bloc. The situation became so acute that
businesses in the East were forced to raise wages significantly to stem the flow. Unfortunately, they were left with
lower skilled workers and today unemployment rates are much higher than the average because of the brain drain
to the West.
While Japan faces this challenging demographic the plight of bankruptcy of towns from depopulation will be
exacerbated, Fig. 25.
13.79%
9.71% 9.70%
8.24%
7.00%
8.00%
9.00%
10.00%
11.00%
12.00%
13.00%
14.00%
15.00%
Okin
aw
a
Ya
ma
na
shi
Kyo
to
Ko
chi
Ch
iba
Hyo
go
Na
ra
Na
ga
no
Na
ga
sak
i
Ka
na
ga
wa
Ish
ika
wa
Ho
kka
ido
To
tto
ri
Miy
aza
ki
Oit
a
Osa
ka
Gif
u
To
kyo
Wa
ka
ya
ma
Ka
go
shim
a
Jap
an
Fu
ku
oka
Ku
ma
mo
to
Aic
hi
Sh
izu
oka
Sa
ita
ma
Mie
To
ku
shim
a
Sa
ga
To
chig
i
Eh
ime
Ya
ma
gu
chi
Fu
ku
i
Sh
iga
Nii
ga
ta
Ka
ga
wa
Miy
ag
i
Sh
ima
ne
Ya
ma
ga
ta
Fu
ku
shim
a
Ao
mo
ri
Gu
mm
a
Hir
osh
ima
Akit
a
Iw
ate
Oka
ya
ma
Ib
ara
ki
To
ya
ma
Fig.24: Hotel/Bar/Restaurant - Employment as a % of total by prefecture (2012)
Legend:
Yellow -Tohoku
Grey - Hokkaido
Mauve - Shikoku/Kyushu/Japan Sea
Green - Fukuoka
126,193
91,933
42,860
27.5%
41.3%
25%
27%
29%
31%
33%
35%
37%
39%
41%
43%
30,000
50,000
70,000
90,000
110,000
130,000
150,000
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
20
36
20
37
20
38
20
39
20
40
20
41
20
42
20
43
20
44
20
45
20
46
20
47
20
48
20
49
20
50
20
51
20
52
20
53
20
54
20
55
20
60
20
65
20
70
20
75
20
80
20
85
20
90
20
95
21
00
21
05
21
10
Fig. 25: Japan's projected population ('000s) and the % of 65yo+ demographic
Population 65yo + (%)
P a g e | 15 [email protected]
Source: Custom Products Research, Japan Statistics Bureau, Ministry of Finance
60.2%
49.6%
45%
47%
49%
51%
53%
55%
57%
59%
61%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
20
36
20
37
20
38
20
39
20
40
20
41
20
42
20
43
20
44
20
45
20
46
20
47
20
48
20
49
20
50
20
51
20
52
20
53
20
54
20
55
20
60
20
65
20
70
20
75
20
80
20
85
20
90
20
95
21
00
21
05
21
10
Fig. 26: Japan's dwindling Labour Force ('000s)
Labour Force Labour force as % of total population
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%Fig. 27: The employment outlook on the 'economic revival' scenario (%)
Economic Revival (2020) Economic Revival (2030)
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0% Fig. 28: The employment outlook on the 'zero growth' scenario (%)
Zero growth (2020) Zero growth (2030)
P a g e | 16 [email protected]
Akita is
staring at 10-40%
declines in its largest
industries over next 15yrs
Part time
Difficulty for aged
placement
The tale of Sharp
Source: Japan Institute for Labour Policy & Training
Comparing Fig. 18 to Figs. 27-28 and we see why the plight of regions such as Akita and those suffering
demographic challenges will be crushed even with the government’s own optimistic ‘zero growth’ and ‘economic
revival’ scenarios. While much of these scenarios rely on productivity growth the sad reality is that in the industrial
areas Akita relies on now will see sharp declines of 10-40% over the next 15 years. Hardly the most helpful stats to
arrest further depopulation. What is worse is that slowing activity only compounds on the downside.
Add to that the prospect of a higher incidence of part-time work and the ability for the elderly to trade out of a
terrifying retirement is worsened, meaning consumption is curtailed and pinching at the one area that could help
create jobs.
One dilemma in the data is the employment referrals by government unemployment agencies for middle or
advanced aged staff (45yo+) shows that around 25% of them end up with work in a fixed term capacity of more
than 4 months, Fig. 29. That is to say around 30,000 get placed per annum, hardly a positive statistic. Perhaps the
following statement explains part of the problem.
Former Jobu University Professor and economist Nobuo Ikeda commented on the problems and shortcomings of
Japan’s lifetime employment system, “Salarymen, who are typically hired right out of school in a batch . . . will start
by learning (elementary skills) on the job. These include company specific skills learned by watching more
experienced workers, like personal skills, meaning they aren’t useful in other companies…as companies rarely hire mid-career.”
Source: Statistics Bureau
In an interview with the government employment agency, Hello Work, in January 2016 the agency noted the
dilemma of dealing with Sharp’s voluntary redundancies. Of the 820 former Sharp workers that registered with the
Nara Prefecture agency, only 261 had found alternative employ. The biggest issue is that 80% of those are over
50 years old and many have false expectations on their ‘real value’ expecting the next job will pay similar salaries,
benefits and title. Most still have housing loans and education expenses outstanding.
Fig. 30 bears this out even better. The long running trend of full-time work in a regular capacity has given way to a
lot more part-time (lower paying) jobs which involves less other costs like insurance, retirement and so on. This
change puts pressure on the household budget.
0.0
5.0
10.0
15.0
20.0
25.0
30.0
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Fig.29: Mid career introductions of unemployed persons (45yo+) and employment success ratio
Cases of Introduction Ratio of introductions where people found employment
P a g e | 17 [email protected]
More women in workforce
Quality of employment
falling
Source: Statistics Bureau
Fig. 31 shows that since 2003 more women are employed part time than full time. With PM Abe looking to
encourage more women back into the workforce to offset the declining (working) population by expanding day-care
centre places, job prospects will increasingly be part time.
