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Social security spending faces cuts over delay to sales tax hike

Toward the end of a council meeting on nursing care insurance around noon on June 1, Okutama Mayor Fumio Kawamura related possible repercussions from delaying a sales tax hike that was planned for April 2017 until October 2019.

''We face a tough situation marked by delays or defaults on insurance premiums, and we are concerned about the postponement of the consumption tax increase,'' Kawamura told a council meeting of the Health, Labor and Welfare Ministry. ''Please find other sources of revenue (for low-income households). We want the entire country to seriously consider this and make efforts.''

Kawamura made the appeal as head of a local government that manages nursing care insurance, as the council meeting did not take up the consumption tax issue.

Six hours after the council meeting, Prime Minister Shinzo Abe announced a postponement of the planned hike of consumption tax to 10 percent at a news conference, declaring his government could not do everything. He said his government would prioritize the expansion of quotas on child care centers and nursing care facilities and improvement of working conditions for child care workers and nursing care staffers.

Both policy objectives are centerpieces of Abe's campaign to promote dynamic engagement of all Japanese citizens. But they are also part of steps to improve child-rearing and nursing care measures under tax and social security reform to maintain and stabilize the nation's social security system -- with the consumption tax as a stable source of revenue. By withholding a tax increase, the tax and social security reform campaign effectively came to an end.

Shiraume Gakuen University professor Takashi Muto commented, ''In rearing children, it is important not only to expand quotas on child care enrollments but to improve the climate to resolve overcrowding." He chairs the Cabinet Office's panel on a comprehensive support system for children and child-rearing. ''Increasing numbers of parents want to work and rear children compatibly, but they cannot use child care centers unless their quality improves,'' he said, adding failure to improve their level would have adverse effects on the slowly recovering birthrate.

The tax and social security reform drive traces its roots to the National Council on Social Security launched in January 2008 under the government of then Prime Minister Yasuo Fukuda. It changed its name to the "council of building of safe and reassuring communities" under the government of then Prime Minister Taro Aso before the then ruling Democratic Party of Japan and the largest opposition Liberal Democratic Party (LDP) and New Komeito reached an agreement to reform the social security system in June 2012. After the LDP returned to power, the National Council on Social Security System Reform submitted a set of recommendations to Prime Minister Abe.

The recommendations included raising the consumption tax from 5 percent to 10 percent in two stages by 2015 (the first hike to 8 percent took effect in April 2014) and expanding the ratio of the basic pension funded by taxes from one-third to half. They also called for initiating measures for low-income people over pension, medicine and nursing care and sought funding to support child-rearing through consumption tax revenue. The council made the proposals to prevent the social security system from collapsing in 2025 when the youngest postwar baby boomers turn 75.

Chuo University professor Taro Miyamoto, who was a member of the National Council on Social Security System Reform, flatly says the tax and social security reform campaign has ended in failure. The initially anticipated increase in the consumption tax was intended to improve social security and compensate for past shortfalls incurred in financing social security. He says postponement of the consumption tax hike will require large-scale spending cuts, particularly on social security.

The government in fact is considering curbing social security spending, echoing Miyamoto's concern. It will focus on medical care and nursing care expenses which are expected to rise around 10 trillion yen each over the next decade.

Prime Minister Abe, during his news conference on June 1, blasted Democratic Party leader Katsuya Okada's proposal for issuing deficit-covering bonds to fund social security as "irresponsible." He vowed to utilize "the fruits of Abenomics," such as an increase in tax revenue to improve the social security system. But some ruling party lawmakers are skeptical about how long such a revenue increase will last.

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