Japan closer to pension reform

Ulhas Joglekar ulhasj at bom4.vsnl.net.in
Sun Mar 26 05:57:57 PST 2000

Saturday 25 March 2000

Japan closer to pension reform By George Nishiyama TOKYO: Japan moved a step closer to overhauling its public pension system to cope with its rapidly ageing population when a parliamentary committee on Friday approved controversial bills cutting future retirement benefits. The bills, while likely to prove unpopular with the public, are expected to be just the beginning of more changes to come because they fail to address key fundamental issues -- such as how to fund the rising burden of benefit payments. Prime Minister Keizo Obuchi's ruling coalition used its hefty majority to force the bills through the Welfare Committee of the Lower House over fierce protests by opposition parties, who charged the bills had not been properly debated. Under the reforms laid out by the bills, core public pension benefits will be cut by five percent for new retirees and the age at which benefits are paid out will be gradually raised to 65 from 60 to try to reduce premiums paid by future generations. The bills mark the first step towards plugging a demographic hole that would otherwise bankrupt Japan's huge public pension system. There were 4.4 workers supporting each retiree in 1997, but with the worker population falling while the ranks of retirees swell, there will be barely two workers to pay for each retiree in 2020 and just 1.5 in 2050 by current estimates. The opposition accused the government of postponing fundamental reform, calling for more debate. The bills are expected to be enacted next Tuesday after a vote in the powerful Lower House. They passed the Upper House this week. FURTHER REFORMS INEVITABLE Under the bills, the government will have to increase its share of the basic pension burden to one-half from one-third in April 2004 to make up for the expected shortfall in premiums resulting from the ageing population. But Obuchi and his coalition, which must face voters in general elections by mid-October, is sidestepping the touchy question of how to pay for the rise, leaving the door open for a rise in premiums and inviting speculation of a future tax hike. Some opposition parties, and even a junior partner in the coalition, the Liberal Party, have called for a rise in the consumption tax to finance the government's extra burden. The biggest opposition Democratic Party has said the government is aggravating public distrust of the pension system by not addressing the funding issue, saying a tax hike will rather dispel their uncertainty. Obuchi's Liberal Democratic Party, the dominant force in the coalition, has insisted a tax hike would not be accepted by the public. "No way is it going to end here. There will be more changes to the system. The society is ageing at a very rapid pace," said one 61-year-old retiree. DRAG ON ECONOMY While economists said the prospect of higher payments now with less return later has cast a shadow over households and dampened spending, they said the reforms will not hurt consumer sentiment enough to push the economy back into recession. "We had known all along the reforms would come. So I don't plan on cutting back on spending all of a sudden now," said one 37-year-old office worker. But pension reform is just one facet of Japan's public-sector financing nightmare that the government must tackle. A decade of giant economic stimulus packages and recession-choked tax revenues has ballooned public debt to some 130 percent of gross domestic product, the worst in the industrial world. (Reuters) For reprint rights: Times Syndication Service
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