Source: Statistics Bureau
What we can deduce is that the quality of employment is deteriorating. While the employment rate in the recent
decade has fallen contrary to1997-2003, the instance of lower paid part-time work has grown since then from 30%
to 37.4% of the total. For women, this is now 56%. If PM Abe wishes to grow the economy, higher numbers of part-
time workers will make the journey that much harder.
PM Abe has acknowledged that issue. This coming May he wishes to introduce a policy which requires equal
wages for full-time and contract hires. However, recruitment by firms will only be marginalised should the law be
introduced.
The Japanese Institute for Labour Policy & Training (JILPT) makes the case for employer’s reasons to hire non-
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Fig. 30: Full-time vs. Part-Time Trend as a % of total employees in Japan (%)
0
200
400
600
800
1000
1200
1400
1600
Fig. 31 : Full time vs Part-time Female Employees ('000 people)
Women Regular Employees Women Non-regular employees
P a g e | 18 [email protected]
Economise on wages
Lack of regular jobs
Women working to
regular employees clear in Fig. 32. “To economise on wages” and “to economise on non-labour costs” are the two
highest categories.
Fig. 32: Employer’s Reasons for Hiring non-regular employees (%)
Source: Japan Institute for Labour Policy & Training
While convenient work hours are a high factor for part-time workers note that “lack of regular employment
opportunities” is the most consistently high factor for male employees selecting non-regular jobs, Fig. 33.
Fig. 33: Male Employee’s Reasons for selecting non-regular employment (%)
Source: Japan Institute for Labour Policy & Training
Female non-regular employees showed similar trends to that of men with regards to being unable to secure
regular employment, but “domestic reasons” (38%) was a high factor however 47% said that “supplementing
household income” was second to convenience in work hours (50.7%). In short the labour market is preventing
P a g e | 19 [email protected]
supplement income
Labour Disputes
Detroit’s population has
fallen 2/3rds from peak
40% below poverty line
Police force cut 40%
stable employment which adds to individual concerns.
It is the smell of fear. Pressure to prevent losing one’s job is a factor in the steady increase in labour disputes.
Between 2002 and 2013, labour disputes almost trebled, Fig.34. Bullying and harassment (which are obviously
less palatable for companies to have floating in the public domain) as a percent of total disputes has ballooned
from 5.8% to almost 20% over the same period, Fig. 35.
Source: Japan Institute for Labour Policy & Training
Lessons from Detroit, Michigan
Detroit does not share Japan’s aging issues but it does paint the picture of what happens to a city that faces long
term decline in its population. From a peak of 1.8mn people in the 1950s the city has shrunk to 1/3rd
that level. The
city declared bankruptcy in 2013 making it the largest municipal bankruptcy in America.
40% of the city is now below the poverty line. In 1960 the city had the highest per capita income in the nation. Long
term debt has ballooned to $20bn or more than $30,000 per resident. Some 78,000 homes are unoccupied in the
city, and in 2011 half of the occupiers of the city's 305,000 properties paid no tax.
40% of the street lights do not work, 67% of public parks have been permanently closed since 2008 and the police
force has been cut by 40% in the last decade. Most police stations are closed 16 hours a day and response times
are around one hour.
Source: US Census
While Japanese prefectures maybe depopulating a la Detroit, they lack the ability to recover even if incentives are
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Fig. 34 : Bullying & Harrassment Claims
as % of all Labour Disputes
Bullying/Harrassment Bullying as % of all cases
6% → 20%
100,000
150,000
200,000
250,000
300,000
350,000
Fig. 35 : Total Labour Dispute Cases
21,019
993,678
1,849,568
951,270
677,800
0
500,000
1,000,000
1,500,000
2,000,000
1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2015
Fig. 36: Detroit Population (1850-2015)
P a g e | 20 [email protected]
Detroit isn’t Japan
Prefectural Debt: GDP
Shimane again
Domino effect
implemented as the American population continues to grow in numbers while Japan shrinks. Detroit has shrunk
30% in the last 15 years. In Fig. 37, we note the number of towns that have less than 5,000 people. Nara is home
to 5 villages that have fallen 20% in the last 5 years. While the scale is different, the rate of decline hits a certain
point and heads into freefall most likely as supermarkets, post offices, banks and petrol stations can ’t justify
serving such tiny markets.
Source: Custom Products Research, Japan Statistics Bureau
Is it really that bad?
Of course, it is easy to postulate that the plight of the regions is bleak. However, looking at pure
prefectural debt/GDP ratios it is not awful optically.
Source: Custom Products Research, Japan Statistics Bureau
Shimane has a prefectural debt: GDP ratio of 60%. It pays 16% of its tax intake on interest payments. This is not
the highest in Japan by any stretch but bond markets are fickle things. Sure, the Bank of Japan can increase
prefectural bond purchases to prevent the rate from going higher but the exodus is not slowing. Shimane has lost
10% of its middle/high school pupils in the past 5 years. While some may have graduated, it would be safe to
assume they are relocating to other prefectures with their working age parent(s).
