(KPL/ KYODO) The Japanese government and ruling parties are arranging to raise the income cap on earnings by a householder's dependent offspring to qualify householders for tax deductions to 1.50 million yen ($9,900) from 1.03 million yen, possibly starting next year, sources close to the matter said Thursday.

The plan comes as the ruling bloc, led by Prime Minister Shigeru Ishiba's Liberal Democratic Party, has accepted several demands from an opposition party whose cooperation it is seeking in parliament after the coalition lost its majority in the House of Representatives in October's general election.

Later in the day, the lower chamber is set to pass a draft supplementary budget for fiscal 2024 worth 13.9 trillion yen to finance an inflation relief package with the backing of the Democratic Party for the People.

Currently, if a householder has a dependent aged 19 to 22 earning more than 1.03 million yen annually, he or she is ineligible for a special tax exemption for that dependent.

The threshold has been seen as one of the key factors discouraging part-time employees from working longer hours despite a labor shortage in Japan. Earnings above the threshold could reduce the household's total income through loss of the tax deduction.

As part of measures to bolster people's disposable income, the DPP insisted the tax break ceiling should be lifted to at least 1.50 million yen from 2025.

The LDP and its junior coalition partner the Komeito party had earlier proposed increasing the level to 1.30 million yen starting in 2026, as they have remained concerned about a potential decline in tax revenues.

The ruling parties are looking to finalize the DPP-initiated proposal for incorporation in their tax reform plans for fiscal 2025, to be compiled by the end of the month, the sources said.

In a related move, the LDP and Komeito agreed Wednesday with the DPP to raise the tax-free income threshold, currently set at 1.03 million yen and also seen as disincentivizing part-time workers, from next year. The three parties will aim to lift the threshold to 1.78 million yen as demanded by the DPP.

The agreement prompted the DPP, which quadrupled its lower house seats in the October election with a platform to raise wages, to sign off on the government's spending plans for the current fiscal year.

With the extra budget, Ishiba's administration seeks to implement an economic package totaling 39 trillion yen, featuring subsidies to curb higher energy costs and cash handouts to low-income households, as rising prices continue to weigh on consumers.

KPL