Kan Signals Far Reaching Social Security Reform

by Mary Swire, Tax-News.com, Hong Kong

01 November 2010

Japanese Prime Minister Naoto Kan has instructed a government panel to show foresight "for the next 50 years" in drawing up reforms for Japan's social security system.

The government needs to draw up a viable financing plan for its social security system which, at JPY27 trillion (USD334bn) per year, accounts for half of its total general expenditure and is growing by a further JPY1 trillion each year, according to estimates.

As the government lost control of the upper house in July, the setting up of a panel to reach a consensus on the issue has become an indispensable element of the 2011 budget drafting process. The panel has to reach agreement on the way forward before the year end in order to be incorporated in next year’s budget.

Because of the election setback, the government was forced to soften its proposals to increase the consumption tax but there are signs that it may be more feasible through linkage with the social security issue.

There have been an increasing number of demands that any increase in consumption tax be applied directly towards pensions, health care and nursing care. One such advocate is the former finance minister Hirohisa Fujii, who now chairs the Democratic Party of Japan’s panel on tax and social security reforms. However for the time being, the panel are reported to be unlikely to address the consumption tax issue directly.

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