MATSUE, JAPAN — Former mayor of Yonago City, Yasuo Nozaka, may not have been the brains behind furusato nozei, commonly referred to as the hometown tax, but his name will forever be tied with this innovative but controversial piece of Japanese legislation.

“The idea of the furusato nozei is good. The rich people in the urban areas transfer some tax [money] to rural areas,” said Nozaka.

He was addressing participants of the 2024 Association for Promotion of International Cooperation Japan Journalism Fellowship as guest speaker at a luncheon held at Yuushien Garden on Daikonshima Island in Shimane Prefecture. The charming, historic city is located in far western Honshu, the main island in the Japanese archipelago.

Nozaka’s collision path with furusato nozei began after 30 years of diplomatic service in the Japanese Foreign Ministry. At age 53, and a scion of a prominent political family, he returned home to Yonago City to become mayor in 2003 and was immediately faced with the daunting task of repairing an almost bankrupt municipality. His burden was caused by the two issues plaguing the larger Japanese economy for several decades: a falling birth-rate and an aging population.

Japan’s Ministry of Health, Labour and Welfare showed that the country’s fertility rate has dropped to a new low of 1.2 live births per woman in 2023, marking eight years of consecutive declines.

Simultaneously, the median age in Japan has risen to 49.4 years. The Ministry of Internal Affairs and Communication reported last month that the elderly population, defined as those 65 years of age and over, has hit a record high of 36.25 million, representing 29.3 per cent of the Japanese population. The latter two data sets confirm an aging Japanese populace.

There was also a third rung, the shift in the population from rural to urban Japan. According to the website worldometers.com, 114.9 million people, or 92.9 per cent of the Japanese population, reside in urban areas of which the largest is Tokyo.

Introduced in 2008 with the aim of revitalizing rural areas of Japan, furusato nozei allows taxpayers of a certain income threshold to donate an amount of their residence tax — Japanese who meet income requirements must pay 10 per cent of their income to live in their regional area —to their original hometown. At the end of the year this amount is offset in their residence tax.

Yonago was the first to take advantage of a loophole in the system that persists today and that has caused the controversy surrounding furusato nozei. Theoretically, the funds should go to the taxpayer’s hometown, but people can actually choose any regional area they wish.

“We were discussing how to attract furusato nozei to my city, then one of my officials said it may be good to give gifts in return, because many municipalities were in financial difficulties,” Nozaka said.

Success was instant, said the former mayor.

“Many municipalities sent missions to study (our city),” Nozaka said. That was because Yonago was the highest-grossing hometown tax recipient early on.

What was intended to be a way to help the rural areas of Japan morphed into a competition between regions for the now 1.3 trillion yen (J$1.4 trillion) annual revenue, distorting the very goal of the law.

Retired since 2017, Nozaka bemoans the fact that furusato nozei is now being used as mail order gift catalogue by the wealthier members of Japanese society. He does not regret starting the gift giving trend.

“In a sense I’m half and half on furusato nozei,” he said.