Were we to see a similar exodus from Shimane as has happened in Detroit (or Yubari for that matter) debt/working
person would grow to $33,000. Shimane’s 16% debt servicing ratio would likely head north of 30% of annual tax
85
28
16 15 13 12 8 8 8 7 7 6 6 5 5 5 5 4 4 4 4 4 3 3 3 2 2 2 2 2 1 1 1 1 1 1
0
10
20
30
40
50
60
70
80
90
Ho
kka
ido
Na
ga
no
Okin
aw
a
Ko
chi
Na
ra
Fu
ku
shim
a
Ku
ma
mo
to
Ao
mo
ri
To
kyo
Gu
nm
a
Ya
ma
na
shi
Oka
ya
ma
Wa
ka
ya
ma
Miy
aza
ki
Ka
go
shim
a
Akit
a
Niig
ata
Gif
u
Ky
oto
Sh
ima
ne
To
tto
ri
To
ku
shim
a
Aic
hi
Iwa
te
Ya
ma
gu
chi
Ka
ga
wa
Ya
ma
ga
ta
Oit
a
Fu
ku
i
Fu
ku
ok
a
Eh
ime
Miy
ag
i
Sa
ita
ma
Ka
na
ga
wa
Na
ga
saki
To
ya
ma
Fig. 37: Towns in Japan with less than 5,000 people (2015) by Prefecture
60%
24%
0%
10%
20%
30%
40%
50%
60%
70%
Sh
ima
ne
Akit
a
To
tto
ri
Ko
chi
Iwa
te
Ho
kka
ido
To
ku
shim
a
Ka
go
shim
a
Ya
ma
ga
ta
Ya
ma
na
shi
Miy
aza
ki
Ao
mo
ri
Niig
ata
Fu
ku
i
Ish
ika
wa
To
ya
ma
Wa
ka
ya
ma
Na
ga
saki
Oit
a
Sa
ga
Na
ra
Ku
ma
mo
to
Ya
ma
gu
chi
Ka
ga
wa
Eh
ime
Hy
og
o
Na
ga
no
Fu
ku
shim
a
Gif
u
Oka
ya
ma
Miy
ag
i
Mie
Hir
osh
ima
Ky
oto
Sh
iga
Fu
ku
ok
a
Iba
raki
Sh
izu
ok
a
Okin
aw
a
Osa
ka
Gu
nm
a
Aic
hi
To
chig
i
Sa
ita
ma
Ch
iba
Ka
na
ga
wa
To
kyo
Fig. 38: Prefectural Debt/Prefectural GDP (%) - 2014
P a g e | 21 [email protected]
Local debt vs National
The tax wedges will
shrink
400% danger zone
revenue even when conservatively estimating refinancing rates and lower tax revenue intake. Moreover debt: GDP
would balloon because relative GDP would decline as well putting upward pressure on effective future borrowing
costs. Within the prefectures, smaller villages and towns may head the way of Yubari and suddenly bad debt could
spill over into a domino effect. Recall Yubari’s tax collections are only one-quarter of what they were two decades
ago so in the more acutely aging areas, we could well see assumptions on a prefecture like Shimane over the long
term become unsustainable.
Therein lies the problem. The debt is not likely to change much yet the revenue side of the ledger will continue to
slide. Of course, the ¥200 trillion of prefectural/municipal debt (relatively unchanged for a decade) pales in
comparison to the national debt of ¥840 trillion. Yet many of the regions do not possess the same level of asset
creation that can reduce the net burden.
34% of tax revenues by prefectures derives from resident’s tax and 42% of municipalities fill their coffers by fixed
asset taxes, Figs. 39-40. If tax payers migrate to new prefectures they not only hit the prefecture revenue
collection (note you need to be resident on Dec 31st to have to pay residents tax. If you move to another prefecture
between Jan 1-Dec 30th
the residents tax is paid to your new place of residence. If more people look to leave
depopulating regions, then the natural impact on fixed assets will fall in lockstep.
Source: Ministry of Finance
As the JLGBA and Ministry of Finance note it is considered to be dangerous waters if the future burden ratio (FBR)
exceeds 400% in prefectural governments and 350% in the municipalities. As we mentioned earlier, Yubari’s tax
revenues fell 75% in two decades. Hokkaido would only need to have a 20.7% fall in tax revenues to trigger the
400%.Akita would require just under 40% cut in tax revenues.
Individual
Residents
Tax; 34%
Local
Consumption
Tax; 18%
Automobile
Tax; 10%
Others; 14%
Corporate
Enterprise
Tax; 18%
Corporate
Residents
Tax; 6%
Fig. 39: Prefectures Tax Revenue
Fixed Asset
Tax; 42%
Individual
Residents
Tax; 34%
City Planning
Tax; 6%
Others; 8%
Corporate
Residents
Tax; 10%
Fig. 40: Municipalities Tax Revenue
P a g e | 22 [email protected]
What did Yubari do?
Who bears the tax
burden in Japan?
Source: Custom Products Research, Japan Statistics Bureau, Ministry of Finance
What did Yubari do?
To be fair, Yubari became a pilot case for how to handle a bankruptcy. In the FY2009-2029
Financial Rebuilding Plan, public officials would be cut from 269 in FY2006 to 134 in FY2009 to
103 by FY2010. Standard salaries for public servants would be cut 30% and subsidies would be
trimmed 40%. The tax rate on fixed income was lifted to 1.45% from 1.4% and municipal income
tax from 6% to 6.5%. Services such as garbage collection are separate charges. Yubari City
issued a ¥32.2bn special deficit covering bond. Yubari’s real debt repayment ratio is ranging
between 80-90% of tax revenue per year until 2026.
The bigger issue will be what might happen if a string of Yubari’s come under similar bankruptcy
proceedings.
What should Japan do?
In Japan, 97% of the income tax burden is borne by the top 47% of earners. Over two-thirds of
Japanese SMEs (corporations capitalised under ¥100mn) pay no tax. While the government has
progressively eased the corporate tax rate from north of 50% in the 1990s to just over 40% during
most of the 2000s to under 30% by 2018 companies have avoided chipping in to the national
coffers. Fig.1 shows clearly that despite corporate tax rates coming down, the impact on the
number of corporates reporting losses to the tax office remains largely unchanged.
