• SHARE

The future of the nation’s social security programs will likely be on the minds of many voters when they go to the polls for the Upper House election on Sunday. However, neither Prime Minister Shinzo Abe’s ruling coalition or the opposition camp has been able to present voters with a convincing picture of a sustainable social welfare system amid the rapidly aging population and low birthrate. Addressing the problem should be the top priority of the Abe administration if, as most media surveys forecast, he emerges from the election with yet another landslide victory for his ruling bloc.

Ballooning social security costs have come to account for more than half of the government’s general policy expenditures. Under the ongoing demographic trend, they are growing by ¥1 trillion each year. In 2025, when the youngest members of the nation’s postwar baby boomer generation will be 75, the medical expenses are projected to be 1.4 times and nursing care costs 1.9 times higher than they are today.

The rapid graying of the population — last year people age 65 or older accounted for a record 26.7 percent of the total — means a declining number of working-age people will shoulder the cost of welfare spending for the growing ranks of the elderly. In 1965, there were roughly nine working-age people supporting one retiree. Today, that number has fallen to slightly less than three. In 2050, it is estimated that the number will be down to one.

The agreement reached in 2012 among the then-ruling Democratic Party of Japan, the Liberal Democratic Party and Komeito called for an integrated reform of the tax and social security systems, with the understanding that measures to maintain and improve welfare programs such as medical and nursing care services, the public pension and child-rearing support, would be covered by an increase in the consumption tax. It mandated a two-stage hike from 5 percent to 8 percent in April 2014, and to 10 percent in October 2015.

Four years on, the agreement is now deemed effectively dead as Abe, right before the campaign opened for Sunday’s election, postponed the second hike for the second time — until October 2019 — citing the risk that another tax hike could derail his administration’s bid to bust deflation amid the threat of a global economic slowdown. Whether or not the prime minister’s decision is wise given the fragile and uneven growth of the economy, the Democratic Party — the successor to the party in the 2012 accord — has also called for postponing the hike to 10 percent.

In fact, a 10 percent consumption tax is deemed far from enough to ensure sustainability of the social security system without putting further strains on the nation’s tight fiscal health. Premiums will need to be raised and people will be asked to pay more out of their pocket for their medical and nursing care services. Selective cuts to social security benefits and streamlining the services will be needed to trim rising costs. And many of these steps have been implemented even as the consumption tax hike to 10 percent has been postponed — first in 2014 and last month — each time by Abe as he feared the higher taxes would further dampen already weak personal consumption. However, people’s concerns over the future of the social security system, including doubts among the working-age generation whether they can expect to receive benefits and services commensurate with the amount they pay in, threaten to reduce consumer spending by prompting people to squirrel away their funds instead.

The consumption tax hike to 10 percent had been scheduled to pay for a series of planned steps to improve welfare benefits for some retirees. One of the measures will add ¥5,000 in monthly benefits to about 5 million retirees receiving small pensions and people with disabilities. A reduction in the minimum period people need to pay into the public pension system to become eligible for benefits from 25 years to 10 years is expected to save some 170,000 people from ineligibility. An expansion of reduced nursing care insurance premiums for low-income earners was supposed to cover more than 10 million people.

Abe and his ruling coalition say the government won’t be able to implement all of the planned measures now that the consumption tax hike has been postponed, but some of the steps will be taken — to be financed by the tax revenue that has been increasing under his Abenomics. But counting on a continued increase in tax revenue may be untenable, especially as prospects for corporate earnings have been clouded by the recent upturn of the yen against the dollar. The proposal by the Democratic Party is hardly convincing either, saying it will carry out all the measures while remaining vague on how to pay for them — with its leaders wavering from proposing more government bonds to calling for streamlining other public expenses.

The question of sustainability of the social security system will not go away when the Upper House race wraps up. It is an issue from which both the ruling and opposition camps cannot ignore, irrespective of the election results.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.

SUBSCRIBE NOW