Investing in Japan’s posterity

Japan’s rapidly graying population and shrinking population is casting a shadow on Japan’s future. After hitting a low of 1.26 in 2005, the total fertility rate (TFR) has risen for three consecutive years and stood at 1.37 in 2008, a rise of 0.03 from 2007. Nonetheless, deaths still exceed births and the country’s population continues to decline. If the nation’s birthrate rises to slightly more than two children per woman on average, however, the population will stabilize.

The Democratic Party of Japan has made promises of generous assistance to households with children. It proposes offering a monthly ¥26,000 allowance (¥13,000 in fiscal 2010) per child through middle school and raising the child-birth allowance from ¥380,000 to ¥550,000. In addition the party says it will make public high schools virtually tuition-free, give ¥120,000 annually to students attending private high schools and offer education loans to university students if they want.

To be effective, such measures must be implemented without interruption for the foreseeable future; therefore, the DPJ must ensure that sufficient funding exists. It is estimated that the child-allowance plan alone will cost ¥5.3 trillion a year. The DPJ plans to pay for it by abolishing tax deductions for spouses and dependents, and by eliminating existing child allowances. Obviously, households that do not benefit from these measures will shoulder a greater financial burden.

While the DPJ’s child-rearing and education-support measures will be welcomed by parents, the DPJ must realize that the unstable employment environment is causing many young couples to put off or to skip having children. And to assuage concerns about having and rearing children, more obstetricians, pediatricians and nurseries will be required.

To pay for the DPJ’s costly proposals, funding cuts would have to be made that could affect local governments and local economic activities. Clearly the DPJ will need to strike an appropriate balance on budget allocations.