16.8%
20.7%
39.7%
55.7%
73.2%
87.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
Hy
og
o
Ho
kka
ido
Nii
ga
ta
To
yam
a
Ky
oto
Fu
ku
oka
Hir
osh
ima
Ak
ita
Iba
rak
i
Iwa
te
Ya
ma
ga
ta
Sh
izu
ok
a
Ka
go
shim
a
Ish
ika
wa
Ya
ma
gu
chi
Ya
ma
na
shi
Aic
hi
Osa
ka
Sa
ita
ma
Ok
aya
ma
Sh
iga
Gif
u
Ku
ma
mo
to
Ka
ga
wa
Mie
Wa
ka
ya
ma
To
ku
shim
a
Miy
ag
i
Jap
an
Na
ga
sak
i
Na
ga
no
Sh
ima
ne
Fu
ku
i
Na
ra
Oit
a
Ch
iba
Gu
mm
a
Ko
chi
Eh
ime
Ao
mo
ri
Ka
na
ga
wa
Fu
ku
shim
a
Miy
aza
ki
Sa
ga
To
tto
ri
To
chig
i
Ok
ina
wa
To
kyo
Fig. 41: % fall in Prefectural Tax Revenue required to trigger 400% danger level FBR
P a g e | 23 [email protected]
Lessons from Poland
Japan must change its
tax code
Poland & Japan have s
imilar demographics
Source: Custom Products Research
Poland faced similar issues but in 2004 introduced sensible taxation reform which lured long term
tax avoiders/evaders from their lairs. Authorities introduced a flat business tax (19%) and its
impacts were so favourable that the government saw a 50% increase in income reported by those
corporates in higher tax brackets before the change and a 50% increase in reported income from
individuals that fell into upper income tax brackets. In 2009 income tax rates at the top were
slashed from 40% from 32% Despite this income tax receipts jumped 17%. Since 2004 tax
receipts soared 56.4%. It clearly proved that lowering taxes created much higher tax compliance.
There was a psychological factor at play – the cut ‘encouraged’ honesty.
Japan on the other hand continues to drip feed corporate tax cuts at such slow rates that there is
little perceivable reason to change behaviour. Instead of burying the dwindling number of diligent
tax payers ever more Japan must reform its tax code. We estimate a flat tax with similar outcomes
to what Poland experienced would shrink the annual budget deficit by two thirds.
Poland’s population has similar dynamics to Japan, albeit a few decades behind. Population
numbers have stagnated at around 38 million in the last decade and the Central Statistical Office
of Poland (CSOP) is forecasting by 2050 that it falls to around 34 million. Poland’s 65+ year old
demographic will be one-third the total population versus 2/5ths in Japan by 2050.
69.6% 69.2% 69.4% 69.9% 69.5% 68.8% 68.4% 67.8% 68.0%
71.1% 72.6%
67.9%
37.0%
38.0%
39.0%
40.0%
41.0%
42.0%
43.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2013
Fig. 42 : Do Corporate Tax Rates really influence Corporate Behaviour?
Total # of Corporates Filing Losses (LHS) Corporate Tax Rate (%) RHS
GFC GFC
P a g e | 24 [email protected]
Japan’s tax payer pool
draining
World is global
Source: Central Statistical Office of Poland (CSOP), Statistics Bureau
Naturally Japan’s income tax payer pool is shrinking as the working population declines. None-
the-less if Japanese authorities stick to orthodox tax policies and try to squeeze more revenue
from wherever it can by raising taxes it will only discourage growth and stagnate the economy
further.
Put simply Japan must put its fortunes into the hands of its citizens. Note I did not say ‘back’ in the
hands. The government has rarely extended the private sector a free hand but the statistics speak
for themselves. Fewer Japanese are paying income tax and even fewer corporates are even
bothering to report profit so they are not stupid. The government must come to the conclusion that
lowering tax rates considerably will be the only antidote.
If taxes came into line with Singapore or Hong Kong it would make Japan a far more desirable
place for multinationals to establish headquarters in the region. This would kill three birds. It would
stimulate much needed skilled foreign migration, drive property market transactions and provide
employment which all leads to more tax dollars. As capital attracts capital were Japan to reform in
such a major way, Japan’s equity markets would react to this new-found sense of purpose.
While we can applaud the direction of corporate tax in Japan, effective tax rates when a company
14.99% 13.06% 12.14%
70.27% 63.69%
55.17%
14.73% 23.25%
32.69%
0%
20%
40%
60%
80%
100%
2013 2030 2050
Fig. 43: Polish population by age cohort
0-14 15-64 65+
31,000,000
32,000,000
33,000,000
34,000,000
35,000,000
36,000,000
37,000,000
38,000,000
39,000,000
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
20
32
20
34
20
36
20
38
20
40
20
42
20
44
20
46
20
48
20
50
Fig. 44: Polish Population to 2050
12.5% 10.3% 9.7%
60.7% 58.1%
51.5%
26.8% 31.6% 38.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2030 2050
Fig. 45: Japanese population by age cohort
0-14 15-64 65+80,000,000
85,000,000
90,000,000
95,000,000
100,000,000
105,000,000
110,000,000
115,000,000
120,000,000
125,000,000
130,000,000
20
15
20
17
20
19
20
21
20
23
20
25
20
27
20
29
20
31
20
33
20
35
20
37
20
39
20
41
20
43
20
45
20
47
20
49
Fig. 46: Japanese Population by 2050
P a g e | 25 [email protected]
Corporate tax is c. 40%
Personal income tax
c.50%
adds local taxes, municipal taxes, prefectural taxes, enterprise taxes becomes closer to 40%, Fig.
6 more than double its Asian rivals. Proposals to trim large sized national corporate tax rates from
25.5% to 23.9% have been agreed. SMEs earning less than ¥8mn are subject to a 19% tax rate
but will stay at 15% until April 1st, 2017. We don’t wish to trawl into the intricacies of local tax law
but Japan needs a change that “jolts” people and corporations to action which is not a one-way
street. We run through the psychology of taxes in a later section.
Fig. 47 : Tax burden on corporate income in Japan (2014)
Source: National Tax Agency(NTA)
For Personal Income Tax (PIT) in Japan, rates are effectively 50% in the top bracket when local
taxes and the 2.1% special income tax for reconstruction (i.e. to pay for the 2011 Great East
Japan Disaster) which ends in 2037 are added on top. None-the-less Japan’s income tax burden
is being increasingly borne by the wealthy. In 2012, half of total earners paid no direct tax, Fig. 48.
