Get Tax to Where You Once Belonged

Musings on Japan's 'Hometown tax', the meaning of investment, and the urban-rural divide.


Hometown tax/ふるさと納税/furusato-nō-zei allows taxpayers to redirect their income and residence taxes to local governments in rural areas, and even specify the purpose for which it is to be used (e.g. earthquake reconstruction). The transfer is not 100% and participants forego about ¥2000. As an incentive, municipal beneficiaries thank participants with gifts including rice, seafood, spirits, toys, and holidays.

Why is this worth mentioning?

Hometown tax came up when an izakaya drink session shifted conversation to investment. I'm fussy about what gets called an 'investment'. I like Kiyosaki's simple albeit simplistic definition: 'something that earns you money'. Usually, I would dismiss it as 'discount luxury purchases', and it would not cause an internal epistemological crisis. But these are interesting times.

Don't let me down

Going for yield makes sense in an inflationary environment. You want to buy future gain that's greater than today's money to offset its devaluation. But in deflating Japan where prices are falling, you win just by getting tomorrow's discounts today.

So 'investment' can cover immediate saving as well as future profit. But my definition also includes scalability, risk, and sustainability. And that's where Hometown tax falls short. The time frame is limited; once a year. There is no risk of losing your money, nor of reaping a windfall. Finally, it's not something that will compound and enable you to live off, let alone feed your family.

Semantic wrangling aside, it's telling that this is what counts as discussion on investment amongst 40-something Japanese professionals. Not financial assets, but chasing annual state-sponsored unagi discounts.

So why does Hometown tax exist? It is commonly believed that rural Japan is dying. This is considered a shame. Rustic nostalgia and romanticism is touted as an antidote for urban stress, for example through movies like Departures/おくりびと and 'The Furthest End Awaits'/さいはてにて.

Encouraging the need to rescue inaka/いなか Japan neatly aligns with the LDP government's interests, as conservative rural voters override more populous, more progressive, but electorally weaker urban constituencies.

If you're a native English speaker, this would be very familiar, not to mention topical. Perhaps similar schemes could be adapted to make disgruntled Western hometowns great again. (At least, in countries where talk of tax centralisation is toxic.)

Not so fast.

Let it Be

While services in rural Japan are declining, they are doing so commensurately with the population. This leaves surplus. Stories of country schools with 1-6 teacher-student ratios abound, and I would argue that daycare/hoikuen/保育園 is easier found in the countryside than it is in Tokyo. Furthermore, rural Japanese are wealthier in financial assets than their urban counterparts.

The relative wealth distress of rural Australia is also small. Australians in capital cities hold on average a mere 10% more in financial assets than those in the rest of their State. Melburnians and Adelaideans are slightly poorer by that measure. Their being 26-29% richer in net terms comes from being 48% wealthier in (mostly leveraged) real property.

Inhabitants of the U.S. Midwest are the wealthiest in terms of financial assets, not the cosmopolitan coastal areas. Home values make up for Southerners' poor financial holdings.

Region	Net Worth	Net Worth (Excluding Own Home)
Northeast	91,025	20,020
Midwest	81,049	25,913
South	60,700	13,000
West	59,431	18,518

Certainly the concerns of country voters have shaken 2016's ballots. But initiatives like Hometown tax reinforce a narrative of disadvantage that may not be as stark, or insurmountable, as thought. They would also make for poor investments.