Debate over reexamination of the social security system

With the continuous and rapid aging of the Japanese population, hikes in pension, medical, nursing and other benefit payments are expected in the coming years. According to the Ministry of Health, Labour and Welfare estimates, the taxes and premium payments used to pay for these social security benefits will account for 29.5% of national income by FY2025 (versus 23.5% in FY2004). The burden on the public purse is set to amount to 155 trillion yen, which is almost twice the current amount, sharply surpassing the 1.4-fold growth rate in national income expected during the same period. If this holds true, the current generation of workers who pay taxes and pension premiums will inevitably have to bear a greater financial burden. This is likely to add to the discontent already being felt by the younger generations. To compound these effects, the number of children is set to fall further due to the declining birth rate.

This is why reforming the burden structure of the entire social security system has become a task of extreme importance and urgency.

At present, the average corporate employee aged over 40 years spends 23.7% of his current annual income on social insurance premiums (a total of pensions, medical insurance, nursing care insurance, and employment insurance paid by employees and employers). However, this share is expected to jump to 31.7% by FY2025.

Employers have been critical of this planned increase in burden, with Nippon Keidanren also voicing concerns.

Considering the pension program alone, the recent pension bill, which raises premiums and lowers benefit payments, cannot effectively tackle the many unresolved problems embedded in the current system. Simply put, it falls far short of the fundamental reforms necessary to improve the current situation. The revelation that numerous politicians, including cabinet ministers, had failed to pay their mandatory pension premiums, has also spotlighted the need for simplification of the complicated pension system.

In late April, Prime Minister Junichiro Koizumi announced his intention to set up a forum comprising labor and management representatives, who will discuss the future of the entire social security system.

Carrying out reforms without increasing the financial burden on the public is a difficult issue in any country. Politicians tend to hesitate from making bold moves that might erode their chances of re-election.

The issue has been a headache for the Japanese government over the last decades. However, with Japan's imminent transformation into a full-fledged aging society of the kind yet unseen anywhere in the world, reform of the entire social security system becomes ever more pressing.

It is widely acknowledged that drastic reform is not easy. We earnestly hope, however, that the participants of the upcoming "Council meeting" proposed by Prime Minister Koizumi will engage in discussions leading to specific proposals that truly benefit the people rather than smoothing the path to their re-election.

US$=\113 (May 17, 2004)