It’s time to move on to the next round of reforms

Raising the consumption tax rate and securing a stable source of funding for social security was highly significant, but constant review is still needed. The government must identify issues and build a sustainable system.

It has been 10 years since a set of laws for integrated reforms of the social security and tax systems were enacted on Aug. 10, 2012. The laws were designed to gradually raise the consumption tax rate to deal with four areas of social security: pensions, medical care, elderly care and the low birth rate.

The Democratic Party of Japan, the ruling party at that time, reached a three-party agreement with the Liberal Democratic Party and Komeito to make this happen. It is highly commendable that the ruling and opposition parties worked together to address the difficult issue without postponing it.

In 2014, the Cabinet of then Prime Minister Shinzo Abe raised the consumption tax rate to 8%. Then in 2019, four years later than originally planned, it was raised to 10%. The government’s consumption tax revenue doubled from the previous level of the lower ¥10 trillion range per year to the ¥21 trillion range per year.

The consumption tax, paid by a broad spectrum of the public, is less susceptible to economic fluctuations and is therefore an appropriate source of revenue for social security. With the low birth rate and rapid aging of the population, the decision to seek financial resources from the consumption tax was an appropriate one.

On the other hand, the cost of social security benefits has continued to balloon over the past decade. It has increased by about ¥2 trillion each year, reaching ¥129 trillion in fiscal 2019. This is because the number of people requiring medical care and elderly care has increased with the aging of the population and the cost of medical care has become more expensive as medical technology has become more sophisticated.

The government has hardly reviewed the benefits and burdens since the integrated reform laws were enacted. It is likely that the government has put its energy into seeking public understanding of the consumption tax hike and has shied away from measures to curb benefits, which would likely generate backlash.

However, Japan’s low birth rate and aging population are certain to become even more serious henceforth. The traditional approach of having the working-age population support the elderly is nearing its limits.

It is important to extend healthy life expectancy and create an environment for motivated elderly people to be allowed to work as long as possible. Expansion of social insurance coverage for part-time and other short-hour workers must be promoted to increase the number of people who support the system.

It is essential to drastically strengthen measures to combat the low birth rate and increase the number of future supporters of the social security system.

Starting in October, the government will raise the out-of-pocket payment of medical expenses from 10% to 20% for people 75 or older with a certain level of income. A system based on the ability to bear the burden should be steadily introduced.

In May, a government council on the establishment of a social security system for all generations compiled an interim report that focuses on measures to support young people, but the report did not go into the core issues, such as addressing ballooning social security costs.

Isn’t it time to start discussing the next round of reforms from a comprehensive perspective, including further consumption tax hikes, for a stable social security system?

(From The Yomiuri Shimbun, Aug. 14, 2022)