Burden of Social Security System to be Revised with Focus on Employment Insurance
The Japanese government has been tackling revisions to the burden of social security costs in the face of an escalating drop in the birthrate and the ageing of society. The mainstays of the revisions are three points: (i) a reduction in the government share of contributions to employment insurance; (ii) effective use of reserve funds in the special account for employment insurance to deal with the decreasing birthrate; and (iii) an increase in the proportion of social security benefit payments used to strengthen measures against the decreasing birthrate.
The employment insurance scheme is currently financed by National Treasury (25 percent), and by labor and management. However, under the integrated reform of expenditures and revenues conducted by the government, a plan to reduce the burden of unemployment benefits on National Treasury is becoming the leading candidate as a measure to curb outlays on social security. Behind this move lies the fact that economic recovery helps to decrease the number of benefits' recipients, resulting in the good financial standing of the employment insurance scheme, which makes it easier to reduce the burden borne by the government.
During the prolonged recession, management of the employment insurance scheme was severely affected by dipping into the funds, but the balance of payments turned around in fiscal year 2003, reflecting the recovery trend in the economy. The number of recipients of unemployment benefits, having reached a peak in fiscal year 2001 (a monthly average of 1.1 million persons), declined to 620,000 in fiscal year 2005; the reserve fund has increased again to 2.5 trillion yen (on a budgetary basis in fiscal year 2006), after having at one time plunged into some hundreds of billions. This situation lies behind the move by a ruling party project team, which is discussing integrated reform of expenditures and revenues and aims at reaching a conclusion by June 2006, towards the idea of a reduction in the burden on National Treasury. Within the government, the view has been expressed that it should discuss the issue of reducing the burden, together with a reduction in premiums and revisions to the amount of benefits, with both labor and management so as to obtain their approval. However, labor and management show a negative attitude toward the idea on the grounds that employment insurance is vulnerable to economic fluctuations, in that an economic recession may lead to a rise in premiums and a cut in benefits.
In May 2006, the government began to discuss possible resources for measures to fight the decreasing birthrate in budgets for fiscal year 2007, with an eye to taking advantage of approximately 100 billion yen in the special account of the employment insurance scheme. Although it would be an exceptional step to make use of a resource theoretically confined to payments of unemployment benefits for other purposes, the government saw it necessary to secure financial resources for measures to deal with the decreasing birthrate, without being bound by the traditional budgetary framework. This issue is among one of the top priorities of the Koizumi reforms and requires some hundreds of billion yen. Despite this, the government sees the measure as a temporary step until fundamental taxation reforms, including raising the consumption tax, have been completed.
A governmental council on the social security system requested, in its draft of the final report compiled in May 2006, that the government should tackle taxation reform, incorporating a raise in the consumption tax rate for the sake of creating more stable financial foundations. It also recommends, while pointing out the impact of the lower birthrate on the social security system, that elderly-related benefits, which account for 70 percent of the outlay of social security benefit payments, should be redirected to measures to increase the birthrate.
In the meantime, although it was the primary focus of discussion, the council rejected the plan to lower the upper limit of the premium for the Employees' Pension Fund, currently at 18.3 percent, stating that it was appropriate to stick to the current level in the future.
US$=\112（June 1, 2006）
