A set of bills for an "integrated reform of tax and social security systems," which centers on raising the consumption tax rate, is expected to pass the Upper House plenary session and become law on Aug. 10.
If this happens, the consumption tax rate will increase to 8 percent in April 2014 and 10 percent in October 2015.
While the increased burden is a painful one for the public, Japan cannot continue its deficit-ridden financing any longer. At long last, Japan is taking a step toward breaking away from its dependence on borrowing.
EXORBITANT BENEFIT PAYMENTS
However, there are growing calls within the Democratic Party of Japan, the Liberal Democratic Party and New Komeito, the three parties pushing for the legislation, to expand public works projects that would rely on the increased revenues from hikes in the consumption tax rate.
Such an idea is outrageous.
They must go back to the fundamental purpose of the integrated reform of the tax and social security.
With declining birthrates and an aging society, social security expenses keep swelling. Total social security benefits paid for health care, pensions, nursing care and child-rearing for fiscal 2012 will come to slightly more than 109 trillion yen (about $1.4 trillion). The amount is too great to be covered by insurance premiums alone and, as a result, 40 percent is covered by public funds.
But taxes alone fall far short of meeting the need and the shortfall is supplemented by issuing large quantities of government bonds, which are national debt.
Our current social security system is maintained by passing on the bills to future generations, who are not here to make political objections now.
The outstanding national debt, including government bonds, is close to 1,000 trillion yen, which is more than twice Japan's gross domestic product. Such an extreme situation is unheard of among industrialized countries.
Under the integrated reform plan, only 1 percent of the 5 percent increase in the consumption tax will be used to improve social security, and the remaining 4 percent will be used to reduce the issuance of government bonds. This is why critics say the reform package puts priority on tax hikes rather than on the social security system.
However, we have no choice but to recognize that the current social security makes a disproportionately high amount of benefit payments because it does not impose sufficient burdens of premium contributions. Such a system cannot be maintained as it is.
By raising the consumption tax rate and requiring the current generation receiving benefits to shoulder a heavier burden across the board, we can rein in the soaring national debt. Doing so can put an end to the vicious cycle in which a shaky social security system drains government finances, and, in turn, makes the future of social security more uncertain still. This is the purpose of integrated reform.
The idea to use the money for public works projects ignores the fundamental purpose of reform.
PUBLIC WORKS PROJECTS INTOLERABLE
The LDP submitted to the Diet a basic bill that is mainly aimed at strengthening national lands against natural disasters. It proposes an investment of 200 trillion yen for disaster preparedness measures and other purposes over the next 10 years. New Komeito's basic bill to promote a New Deal-type program of public works for disaster preparedness and reduction proposes an expenditure of 100 trillion yen over a decade. Both emphasize the lessons of the Great East Japan Earthquake.
Of course, disaster readiness measures are important. However, when we think about the seriousness of Japan's financial predicament, it becomes clear that a thorough study is indispensable to examine what kind of measures in which areas should be given priority and how to secure needed funds.
To begin with, why did the parties decide the total project expenses before anything else? Could it be that the parties' true intention is to "scatter" public works projects across the nation in anticipation of the general election? The DPJ, which decided to start construction of new Shinkansen lines and lift the freeze on expressway construction, more or less shares the same thinking.
Of course, stimulating the economy is important. But the parties must not forget the lessons of history, which showed that policies depending on public works projects led to increased budget deficits. In order to win public understanding and support for a tax hike, they need to thoroughly re-examine annual spending as a whole.
What the three parties need to do is to flesh out the contents of the bills.
On social security, the parties have different views about the basic frameworks of health care and pension systems. Details have also yet to be decided about measures to support child-rearing, which is a main issue this time.
Considering the actual situation, in which benefit payments greatly outweigh contributions, some parts of social security benefits also need to be scaled back. A national commission for social security reform, agreed upon by the three parties, needs to be immediately established to start deliberations.
SHOW WHOLE PICTURE OF TAX SYSTEM
A mountain of problems related to the tax system also needs to be resolved.
A consumption tax hike puts a heavier burden on people with lower incomes because they have to spend a larger percentage of their income on necessities. Methods to address the problem are urgently needed.
In addition to temporary cash payments for low-income earners to alleviate a drastic increase in burden when the tax rate goes up, what kind of measures can be implemented?
Lowering tax rates for food and other necessities is an idea, but high-income earners would also benefit from it and such a system could drastically reduce tax revenues. Since it is a problem that affects the foundation of the consumption tax system, the government must come up with a solution without delay.
Strengthening the income tax and inheritance tax is also vital.
The government had incorporated a proposal to raise the income tax rate for people whose taxable income exceeds 50 million yen. As for the inheritance tax, it had proposed lowering the amount of non-taxable deductions from inheritance money and raising the maximum tax rate. But both ideas were scrapped in the three-party talks to modify the bill.
Reducing gaps in income and assets is one of the important roles of tax systems. It does not mean that increasing taxes for high-income earners and the wealthy alone can cover the costs of social security, but without policy measures to strengthen taxation on these groups, the government cannot win public support for a consumption tax hike.
While examining the good and bad points of each tax and keeping in mind the scope of its revenues, the three parties must present the whole picture without delay. They must realize that it is their responsibility to do so.
--The Asahi Shimbun, Aug. 10
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