The Japanese economy continues to recover at a moderate pace and employment remains stable. However, many people are unable to dispel anxieties about the future. To maintain the prosperity of the nation, it is necessary to stabilize the social security system and fiscal conditions.
The period of economic expansion that began in December 2012 looks likely to become the longest since the end of World War II. Meanwhile, Japan’s nominal gross domestic product, which is said to closely reflect fiscal conditions felt by households, has increased by ¥50 trillion.
Nevertheless, consumers are eager to save, leaving consumer spending without momentum as a result. Economic indicators of consumer sentiment remain sluggish. Prices have also been stagnant, and the process of overcoming deflation is only partly complete. Household savings have ballooned, with cash and deposits held by households totaling nearly ¥1,000 trillion.
It is an urgent task for the government to come up with policy measures to eliminate anxiety over the future.
The biggest concern is the future of the social security system, which includes pensions, and medical and nursing care. In the government’s initial budget for fiscal 2020, social security costs topped ¥35 trillion, marking a record high. The figure is double what it was 20 years ago. Baby boomers will start turning 75 in 2022, making it more likely that social security expenditures will surge.
The burden of the social security system on the public increases every year. The declining birthrate adds another blow. According to government estimates, the number of births in 2019 fell below 900,000 for the first time since statistics were first compiled. The working-age population, comprising people aged 15 to 64, is estimated to decrease to about 45 million in 50 years from 2015 when it was about 77 million.
Under the social security system, members of working generations support the lives of senior citizens. At present, one elderly person is supported by two to three working-age people, but in the future, it is expected to shift to a piggyback society in which one elderly person is supported by about one member of the working generation. It is natural for people to hold doubts about the sustainability of the nation’s social security system.
A government panel studying a social security system for all generations compiled an interim report that focuses on measures to increase the number of people who can support the system. The government plans to expand the scope of employees’ pension coverage to encourage more part-time workers, among others, to join the system. The government will also urge companies to secure employment opportunities for senior workers up until they turn 70.
Regarding the reform of the medical system, the interim report also incorporated calls for increasing the financial burden on the elderly. The panel suggested increasing the rate of medical fees paid by people aged 75 or older from the current 10% in principle to 20% for people with incomes above a certain level.
However, the government has yet to tackle the core of the reform, such as drawing a line on income. Effective, concrete measures are required.
The universal health insurance system, under which everyone can receive medical services cheaply, and the pension system, which provides people with peace of mind in old age, constitute the very basis of the nation’s social security system.
How much hardship would it be necessary to ask people to endure so that the system can be handed down to the next generation? The government must work out a plan carefully by also taking into account low-income earners and senior citizens.
It is also important to rebuild the nation’s finances, which reinforce the social security system.
The outstanding long-term debts of the central and local governments combined total about ¥1.1 quadrillion, reaching about twice as much as the country’s gross domestic product, the worst among the major countries.
If the country’s finances deteriorate, the credibility of its government bonds will naturally decline, triggering a market warning in the form of a rise in long-term interest rates. During the European debt crisis, which started in Greece, government bonds of countries of Southern Europe were sold off, causing long-term interest rates to rise sharply.
But in Japan, the warning function has been paralyzed as the Bank of Japan has been buying a large number of government bonds through its policy of monetary easing on a massive scale.
The total assets of the Bank of Japan have reached a level that surpasses the country’s GDP as it has continued to buy government bonds. Compared with other major central banks in the world, its assets are obviously excessive. These extraordinary measures were originally adopted during a time of emergency. Such measures should not be kept in place as they are.
Some have argued that Japan will be fine because, unlike European countries, it has about 90 percent of its government bonds financed by domestic funds. However, this is no different from passing the debt to the next generation.
The problem is that the national government has little sense of the crisis. The total amount of the initial general-account draft budget for fiscal 2020 has topped the ¥100 trillion-mark for two years in a row. It is doubtful that there has been any effort to properly trim wasteful budget outlays.
It is important to strictly prioritize measures requested by each ministry and agency and make efficient use of the limited budget. While allocating budgets in a well-balanced manner, such a budget system should be built that will drive out any unnecessary projects that have been continued in vain.
Unlike Japan, where the status of the budget execution is evaluated ex post facto by the Board of Audit of Japan, many countries in Europe and in North America have independent bodies that keep an eye on budgets from the draft stage and examine the process of fiscal consolidation. Why doesn’t Japan consider having such an organization?
Needless to say, in order to make progress in the rebuilding of the nation’s finances, it is necessary to increase tax revenues by raising the growth rate. However, individual and corporate income taxes have the disadvantage that revenues fluctuate depending on the state of the economy.
It is also inevitable that the consumption tax rate, revenues from which fluctuate little, should be raised further from the current 10 percent to secure stable funds for the social security system.
In dealing with the steadily advancing trend of a low birth rate and an aging society, the measures taken by the central government have continuously been too late.
In order to make this country one in which society can enjoy the “era of 100-year life spans,” now is the time to carry out reforms resolutely.