Delay of tax hike will hit elderly hardest: experts



Prime Minister Shinzo Abe’s decision to postpone the second stage of the sales tax hike is likely to wreak havoc on health care provisions for the elderly.

Abe last week delayed plans to raise the sales tax to 10 percent from 8 percent until April 2017 after GDP data released last week showed that the world’s third-largest economy had contracted 1.6 percent in the third quarter, tipping the country back into recession.

The government had expected to reap an additional ¥14 trillion in annual revenue by doubling the consumption tax to 10 percent by October 2015 in two stages, beginning with a hike to 8 percent in April. The funding was aimed partly at covering reforms that would boost home-based care for the elderly, provide extra support for working mothers and cover the country’s burgeoning pension and health care costs.

The funds were crucial resources amid the ongoing struggle to find ways to care for an aging population, said Toshio Miyata, an executive director at Health and Global Policy Institute, a think tank in Tokyo.

“It will strain doctors and nurses doing their best to push for better,” said Miyata, who assists the Cabinet Office on health care and medical strategy.

One in four people in Japan is over 65, and the proportion of senior citizens will swell to 40 percent of the population by 2060, according to the National Institute of Population and Social Security Research.

And as the population ages, the proportion of tax-paying workers will shrink relative to the swelling ranks of dependent seniors.

Japan is already the world’s most indebted nation. Welfare spending is expected to surge 32 percent to ¥146 trillion by 2020. The government, which finances about a quarter of the spending, is selling bonds to finance the cost, while simultaneously trimming hospital budgets and promoting community-based care to dampen the growth of health care spending.

The cash raised from the first stage of the tax hike to 8 percent from 5 percent in April was primarily allocated to funding state pensions. Most of the revenue from the second round was expected to be used to pay for the growth in health care costs and reforms to health care systems.

With the delay, the government will be ¥1.45 trillion short of the ¥2.8 trillion it planned to spend to improve health care, according to Finance Ministry documents.

The government hasn’t as yet identified alternative sources of revenue to pursue health projects, such as those intended to boost support for community-based dementia care and incentives for medical professionals to pay house calls.

But Chief Cabinet Secretary Yoshihide Suga, speaking at a Nov. 19 press conference, said alternative sources of funding for the governments child care program starting in April would be found, without giving further details on where the money would come from.

Other programs will have to be reviewed, he said.

“As there won’t be tax revenue expected, we will have to prioritize projects as we plan the fiscal budget,” Finance Minister Taro Aso said in a news conference on Nov. 21.

The urgency of fiscal reform hasn’t been politically acknowledged, said Kazuhito Ikeo, a professor of economics and finance at Tokyo’s Keio University. In fact, the demand for health care is growing so rapidly that even a sales tax hike to 10 percent will not be high enough to cover the rising costs, he said.

“The fiscal situation is steadily on course for a crash,” Ikeo said on Nov. 14 before the announcement of the delay. “Demand for health care will explode in the next decades as baby boomers age.”

The delay in the second tax hike, and thereby in funding, is a second blow to hospitals and clinics on Prime Minister Abe’s watch, Health and Global Policy Institute’s Miyata said. Profit margins of medical institutions have been squeezed by higher costs for imported goods as the Bank of Japan’s program of aggressive monetary easing has weakened the yen, he added.

The nation’s health care system is dependent on imports. In 2011, the country imported ¥1.7 trillion of drugs from abroad — 4.8 times more than the country exported — according to government data. Approximately 61 percent of its medical devices were also brought in from overseas.

The government may attempt to free up funds by cutting the prices of drugs annually instead of biennially, Miyata said.

With or without the tax funding, communities will be left to find their own resources, said Masahiro Kami, an associate professor at the University of Tokyo who specializes in health care governance.

Affluent ones have begun to prepare themselves, he said, while poor ones won’t be able to care for their many elderly citizens.

  • Ron Lane

    Earlier this week Abe reaffirmed his determination to slash the corporate tax rate, further reducing government revenue. Just where exactly is the money to support health services, among other things, to come from? Is it surprising that Keio’s Ikeo states in this article that Japan’s economy is “on course for a crash”?