Source: Japanese Ministry of Finance
Mind the Gap - Japanese tax collection as it stands
Share of Tax (1974) Share of Tax (1988) Share of Tax (2012)Share of Income
(1974)Share of Income
(1988)Share of Income
(2012)
Top 0.7% 20.5% 26.40% 29.18% 17.4% 15.19% 15.58%
Top 6.3% 58.5% 57.21% 65.74% 42.9% 33.67% 38.19%
Top 8.8% 64.2% 72.72% 73.00% 47.2% 45.57% 44.37%
Top 27.6% 86.1% 89.87% 92.99% 69.0% 68.85% 70.53%
Top 47.1% 89.8% 95.26% 97.14% 74.5% 82.21% 83.91%
Bottom 52.9% 10.2% 4.7% 2.86% 25.5% 17.8% 16.09%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Fig 48: Japanese Share of Taxes & Income by Tax filings (Individuals)
Top 0.7% Top 6.3% Top 8.8% Top 27.6% Top 47.1% Bottom 52.9%
P a g e | 26 [email protected]
Consumption tax is largest
portion of receipts
Collection costs need
change
Japan’s national deficit struggles to close. Expenditures, post the bubble period have comfortably
exceeded tax revenue, Fig. 49.
Source: Ministry of Finance (MoF)
In 2015, the consumption tax comprised the largest component of filling the Japanese government
coffers. Personal income tax has also declined from a peak of 40% toward 30% of the total tax
take. In 2015 corporations made up around 20% of total tax take. While higher than it was in 2009,
it is still well below the peak of 2008 (38%), Fig. 48. Corporate taxes are below the level of 2001.
Source: Statistics Bureau
One must also question the collection costs for the tax authorities. As a business owner in Japan
the nature of tax payments is cumbersome. After registering the company with the Ministry of
Justice, I need to register with the Tokyo tax office, then lodge documentation for the Minato ward
and fill in half a dozen forms with carbon paper triplicates and put my registered seal (company
chop) in 20 places which no doubt gets filed in 5 different departments.
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Corporate Tax 11.8 11.2 9.1 9.4 10.2 13.1 16.4 16.7 10.6 6.0 7.8 8.8 8.7 10.0 11.0
Personal Income Tax 18.6 15.8 13.8 13.8 13.2 12.8 16.5 16.3 15.6 12.6 13.5 13.5 13.9 14.8 16.4
Consumption Tax 9.8 9.5 9.7 10 10.6 10.5 10.3 10 9.8 10 10.2 10.4 10.6 15.3 17.1
Total Expenditures 84.8 83.7 82.4 84.9 85.5 81.4 81.8 84.7 101 95.3 100.7 97.1 100.2 95.9 96.3
Tax Revenue 47.9 43.8 43.3 45.6 49.1 49.1 51 44.3 38.7 41.5 42 42.3 43.1 50 54.5
0
20
40
60
80
100
120Fig 49: Japan Tax Revenue by type & Expenditure (¥ trillion)
MIND THE GAP
0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020E 2025E
Fig. 50: What fills the Japanese national coffers?
Corporate Tax as % of Total Tax Revenue Personal Income Tax as % of Total Tax Revenue
Consumption Tax as % of Total Tax Revenue Other Taxes
P a g e | 27 [email protected]
Shortcomings of paper
70% of SME don’t pay
corporate tax
Tax loss carry
forwards
We do not have to look very far to see the shortcomings of using paper records when digital could
boost efficiency, arguably what the introduction of My Number seeks to address. In 2010,
Japanese authorities stumbled over the fact that many people were collecting the pensions of their
relatives that died decades ago. They discovered 77,000 people aged over 120 listed as still alive
and 884 aged over 150. One woman that was born in 1837 was still listed as living, meaning she’d
be turning 179 this year. Another retiree collected ¥50mn in pensions from her parents that died in
the 1960s
Japan’s small-medium enterprises (SMEs) are the backbone of employment, comprising 70% of
the labour force and 99% of all corporations. While headline corporate tax rates are expected to
drop to 29.97% in 2016 and 29.74% in 2018 from 32.1%, we need to look between the lines.
Corporate tax rate changes have had negligible impacts on tax intake. Economic conditions have
a bigger bearing on tax take than the tax rate changes.
Source: Statistics Bureau
Tax losses could be carried forward 9 years and offset up to 80% of each year’s taxable income.
To slow down companies using this method, tax authorities have reduced this to 65% for fiscal
years between April 1st, 2015 and March 31st 2017 and 50% thereafter.
Source: Statistics Bureau (FY2014)
67.2% 67.8% 73.1%
67.9%
59.1% 53.8%
50.4%
25.1% 19.8% 20.3% 23.4% 21.3%
42.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Fig. 51 : # of Corporates by size as a percentage reporting no taxable income in Japan, FY2014
1 million
yen or
less
More
than 1
million
yen
2 5 10 20 50 100 500
More
than1
billion
yen
5 10Consol
corps
Taxes paid by corporates as % of total 1.1% 0.1% 3.3% 7.7% 3.4% 8.4% 7.8% 9.7% 3.9% 9.0% 5.5% 27.2% 12.8%
% Corporations 9.29% 1.70% 45.54% 28.95% 5.96% 5.84% 1.84% 0.56% 0.07% 0.12% 0.03% 0.04% 0.05%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
Fig. 52: % of corporates by size paying tax & their tax burden as % of total
P a g e | 28 [email protected]
Corporate
Tax burden
Tax payers by industry
Restaurants the worst offenders
Fig.51 shows that 98% of companies in Japan pay only 24% of the corporate tax intake. That’s
right – 2.5mn corporations pay less than one-quarter of the tax burden.
Breaking this down by industry we can see clearly (Fig. 53) that the tax burden is shared pretty
unevenly. Consolidated corporations make up 0.1% of all companies in Japan yet paid 12.8% of
the tax burden in FY2014. The construction industry made up almost 16% of corporations by
number but only paid 5.3% in tax. Of course this is skewed by the revenue base of each industry,
Fig. 55.
