The government's latest estimate that the annual cost of social welfare benefits will reach ¥190 trillion — 1½ times the current level — in 2040 should prompt broad public discussions on measures needed to maintain the system's long-term sustainability.
Options to address this problem in the face of the rapidly graying and shrinking population are limited: further increases in the public burden in terms of tax and social security premiums, reducing benefits, or preventing increases in medical and nursing care expenses. All of these will likely have to be combined to meet the daunting challenge. Given the enormity of the challenge and anticipated difficulties in reaching a public consensus on painful reforms — in which the hurt will likely need to be shared across a broad spectrum of the population — it's high time to start the discussion.
Comprehensive reform of the tax and social security systems, based on a 2012 agreement between the ruling and opposition parties, was aimed at addressing the anticipated situation in 2025, by which time the aging of Japan's society will accelerate as the youngest members of the postwar baby boomer generation turn 75. That agreement called for a two-stage hike in the consumption tax to 10 percent. The second stage has been postponed twice since 2015 and is now scheduled to take place next year. The estimate presented to the government's Council on Economic and Fiscal Policy gives an idea on the social security costs as of 2040, when Japan's elderly population is forecast to near its peak.