'Buried Treasure' Eyed For Pensions
The Yomiuri Shimbun
November 9, 2008
The government and the ruling coalition parties have decided to raise the government's burden of paying pension benefits from one-third to a half beginning in April as planned, using surplus reserves in the Fiscal Investment and Loan Program Special Account, government sources said Saturday.
The government will allocate the funds in the fiscal 2009 budget and submit related bills to the ordinary Diet session to be convened early next year, including one to revise the Special Account Law, the sources said.
The move means that ruling parties and government officials have judged it is impossible under the current environment to increase the consumption tax rate, which had been considered as the top contender to provide the source of revenue to pay for the increase in the government pension payment burden, they said.
The pension reform law set forth in 2004 stipulates that the government's share of the burden of financing the pension benefits fund for the basic pension "be raised to 50 percent by fiscal 2009 after drastic reform in the tax system to secure a stable revenue source."
Currently the government's share is 37.3 percent in the fiscal 2008 budget. To raise the rate to 50 percent, the government needs an additional 2.3 trillion yen a year in revenue.
However, Prime Minister Taro Aso has said a hike in the consumption tax rate will be made over the next three years. Within the ruling parties, the dominant opinion is that the public's confidence in the pension system might be shaken if raising the share is postponed.
Thus, the share from state coffers to pay pension benefits will be increased as scheduled by using surplus funds dubbed "buried treasure" from the Fiscal Investment and Loan Program Special Account's interest management reserve. The government probably will not issue deficit-covering bonds to generate revenue, according to the sources.
Although the measure will ostensibly be adopted for only a year, it is highly probable that the buried treasure will continue to be used until the consumption tax rate is raised, some observers said.
Under the special account system, the government extends loans to state-controlled financial institutions and independent administrative institutions using funds obtained by issuing national bonds.
When the loan interest payments to the government top the national bond yield payments to bond holders, the difference becomes the government's income. Funds accumulated in this way are reserved and invested in the form of the interest management reserve. The purpose of the reserve is to prepare for a situation in which the bond yield payments top the loan interest payments due to fluctuations in interest rates, resulting in losses in the reserve fund.
The Special Account Law stipulates that this reserve fund must accumulate to and remain untapped at a level equivalent to 5 percent of total assets of the special account.
Information on World Pension Issues
Copyright © Global Action on Aging