Source: Statistics Bureau
Broken down by the type of industry we can see that 80% of restaurants, bars and hotels report
no tax payment. While running, successful restaurants poses a challenge one could argue that
high levels of cash transactions would potentially lead to grey economic practices.
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Consolidated corporations
Mining
Textile manufacturing
Agriculture, forestry and fisheries
Chemical manufacturing
Printing and publishing
Food manufacturing
Finance and insurance
Iron, steel and metal manufacturing
Machinery manufacturing
Transport, communication and public utilities
Other manufacturing
Drinking and eating places, hotels
Wholesale trade
Real estate
Retail trade
Construction
Service
Fig. 53 : % of Corporate Tax paid by industry
% of Corporations Taxes paid by corporates
P a g e | 29 [email protected]
Average revenue
base
Even those paying tax pay below
the rate
Source: Statistics Bureau
Fig. 54 shows the average revenue base of companies by industry in millions of yen. Consolidated
corporations are naturally much larger businesses compared to mom & pop real estate agencies,
restauranteurs, or farmers.
Source: Statistics Bureau
Of interest, Fig. 56, of the few corporates that actually pay tax, average tax rates are skewed.
Perhaps mining companies wrote off more tax losses from previous years or had more aggressive
write off cycles for fixed assets. Old economy style industrials tend to dominate the lower tax
brackets.
42.3%
64.1%
65.4%
65.8%
65.9%
66.0%
66.2%
66.2%
66.4%
68.6%
68.6%
71.3%
73.4%
73.7%
74.3%
78.5%
79.0%
79.5%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
Consolidated corporations
Real estate
Finance and insurance
Service
Construction
Chemical manufacturing
Transport, communication and public utilities
Wholesale trade
Mining
Iron, steel and metal manufacturing
Machinery manufacturing
Agriculture, forestry and fisheries
Other manufacturing
Retail trade
Food manufacturing
Printing and publishing
Textile manufacturing
Drinking and eating places, hotels
Fig. 54 : % of Corporates reporting losses by industry
129.8
178.8
213.5
246.4
256.0
378.3
433.2
435.7
445.4
647.3
848.5
1,003.4
1,007.8
1,048.9
1,645.9
1,682.7
1,703.8
236,375.0
- 50,000.0 100,000.0 150,000.0 200,000.0 250,000.0
Real estate
Drinking and eating places, hotels
Agriculture, forestry and fisheries
Construction
Service
Other manufacturing
Printing and publishing
Retail trade
Textile manufacturing
Iron, steel and metal manufacturing
Food manufacturing
Transport, communication and public utilities
Wholesale trade
Machinery manufacturing
Mining
Finance and insurance
Chemical manufacturing
Consolidated corporations
Fig. 55: Average Revenue (¥mn)/# of corporates
P a g e | 30 [email protected]
Tax rate cuts lifted tax
take considerably
Source: Statistics Bureau
What is clear is that current tax policy is having little effect on behaviour. 70% paying no tax over
many decades despite the drip feed cuts requires more heavy handed responses.
The Polish experience with Flat Tax – this is how a ‘jolt’ works
Poland had long been suffering from a lack of tax receipts no thanks to high levels of corporate
and personal income tax rates which pushed more money into the ‘grey economy’. Poland took
the bold step by surmising if they cut tax rates by a large enough amount (cut to a flat rate of 19%
from the progressive 19%, 30% & 40% brackets) businesses would stop bothering to go out of
their way to dodge the tax man, Fig. 57. The effects were profound.
Source: Ministry of Finance, Eurostat
Personal (PIT) and Corporate income tax (CIT) receipts behaved in the following way. Since 2004,
PIT receipts jumped 69% and CIT by 45%. The lift in economic activity driven by the changes
4.7%
15.2%
18.1%
19.8%
19.8%
21.1%
21.4%
21.6%
22.1%
22.3%
22.4%
22.4%
22.4%
22.9%
23.1%
23.1%
23.3%
24.0%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Mining
Consolidated corporations
Finance and insurance
Chemical manufacturing
Machinery manufacturing
Textile manufacturing
Iron, steel and metal manufacturing
Agriculture, forestry and fisheries
Construction
Printing and publishing
Food manufacturing
Real estate
Other manufacturing
Drinking and eating places, hotels
Transport, communication and public utilities
Service
Wholesale trade
Retail trade
Fig. 56: Average National Corp Tax rates (%) paid by companies by industry (2014)
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Fig. 57 : Tax Collection - Polish jolt vs. Japanese halt
Polish Tax Receipts (EUR mn) Japanese Tax Receipts (JPY bn)
Poland introduces corporate
flat tax reform
GFC
P a g e | 31 [email protected]
Chalk and cheese impacts
Debt: GDP
Tax reforms were key
Transparent
drove consumption tax intake by over 55%. Over the same period, Japan’s PIT rose a measly 5%,
CIT fell 17.2% and consumption tax receipts were flat, Fig. 58.
Source: OECD
Poland’s population faces similar long term demographic challenges as Japan does but at 50%
gross debt to GDP its economy is in a less risky position, Fig. 59.
Source: IMF
While Poland (which still uses the zloty) benefitted from EU accession since 2004, tax reforms
were a key factor in driving positive tax collections. Although progressive tax rates remained in
force for personal income tax, the Polish made provisions that allowed individuals of these
businesses, at their request, to pay a 19% flat tax which carried certain restrictions on other
benefits. Poland has also made it clear that taxpayers that do not disclose sources of revenue and
income will be taxed 75%. Transparency is clear. Japan should adopt a similar system to capture
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
0
50,000
100,000
150,000
200,000
250,000
2005 2006 2007 2008 2009 2010 2011 2012 2013
Fig. 58: Poland Tax Progression (Zloty mn)
Consumption Tax (LHS) Personal Income tax/Capital Gains
OtherTaxes Corporate Income Tax/Capital Gains
+69%
+55%
+45%
+55%
-20
0
20
40
60
80
100
120
140
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Fig. 59: Net Debt: GDP (%) - Japan vs Poland
Poland Japan
P a g e | 32 [email protected]
Personal income tax
Two tier
Polish VAT
a wider share.
