Donate or Else: A Look at Japan’s New Dormant Deposit Laws

January 19, 2017
LibertyCon Brasil
January 19, 2017

Donate or Else: A Look at Japan’s New Dormant Deposit Laws

The Diet of Japan passed a new law in late November that seeks to stimulate the nonprofit charity sector. Compared to the U.S., the presence of nonprofit charities isn’t quite as commonplace in Japan. In my experience, the plight of the poor in rural areas as well as places affected by tsunamis and the Fukushima Incident in 2011 certainly have not escaped public consciousness. This doesn’t mean that Japanese culture does not approve of charity, as one Mastercard survey seems to suggest.  While the conclusive reasons are hard to determine, one strong factor may lie in the difficulty of making tax-deductible donations in the country.

While businesses have more choice in how much their taxes can be deducted via donations, individuals’ choices are more limited. Regular citizens are unable to receive a tax write-off unless they donate either directly to the Japanese government or to corporations deemed Specific Public Interest Promotion Corporations, as approved by the Ministry of Finance. Consequently, individuals’ charitable donations go largely undocumented. This creates little incentive for individuals to donate to charity.

hm-dietDespite campaigns for reform in the NGO/nonprofit sector, the government has passed new laws allowing for the withdrawal of dormant deposits from private bank accounts in order to stimulate the nonprofit sector. A deposit is considered “dormant” when it resides in one’s bank account for a long period of time doing nothing save collecting interest. While in the U.S., dormant deposits are fully defined as belonging to the beneficiary, Japan’s new law will essentially turn dormant deposits into government money to be used, purportedly, in increasing capital in the nonprofit sector. Under the new law, this money will be transferred to an insurance corporation contracted by the government and then transferred to a new organization which will manage the funds under the supervision of the Cabinet Office, who will hopefully maintain transparency in where this money goes.

According to Nikkei Economic Review, the reasoning behind this law is to curb the ability of banks to take dormant deposits as income, which had reportedly been giving banks around 100 billion Yen per year (roughly $8.5 million).  However, Nikkei also suggests that even if account holders wish to withdraw their money or receive a refund, the banks still collect between 50-60 billion Yen in interest ( between $400-500 million). It must be kept in mind that the Japanese economy relies on a very personal and exclusive relationship between the government and special interests in the form of banks or big trading corporations known as zaibatsu. Thus, the activities of nearly all big businesses, from banks to NGOs, is heavily subsidized and kept exclusively in the hands of these major companies.

This is the theory proposed by Tokyo Tea Party activist and SFL Japan leader, Katsuhiro Tamagawa, a graduate from Waseda University who seeks to form a think tank promoting free markets. According to Tamagawa, since the end of the Second World War Japan has been structured on what we in the U.S. would call crony capitalism. This system of subsidies and special interests, which once provided a boom to Japan’s economy, now only reinforces exclusiveness, restricts entrepreneurship and, in the nonprofit sector, kills individual donations so that the big businesses largely control the nonprofit field. Tamagawa, in no uncertain terms, believes that the Japanese government would rather find ways to squeeze more private money out of individuals over reforming the system and risk parting with special interests.

What this reticence towards change ignores, however, is the extent to which individuals are attempting to make a difference. One key example is the movement to form business collectives aimed at finding more efficient means of distributing resources without the interference and inefficiency of bureaucracy. Japan was actually a leader in this movement when the Seikatsu Club Consumer’s Cooperative was founded in 1967 by a Tokyo housewife, aimed originally at providing whole milk to communities around the country. According to their website, the Seikatsu Club wishes to create an “alternate economy” whereby the safety and quality of foods are regulated by cooperative bylaws, a relationship of accountability between producers and consumers is established, and projects are created which will achieve sustainability for farmers in Japan’s countryside. Today, the cooperative is made up of nearly 800,000 individuals and 20,000 local groups supporting a food economy valued at $600 billion.

Such an effort has been accomplished without raising taxes, without creating new bureaucratic offices, and without forcibly donating money from private bank accounts. While Katsuhiro Tamagawa and his supporters are determined to bring an understanding of free markets to Japan, their battle is long-term and change will not be forthcoming. For now, the least the Japanese government could do is promote awareness of environmental and economic issues outside the cities and then remove the obstacles standing in the way of concerned Japanese wishing to make a difference.

This piece solely expresses the opinion of the author and not necessarily the organization as a whole. Students For Liberty is committed to facilitating a broad dialogue for liberty, representing a variety of opinions. If you’re a student interested in presenting your perspective on this blog, visit our guest submissions page

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