Japan Moves to Narrow Spousal Tax Loophole as Labor Shortage Deepens

TOKYO, June 12, 2025 — Facing a historic labor shortage, Japan is preparing to roll back a longstanding welfare exemption that critics say discourages women from working more hours or building careers.

Lawmakers are expected to approve a bill Friday that will require most part-time workers to contribute to pension and health insurance programs. The move effectively shrinks the current carveout for dependent spouses — a system originally introduced in 1986 to support full-time homemakers during Japan’s economic boom.

Under the current system, spouses earning less than 1.3 million yen, or about $9,000 a year, are exempt from contributing to these programs. Roughly 6.7 million people fall into this category, with 98 percent of them women. The new law would reduce that number by about 900,000, according to the welfare ministry.

The proposed change reflects growing consensus among economists, business leaders and some policymakers that the country can no longer afford to prioritize outdated social norms over economic survival.

“It’s an irrational system that not only restricts the supply of high-quality female labor but also serves to limit pressure for wage growth,” said Nobuko Nagase, professor at Otsuma Women’s University.

Japan’s labor shortage has become especially acute among small businesses and non-manufacturing sectors, driven by a declining birthrate and rapidly aging population. Employers say the current system discourages part-timers from working more than 20 hours a week, as it pushes them past the exemption threshold.

The Japan Association of Corporate Executives reiterated its call this week to scrap the policy entirely. In its latest proposal, the group urged an immediate review, saying the exemption system is based on the outdated ideal of the full-time homemaker.

Despite growing pressure, conservative lawmakers remain hesitant to fully dismantle the exemption. The new bill maintains the core structure of the system but expands contribution requirements to cover part-time workers clocking more than 20 hours per week, regardless of income or employer size.

Prime Minister Shigeru Ishiba said last week that deeper reform would require more study and public discussion.

“In the latest pension system reform, we were unable to reach a consensus,” Ishiba told parliament. “There are various people eligible under this system, not only full-time housewives but also those who are unable to work due to illness, childcare or nursing responsibilities.”

In a speech last December, Ishiba defended the existing framework. “Full-time housewives aren’t the type of people living a leisurely life of naps and trivialities,” he said. “They diligently protect their homes and manage a wide range of responsibilities.”

While the government plans to temporarily subsidize the increased insurance costs, many worry that the 20-hour threshold may simply prompt part-time workers to reduce their hours even further.

Maiko Takahashi, a 45-year-old mother of three, said she plans to keep both her part-time jobs under the earnings cap.

“I would rather limit work hours than have to pay insurance fees, because I also want to spend enough time with my children,” she said. “But I always felt it’s a strange system. Why do they discourage those who want to work more?”

Debates over the fairness and utility of the exemption date back more than two decades. In 2000, a government panel began exploring how the pension system could better reflect shifting demographics. By then, dual-income households had already surpassed those with a stay-at-home spouse.

Japan’s largest labor union federation, Rengo, has pushed for more aggressive change. The 7-million member group argues that the dependent spouse policy fuels the gender pay gap and restricts career growth for women.

Tomoko Yoshino, Rengo’s first female president, said she began questioning the system in the 1990s, when economic stagnation and rising household needs forced more women into the workforce.

“Despite the sense of unfairness shared among women, the issue unfortunately failed to reach decision-making levels at the group for discussions in the past,” she said. “That was partly because of the very limited presence of women at those levels.”

Nagase said any meaningful reform must be accompanied by a shift in employer attitudes.

“Part-time female workers are still seen as cheap labor,” she said. “They’re often excluded from promotion and career tracks. That kind of thinking is holding back the economy at a time when labor shortages are only getting worse.”

It's an irrational system that restricts the supply of high-quality female labor and suppresses wage growth.