Unemployment rates in Poland plummeted in 2004 from around 20% to around 6.5% before the
GFC and in recent years trended back to those lows.
Source: Eurostat
Poland has a two-tier PIT with 18% up to c.US$22,000 (ZLN85,528) and 32% above it, reduced
from 40% in 2009. Other taxes are as follows;
private lease (at the taxpayer’s request - 8.5 per cent tax on registered income);
dividends (19 per cent flat tax),
interest on savings (19 per cent flat tax),
gains from capital funds (19 per cent income tax);
gains from the sale of securities (19 per cent income tax);
selling private properties (as a rule, 19 per cent income tax);
awards in competitions, gambling, premium sale (10 per cent flat tax);
income of controlled foreign company (19 per cent income tax).
Poland has a 23% consumption tax which generates around 22% of total tax receipts versus
Japan at 8% and 31% respectively. Tax receipts in Japan have risen steadily since the collapse of
Lehman Brothers but expenditure far outstrips collection leaving further debt raising to fill the gap,
Fig.49.
0
5
10
15
20
25
Jän
.01
Ma
i.0
1
Se
p.0
1
Jän
.02
Ma
i.0
2
Se
p.0
2
Jän
.03
Ma
i.0
3
Se
p.0
3
Jän
.04
Ma
i.0
4
Se
p.0
4
Jän
.05
Ma
i.0
5
Se
p.0
5
Jän
.06
Ma
i.0
6
Se
p.0
6
Jän
.07
Ma
i.0
7
Se
p.0
7
Jän
.08
Ma
i.0
8
Se
p.0
8
Jän
.09
Ma
i.0
9
Se
p.0
9
Jän
.10
Ma
i.1
0
Se
p.1
0
Jän
.11
Ma
i.1
1
Se
p.1
1
Jän
.12
Ma
i.1
2
Se
p.1
2
Jän
.13
Ma
i.1
3
Se
p.1
3
Jän
.14
Ma
i.1
4
Se
p.1
4
Jän
.15
Ma
i.1
5
Se
p.1
5
Jän
.16
Fig 60: Polish Unemployment Rate (%)
Flat tax introduced
P a g e | 33 [email protected]
Polish health insurance
Japanese tax high
Fig. 61: Other contributions paid by employee/employer in Poland
Source: http://www.paiz.gov.pl/polish_law/taxation/pit
So even if Poles end up paying 9.76% of their gross salary in retirement insurance or 9% in health
insurance there is a sense that there is a direct benefit rather than pouring it into a vacuous pot.
Fig. 62: National tax burden on personal income in Japan
Source: National Tax Agency(NTA)
Japan’s national income tax rates are high. The rates in Fig. 61 do not account for local taxes (c.
10-11%) or the special tax for reconstruction (2.1%). So, a top bracket earner would pay around
50%+ income tax. Throw on property taxes, consumption tax and vehicle taxes and all of a
sudden, we are nudging 60%+
If Japan copied Poland’s example
If Japan replicated the success of Poland’s tax reforms and was able to achieve similar growth
rates in receipts, then the annual Japanese national budget deficit would more than halve to
around ¥15bn
P a g e | 34 [email protected]
19% flat tax in Japan
would mean
Prefectural stock
performance
Source: NTA, Custom Products Research
If Japan introduced a 19% flat tax (including all other regional, local and other taxes) and
corporates reported a 50% higher income (those companies incorporated below ¥1bn) and 50% of
the non-tax paying corporates paid ¥1.5mn in tax then Japan would collect around ¥12.5 trillion
yen (+¥2.4bn) based on FY2013 tax take. If we analyse the general recurring margins of around
4.3% for the majority of smaller companies, any efficiency uptake through competition by 1%
would see this number at around ¥15 trillion.
Prefectural Stock Performance
When we analyse stocks and performance by HQ location, we see that companies in Fukuoka
appear way down the list. In market cap terms, Toto Ltd ranks 156th in Japan. In outright
performance over 12 months the best performer Kyudenko ranks 62nd. Of course, the bulk of
companies reside in the Big Smoke but we think that the population statistics are very telling as to
where future relative growth will be experienced. Naturally many Japanese companies do not
exclusively sell ‘at home’ as it were but if there was ever a more telling signal of ‘faith’ in the future
Fukuoka looks to be lit up in neon.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152020
E
2025
E
Total Expenditures 84.8 83.7 82.4 84.9 85.5 81.4 81.8 84.7 101 95.3 100.7 97.1 100.2 95.9 96.3 100.0 100.0
Tax Revenue 47.9 43.8 43.3 45.6 49.1 49.1 51 44.3 38.7 41.5 42 42.3 43.1 50 54.5 83.1 85.7
0
20
40
60
80
100
120
Fig. 63: Japanese National Budget Deficit (¥trillion)
P a g e | 35 [email protected]
Fig. 64; Prefectural Performance – 3~5 year returns (aggregated where companies have HQ)
Average Median Average Above 100¥bn
Mkt-cap Median Above 100¥bn
Mkt-cap
Prefecture 3-Year Return
5-Year Return
3-Year Return
5-Year Return
3-Year Return
5-Year Return
3-Year Return
5-Year Return
Aichi 37.2 146.6 24.1 112.4 46.1 183.8 32.4 140.7
Akita 36.5 69.9 36.5 69.9 na na na na
Aomori 28.2 58.6 28.2 58.6 na na na na
Chiba 40.2 135.0 25.8 70.0 50.0 165.8 54.5 188.5
Ehime 39.1 53.3 32.5 26.6 45.7 80.0 45.7 80.0
Fukui 57.2 303.1 48.9 256.2 48.9 256.2 48.9 256.2
Fukuoka 60.9 269.8 41.4 150.5 59.1 188.6 29.6 122.3
Fukushima 18.7 34.3 23.5 21.4 36.3 92.7 36.3 92.7
