Dire shortfall of social security funds

the-japan-news.com -- Sep 29

Prime Minister Shinzo Abe is planning to use the upcoming House of Representatives election to gauge the public’s opinion of his intention to change how increased revenue from the consumption tax hike will be used.

If Abe's plan is realized, the new spending blueprint is expected to accelerate moves for "human resources development," such as by making preschool education free. However, implementing these new policies will require money.

The money diverted to these policies could exacerbate the shortage of funds needed to cover the nation's social security costs, which are swelling as the population grays. This could lead to the issuance of more debt-covering government bonds, which in turn could increase the burden placed on future generations.

The government had previously established how it would spend the about ¥5.6 trillion in increased annual revenue it will receive when the consumption tax rate is hiked from 8 percent to 10 percent, based on the unified reform of the tax and social security systems decided in 2012.

Specifically, ¥1 trillion would be used to beef up the social security system, such as by boosting support for people raising children, ¥4 trillion would be for paying back state debt to ease the burden on future generations, and ¥500 billion would be secured for such purposes as making up shortfalls in the state coffers for the kiso nenkin basic pension system.

However, Abe has now indicated a preference to have the proportion of the extra revenue spent on improving social security programs to be "roughly equal" to the amount used for repaying state debt. Assuming the ¥500 billion set aside for the basic pension and other expenses is left untouched, of the remaining ¥5 trillion, this would amount to ¥2.5 trillion being used for social security --- an increase of ¥1.5 trillion.

In contrast, the amount of money used for repaying the government's debts would be slashed from ¥4 trillion to ¥2.5 trillion.

One policy considered likely to be included to bolster the social security system is making preschool and day care free for children aged from 3 to 5, irrespective of their parents' income. The Cabinet Office and other entities calculate that implementing this plan would require about ¥730 billion. If the program was extended to cover children from under 1 to 2 years of age, another ¥440 billion would be needed.