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Saturday, May 21, 2011
Reforming social welfare system
The health and welfare ministry on May 12 announced a social welfare reform proposal aimed at making the nation's social welfare system sustainable in the face of Japan's graying population and low economic growth.
But efforts to reform the social welfare system along with tax reform have become complicated by the need to reconstruct the Tohoku-Pacific areas devastated by the March 11 earthquake and tsunami — a task that will cost an estimated ¥20 trillion.
Japan's social welfare cost increases some ¥1 trillion each year because of the graying of the population.
To make the necessary improvements in social welfare, the government will have to demonstrate an extraordinary commitment because the effort to carry out tax and social welfare reform will be competing with the need to secure funds for the reconstruction.
The easiest way to foot these bills appears to be raising the consumption tax. A one-percentage point increase in the consumption tax rate would bring in an additional ¥2.5 trillion yearly. But raising the consumption tax could dampen the economy and lead to a decrease in total tax revenues.
The basic nature of the consumption tax is regressive — it puts a larger burden on low-income people in relative terms, compared with wealthier people. The government should present other possible ways to raise funds so that a meaningful public debate can be held on revenue sources.
The ministry's proposal calls for, among other things, strengthening support for younger people who seek jobs and are rearing children to help equalize social welfare benefits different generations get; using tax money to subsidize low-income people who cannot afford pension and health insurance premiums; setting a cap on the total out-of-pocket payments for medical- and nursing-care services; placing a separate cap on financial burdens accrued for undergoing advanced medical treatments; and enrolling more irregular workers in the pension and health insurance systems.
The ministry, however, failed to reveal how much each policy step will cost. The government and the ruling party should come clean with the costs of such policies and strive to obtain a public consensus on how large the financial burden will be to maintain the social welfare system and who will shoulder it.