Gifu 48.7 197.9 30.9 121.7 48.3 209.8 43.0 104.3
Gunma 40.9 112.3 32.7 87.0 60.9 106.7 81.9 55.5
Hiroshima 23.4 109.1 28.6 75.1 23.1 137.5 33.3 148.7
Hokkaido 53.3 216.4 17.7 207.4 64.0 246.7 25.6 326.7
Hyogo 59.8 184.1 25.9 121.7 80.7 250.4 30.6 138.8
Ibaraki 38.9 57.2 38.9 57.2 39.3 40.4 39.3 40.4
Ishikawa 85.9 376.9 41.6 203.3 118.3 675.6 118.3 675.6
Iwate -7.4 39.5 -7.4 39.5 na na na na
Kagawa 34.4 101.9 25.6 122.8 11.5 62.2 8.6 47.1
Kagoshima -2.1 8.4 21.1 -21.5 25.0 131.6 25.0 131.6
Kanagawa 49.6 165.9 44.1 140.4 56.7 178.7 59.4 149.5
Kochi 83.5 166.8 83.5 166.8 na na na na
Kumamoto na na na na na na na na
Kyoto 49.3 171.4 37.3 131.8 54.9 175.2 42.0 139.3
Mie 99.6 191.4 17.3 54.4 17.3 54.4 17.3 54.4
Miyagi 38.0 70.1 20.7 72.4 20.7 83.6 20.7 83.6
Miyazaki 28.6 94.8 28.6 94.8 na na na na
Nagano 38.3 274.0 11.5 66.6 53.9 370.3 15.1 76.9
Nagasaki 49.4 77.6 49.4 77.6 na na na na
Nara 16.7 2.3 16.7 2.3 16.7 2.3 16.7 2.3
Niigata 52.2 122.3 36.5 97.5 42.5 146.7 36.7 156.7
Oita 20.5 86.9 20.5 86.9 na na na na
Okayama 40.1 98.4 36.1 91.5 3.8 23.2 3.8 23.2
Okinawa 46.7 115.2 26.6 82.6 64.4 134.2 71.3 82.6
Osaka 46.8 168.5 34.0 107.6 47.7 150.5 38.7 117.0
Saga 24.0 68.1 24.0 68.1 12.6 80.1 12.6 80.1
Saitama 44.9 141.3 25.4 117.3 87.7 154.7 81.9 132.6
Shiga 25.3 138.6 17.7 172.3 19.7 134.6 17.0 186.0
Shimane 36.1 68.5 36.1 68.5 36.1 68.5 36.1 68.5
Shizuoka 36.7 133.0 35.0 100.8 55.6 162.2 50.2 145.0
Tochigi 73.7 145.8 58.9 110.2 90.2 211.4 90.2 211.4
Tokushima 39.1 36.0 39.1 36.0 39.1 36.0 39.1 36.0
Tokyo 42.9 191.3 26.2 123.3 46.9 193.2 31.1 128.9
Tottori 199.0 493.4 199.0 493.4 na na na na
Toyama 21.9 66.0 3.6 34.5 -1.7 27.2 -3.1 30.4
Wakayama 54.8 229.7 36.8 192.2 68.2 346.9 68.2 346.9
Yamagata 15.2 27.0 15.2 27.0 na na na na
Yamaguchi 23.0 110.7 15.8 57.6 28.6 148.6 23.6 144.5
Yamanashi 21.2 96.8 24.9 77.1 21.2 96.8 24.9 77.1
Source: Custom Products Research
P a g e | 36 [email protected]
Yubari
Opaque data
JLGBA
Poland offers good
data
Summary
The 10th
anniversary of Yubari’s bankruptcy occurs this year. However, our studies seem to confirm that the trend
of depopulation in many of Japan’s prefectures will accelerate. Whether it be plunging high school student
numbers, an exodus of working age residents seeking longer term job security or incompatible employment by
industry trends.
Gaining access to municipal budgets and balance sheets is opaque. At a prefectural level we get some idea of
what is going on with budgets but the sharper rate of depopulation could well become a bigger issue sooner than
the considered norm.
An aging society only tips the apple cart of dependency ratios on a smaller workforce. Even the ‘economic revival’ scenario of the government points to rapid deceleration in traditional industries putting further pressure on tax
revenue collection at local, prefectural and national levels.
While the JLGBA paints a rosy picture about sustainability of debt service ratios, future burden ratios, fiscal
strength indicators and recent bond market moves show how rapidly things can change when confidence is rattled
While not anywhere near concerning levels yet, a succession of municipal bankruptcies could well skew
refinancing options. As it stands now bond markets are mildly pricing in differences. The law of low interest rates
means that any panic in bond markets could cause not only more punitive interest payments but the slowdown in
growth would make their impact on budgets more acute. Taxing Japanese citizens more is not the answer. 70% of
SME’s do not pay tax for the very reason they are too high and complex. Poland had similar problems and they
worked out cutting corporate taxes from 40% to 19% would free up the grey economy and the result was a
doubling of tax revenues.
Poland offers far better longer term tax solutions to Japan. Burying Japanese in higher taxes is the wrong way.
While headline rates are championed as being cut, a wealth of stealthy local and other taxes take back what was
supposed to be gained. It needs to stoke the entrepreneurial spirit because frankly there is no other alternative and
nationalising the debt via the BoJ will ultimately backfire. The mass ETF buying by the BoJ which was supposed to
push equities to levels which would encourage Mrs Watanabe to spend her winnings in Mitsukoshi have been
shoved between the mattress. Japan’s authorities inspire very little in the way of new methods of reversing
decades of stagnation. Power has to be put back in the hands of the people as public policy has failed and will
continue to fail. Without swift action the depopulation and pressure on the prefectures will exacerbate.
Make Japan Great Again (#MJGA)
.
P a g e | 37 [email protected]
Tokyo 14/F Win Aoyama 942 2-2-15 Minamiaoyama Minato-ku, Tokyo Japan 107-0062
Office Locations
Tokyo Michael Newman
+81-80-4446-8200 [email protected]
Contacts
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