Japan: Elderly can contribute monetarily to society

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Japan: Elderly can contribute monetarily to society

By Mitsuhiko Morimoto, Daily Yomiuri

June 23, 2003

As consumption remains stagnant due to the ongoing deflationary slump, senior citizens can be seen as vital to the economy due to their purchasing power. However, moves are afoot to stifle these elderly geese before they can lay their golden eggs.

The government is going all out to rein in pension benefits in order to check growing social security spending at a time when society is aging and the birthrate is falling. When this is considered from the standpoint of the economy as a whole, it is liable to deprive current and future generations of elderly people of their vitality as consumers.

A certain newspaper ran on its op-ed page the other day a letter written by an 83-year-old man, titled "An increase in the burden born by the elderly should be made on the basis of an overall judgment." In his letter, he said something like: "Elderly people come under intense (government) pressure as they face a reduction in pension benefits, the reduction or abolition of tax breaks, and increases in both insurance premiums and the share of medical expenses they must bear. I fear the elderly may suffer greatly because of this. I would like the government to determine the average reduction in income per person in which its policies will result, and then decide the amount of taxes and other burdens senior citizens should bear."

The Tax Commission, an advisory panel to Prime Minister Junichiro Koizumi, submitted to him medium-term recommendations for tax reform on Tuesday. The heart of the recommendations consisted of a suggestion to raise taxes on pension benefits through such steps as reducing tax breaks that are uniformly applied to the elderly--including those who are wealthy--on public pension benefits. The panel also suggested the need to raise the consumption tax rate to at least 10 percent.

On the other hand, the Fiscal System Council, an advisory body to the finance minister, is seeking a cutback in pension benefits, including those to current beneficiaries. In addition, the Diet is set to approve a bill allowing private sector insurance companies to pay less than the amount they promised to pay to policyholders when their insurance policies mature. Various other reform proposals abound.

According to a Health, Labor and Welfare Ministry calculation, social security benefits, including pensions, medical services and welfare payments, will increase from 82 trillion yen in fiscal 2002 to 176 trillion yen in 2025. Currently 3.5 workers support each elderly person, but in 2025, the figure is expected to drop to two workers.

Under such circumstances, benefits extended to the growing number of elderly people must be slashed in order to ease the burden on working people as much as possible; otherwise, the social security system cannot be maintained. The senior citizen who wrote the letter to the editor was prepared to bear his share of the national burden.

However, the elderly are some of the most enthusiastic consumers. Personal consumption as a whole remained sluggish in 2002, but that of people older than 50 went up, helping to ease the overall decline. They also make up a sizable portion of travelers both domestically and internationally. Yet their spending is not confined to travel.

A recent survey of household expenditures showed seniors pushed up the average spending for learning and entertainment as well as health and medical services. An increasing number of hotels are targeting them for dinner meetings and gatherings on culture, arts and health lectures.

Those in their 50s and 60s account for about 30 percent of purchasers of new high-rise condominiums in downtown Tokyo. Many seniors are moving from the outskirts of Tokyo to the capital's center, where they can go to theaters and attend concerts.

According to UFJ Institute Ltd., elderly people are spending lavishly now after years of saving, and it has been said of late that they are likely to spend their money on themselves rather than their children. They are able to spend money from their savings, which will be continually replenished by pension benefits.

The administration of former Prime Minister Ryutaro Hashimoto tried from 1997 to 1998 to introduce an increase in the consumption tax, belt-tightening finances, a rise in the percentage of medical expenses born by patients and a reduction in pension and other benefits in the name of pursuing six major reforms, including reforms of the nation's economic, financial and social security structures. However, as a result of these attempts, the economy stalled and Hashimoto was driven from power. We should not forget this lesson.

The Koizumi administration's proposed reforms of the pension and medical care systems are necessary to maintain the social security system under the current conditions. However, such reforms should address the entire social security system, including pensions, medical services, nursing care and the future role the elderly will play in society. A proposed hike in the consumption tax to at least 10 percent ought to be debated in this connection.

If people feel they can easily afford medical and nursing care, they are not likely to mind cutbacks in their pension benefits as much. However, the government appears to be trying to make ends meet by taking money from areas where it is permitted without providing a picture of how the social security system will look. People are becoming apprehensive about the repeated increases in the burdens they must bear.

In the end, the government's approach, which may be correct in some respects, but wrong in its entirety, might ruin the social security system. This could become a source of anxiety. It is the elderly and those in their late middle age who will be increasingly targeted as consumers. These elderly golden egg-laying geese--the source of vitality for the economy--should not be slain.