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Pension plan a Pandora's box

By Yomiuri Shimbun

The Daily Yomiuri, May 4, 2003

There can be no reform of the pension system, which is scheduled to be reviewed next year, unless the government starts earnestly debating the issue.

The public pension program, which is supposed to support citizens in their old age, has been hard hit by a rapidly graying population and a declining birthrate. These twin phenomena make it extremely difficult to maintain the current pension system.

Within the government, there are various schools of thought on how to handle the issue. Some are calling for substantial cuts in pension benefits, while others want any increase in the pension premiums to be shouldered by working generations to be held down as much as possible.

All sides are missing the essential point of the proposed reform.

The real issue is how to secure revenues to finance ever-ballooning social security costs.

With that objective in mind, it is time to give serious consideration to raising the consumption tax, a tax that is distributed equally and fairly among all generations, including the elderly.

The government's contribution to the basic portion of the pension program is scheduled to be increased from one-third to one half in 2004. This increase is essential to stabilize the pension system and to ease the current unfairness among the generations in terms of contributions to and benefits from the pension program.

Time to grasp the nettle

However, as things stand, there is no prospect whatsoever of the government securing the extra revenue required, estimated at 2.7 trillion yen.

This is because our political leaders refuse to grasp the nettle and squarely face the fact that the consumption tax needs to be increased to secure the funds needed to keep the public pension system afloat.

If they are shying away from the issue primarily out of fear of public backlash, then they are shirking their political responsibility and the entire political system has collapsed into a state of venal populism.

A key task facing politicians is to regain the people's trust in the public pension program. It is of paramount importance to dispel the distrust in the future of the pension program, a distrust that is spreading like wildfire--especially amongst the younger generations.

Discussions on reforming the pension scheme are under way at the Council on Economic and Fiscal Policy, chaired by Prime Minister Junichiro Koizumi, at the Fiscal System Council, an advisory panel to the finance minister, and at the Tax Commission.

However, the focus of discussion at these panels is on how to further bleed the public by redefining premiums, cutting benefits and increasing taxation on pension benefits.

While it is important to increase impartiality with regards to contributions and benefits of the pension program through streamlining it, there can be no real reform unless the crux of the matter--where will the money come from?--is unaddressed.

Koizumi must show leadership

In December, Koizumi said there could be no meaningful discussion on reforming the pension program unless the eventual need for a hike in the consumption tax was accepted.

Koizumi has ruled out the possibility of any increase in the consumption tax while he himself is in office. Be that as it may, as the person who first broached the once-taboo subject, the prime minister bears the responsibility to chart the course for future discussion.

Without a doubt, the highest priority for the government is to tackle deflation. Therefore it is only reasonable that any increase in the consumption tax should be made only after the economy has recovered to some extent.

Nevertheless, it is important to look at reforming the pension system from all angles, and not limit our options to increasing the government's contribution to the basic portion of the pension program. In order to present a clear vision of the overall social security system, the government needs to expedite its discussion on a number of issues, including using consumption tax revenues exclusively for welfare.

These issues are so thorny that Koizumi's formula of leaving the issues up to ministers and bureaucrats will not work.

The prime minister needs to exhibit some leadership.


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