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Vision Necessary for Future Social Security
The Daily Yomiuri
Japan
July 27, 2004
Photo Courtesy of BBC News
Japanese society finds itself at a crossroads in confronting issues related to its aging society. Issues including the pension system and health care were discussed at a forum titled "Vision for an Aging Society with a Declining Birthrate--Overcoming the Generational Conflict of Interest" held in Tokyo earlier this month and cohosted by the Tokyo Colloquium and the Yomiuri International Economic Society.
The forum was part of the Yomiuri International Forum 2004, held under the yearlong theme of "Facing Crucial Changeover: How Should Japan Build National Strategies?"
Panelists were Gustav Strandell, Japan project manager of the Swedish Care Institute; Kyoto University Prof. Toshiaki Tachibanaki; House of Representatives member Yuji Tsushima; and Showa Women's University Prof. Mariko Bando. The coordinator was Keio University Prof. Eisuke Sakakibara.
Following are excerpts of their discussion and some questions asked by audience members, The Yomiuri Shimbun.
Sakakibara: The overall growth rate of the economy will decline as a whole as the aging society and declining birthrate march on. People might think everything will be fine provided the growth rate is high, but will that be of any use? If we establish a social security system modeled on that of Sweden, the Health, Labor and Welfare Ministry and the Social Insurance Agency (SIA) would become behemoths. We need to seriously consider what would be an appropriate division of labor between the government and the private sector. We must also be prepared to clearly say we need to raise the consumption tax.
Tsushima: Japan's growth rate will increase irrespective of the state's financial situation. What the central government should do is offer people special tax breaks, such as one that can help channel more money into experimentation and research. In terms of the trade balance, Japan, which has the world's largest surplus, is still competitive. The issue lies in establishing a mechanism that allows this economic strength to be shared across the country.
Sakakibara: What I want to ask is will the growth rate be able to increase if the population slumps dramatically?
Tsushima: It will grow as long as per capita productivity continues to rise. We should make this one pillar of government policy.
In addition, as long as we have a public pension system, money will automatically enter the coffers. We're investing that money, but not financing. In the United States, it's even used as war funds. The only practical option is to establish a committee that allows transparent use of the funds, so that the Health, Labor and Welfare or the Finance ministries can't use it as they please. Perhaps you are the only person who thinks we should quit the employee pension fund and instead use reserve financing.
Tachibanaki: Japan is moving toward becoming a society that, as a whole, must provide welfare for its citizens. The traditional family structure is breaking down. We're experiencing what happened in Europe a few decades ago. Private businesses have built hospitals and company-owned homes, but they are gradually withdrawing from such projects. We find ourselves facing making a choice between the U.S. welfare setup, where there's no public health insurance for individuals, and the European model that places emphasis on society providing care for all.
Bando: In South Korea, there are moves toward introducing nursing-care insurance like we have here. We should present this Japanese model to other countries, too. It's people who make value-added products and services, so we need to invest in a system that carefully nurtures the development of such people. The maternity leave system in Japan isn't being fully utilized. I hope people will consider that becoming a firm recognized as providing assistance to future generations should be a company's social responsibility.
Strandell: Japan needs to look at the successful aspects of Sweden's social welfare system, and then make its own unique version. There are more and more examples in this country of providing care on an individual basis for patients and for people afflicted by dementia.
Sakakibara: British Prime Minister Tony Blair's pension reforms have made good use of the private sector to completely eliminate waste of public facilities. In Japan, there are huge vested interests in the system, and we don't really make good use of the expertise of the private sector. The Japanese system is poorly designed. I wonder if there are problems in how the state is involved in the system.
Tsushima: We certainly need to make use of the techniques honed by private industry. But according to my research, in the United States, there are far more social security costs involved when employers take on employees than in this country. The better the company, the more the need for good insurance and a top-class pension system, and the costs can lead to severe difficulties for the companies themselves. We should debate which areas should be handled by the government and which should be left to the private sector.
Sakakibara: How about completely relieving the SIA of determining how the reserve funds should be used, and outsourcing this to the private sector?
Tsushima: Ideally we should form a committee free of government officials and give them the information they need to undertake such a job.
Tachibanaki: I agree we should form such a private commission. But as for health insurance, there are utterly different systems even among Anglo-Saxon nations. In Britain, taxes are used to provide a minimum basic level of medical security for citizens. But in the U.S., where all health insurance is private, the costs have increased. The Japanese people can choose which one of these is better for us.
Bando: We shouldn't forget though that private firms went bust even during the bubble period.
Sakakibara: That's true, but executives of private companies can be sentenced to prison to take responsibility for mismanagement and other wrongdoings. What do you think about the consumption tax?
Tsushima: An outline for taxation reform compiled by the ruling parties for this fiscal year states that they will carry out far-reaching tax reforms by fiscal 2007, including a consumption tax review, to secure funds needed for social security expenses.
The employees pension scheme will have a shortfall in pension sources, before the latest law revisions, of about 4.7 trillion yen annually. If we lift the current state burden of one-third of basic pensions to one-half, we would need 2.7 trillion yen each year. But there's growing support for the view that the nation as a whole should support elderly people above a certain age. Perhaps consumption tax revenue could be a source of funds for this.
With prospects for reform of the entire social security system, including the pension system and also medical insurance and nursing care insurance, how much should the consumption tax rate be hiked? The answer to this should be given after careful debate from the standpoints of the tax system and the social security system.
Tachibanaki: I've constantly pushed for basic pensions to be entirely covered by consumption tax.
Bando: I agree that using consumption tax for basic pensions would ensure fairness for all, but it will be difficult to secure public support unless we clearly state that revenue from the tax is for the purpose of pensions. In addition, hiking the consumption tax rate may lower our guard against trying to streamline budgets and improve efficiency.
Tsushima: I'm also very concerned that by earmarking consumption tax for welfare purposes, tax revenues could be treated as becoming vested interests.
Strandell: There is a limit to medical resources. We must use them well and thoroughly. In Sweden, although home care exists, it's quite common for patients and their families to talk to doctors by videophone.
Bando: We Japanese have managed, at a reasonable cost, to nurture a population that boasts the world's longest life expectancy. So overall the medical system and treatments function well. But, in fact because of this, the risks associated with living longer are growing. Providing care for terminally-ill patients and dying with dignity must also be taken into account, but it will become crucial to take responsibility yourself for choosing when you will live or die. Our sense of values will be called into question.
Audience member: Wasteful usage of pension premiums by extra-governmental organizations has created public distrust of bureaucrats and shaken faith in the pension system.
Tsushima: Actually, it has been labor unions and opposition parties that have demanded that pension premiums reserves paid by workers be used in a way that they can understand. This was the origin of building the resort facilities that have since become so problematic. About 4 trillion yen in total was spent on these operations over the last 30-odd years. The figure itself overall isn't so huge, but it certainly wasn't the way the money should have been used.
Audience member: What should we make of the rift between generations over pension benefits and who should shoulder the burden?
Tsushima: Japan isn't the only nation where the elderly receive plenty, but the benefits drop as the generations get younger.
Elderly people could receive benefits by paying hardly any premiums when the system first started. But until then, some people had to send money to parents who had no income. But we have the pension system now, so there's no need for such remittances.
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