Permanent NISA, shift from savings to investment Induce deposits of 1,000 trillion yen
The Kishida administration will make the NISA system permanent, which was a temporary measure.
On the 25th, the government announced a proposal for a plan to double property income. The small investment tax exemption system (NISA) has an indefinite tax exemption period and will double the number of NISA accounts and the amount of investment in the next five years. The aim is to induce a portion of the 1,000 trillion yen in deposits and savings in households. In order to trigger the shift from savings to investment, which has been advocated many times in the past, the focus will be on a simple system design and expansion of the tax-exempt quota.
Prime Minister Fumio Kishida announced at a subcommittee of the New Capitalism Realization Council on the 25th, "We will make both the general NISA and the accumulated NISA permanent. We will make the period during which profits from financial products are exempt from taxation indefinitely." did. By doing so, he said, "We will create an environment in which the middle-class and other classes can stably build assets into the future."
"The content and direction we have proposed match. I would like to give it a high evaluation." Toshio Morita, chairman of the Japan Securities Dealers Association, commented: The current NISA has a fixed tax exemption period, and many people said that it was not suitable for promoting long-term investment. The stage will be set, albeit belatedly, for attracting the working generation who will continue to accumulate assets.
There are two types of NISA: “General NISA,” which buys stocks and investment trusts, and “Tsumitate NISA,” where investment trusts are accumulated monthly. It was decided that the general NISA would transition to the new system in 2024, with the general NISA set to expire in 2023 and the Tsumitate to 2042. The new system was designed as a two-story building, and many criticized the system as being complicated, with the first floor being limited to savings.
In this proposal, the new two-story system will be cancelled, and the tax exemption period for the existing general NISA and Tsumitate NISA will be unlimited and the tax exemption quota will be increased. The tax exemption period for regular NISA was 5 years, and for Tsumitate was 20 years.
Behind the expansion of NISA is the low asset income, which consists of income from dividends on securities. According to the NLI Research Institute, per capita income in Japan was $1,800 (about ¥250,000) in 2019, below the $2,600 in the Eurozone and a quarter of the $7,900 in the United States. The ratio of asset income to disposable income was 7.9% in Japan, far behind the United States (16.5%).
There is a big difference in the tax incentives that encourage investment. In the United States, 20% of the US$118 trillion in household assets (21 years) is held through tax incentives, such as the Individual Retirement Account (IRA), which accumulates retirement allowances, etc., and the 529 Plan, which saves money for education. In the UK, assets with preferential tax treatment, such as ISA, which served as a model for NISA, account for 20%. On the other hand, in Japan, even if you add a corporate-type defined contribution pension (DC) to the NISA, only about 2% are eligible for tax incentives.
The idea is to expand the range of tax incentives by expanding the NISA and double the asset income, but there are many problems. The current number of NISA accounts is 17 million, but the utilization rate is about 70%. Only about 12 million accounts, about 10% of the Japanese population, are actually investing.
When the Japan Securities Dealers Association asked those who did not open a NISA account why they did not want to invest, many said, "The system is complicated." The simple design of the NISA system and promotion of investment through financial education are essential.
The draft plan did not mention specific figures for the expansion of the tax-exempt quota. Shungo Kore-eda, a senior researcher at Daiwa Institute of Research, points out that in order to double the wealth income of the middle class, "With a Tsumitate NISA, the annual tax exemption limit of 400,000 yen must be more than tripled."
Another issue is that investment money that goes through NISA is concentrated in overseas stocks, mainly in the United States. In October, 23% of Monex, Inc.'s Tsumitate NISA accounts purchased index funds that invested in U.S. stocks. It is the top product. “Investment trusts related to U.S. stocks account for 60% of accumulated investment (in Tsumitate NISA),” he said.
Tax incentives alone are insufficient for Japanese stocks to attract individual money as an attractive investment destination. In addition to improving corporate earnings, it is necessary to make it easier for individuals to invest in companies whose minimum investment amount is several million yen, which exceeds the annual investment limit of NISA, through stock splits, etc.
