Japan mulls politically dangerous squeeze on senior benefits

(Bloomberg) — Sipping beer and listening to a guitarist at an event for retirees in western Tokyo, Sadao Sekine said he backs government plans to cut Japan’s ballooning debt — as long as he can keep his benefits.

“It’s hard. I’ve had two serious illnesses,” the 75-year-old former trading company employee said, pointing to his heart and his abdomen. “The Japanese medical insurance system is very advanced, and I’m grateful for that.”

Sekine and the dozen or so gray-haired groovers at the Senior Salon event are part of Japan’s growing band of pensioners — more than a quarter of the population is 65 or over. With a shrinking birth rate, the proportion is projected to top 30 percent within a decade, causing a surge in welfare spending in the world’s most-indebted nation.

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These retirees are also one of the most reliable constituencies of the ruling Liberal Democratic Party (LDP), contributing to Prime Minister Shinzo Abe’s landslide re-election in a December.

That’s why LDP lawmaker Taro Kono says his quest to cut benefits to the elderly as “almost suicidal.”

As chairman of a party panel charged with seeking ways to balance the budget by 2020, Kono has pushed a raft of cost-cutting measures, including increasing the proportion of medical and nursing care costs paid by elderly patients. The panel has also advocated means testing for health care and pensions.

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An advisory panel to the Ministry of Finance also says reforms are needed because of expected increases in costs. Social-security spending is set to rise 36 percent by 2025, with the bulk of that due to healthcare and nursing expenses rising 54 percent and 134 percent respectively, according to the ministry.

‘Silver vote’

The government pledged on June 22 to limit spending growth to 1.6 trillion yen ($13 billion) over the next three years, excluding debt payments and grants to local governments, as it seeks to reach a budget surplus in fiscal 2020.

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Securing investor confidence in the nation’s finances is crucial to keeping bond yields in check. Even so, the government has yet to put forward a realistic road map to achieving a surplus by fiscal 2020, according to Hidenori Suezawa, an analyst at SMBC Nikko Securities Inc.

Many economists, including Robert Feldman, chief economist at Morgan Stanley MUFG Securities Co. in Tokyo, say it’s crucial to cut social-security payments. Concern is mounting over Japan’s more than 1 quadrillion yen ($8.1 trillion) of public debt, a burden more than twice the size of the economy, still the sheer clout of the “silver vote” discourages reform.

‘Affected elections’

“The baby boom generation is extremely large, so the Liberal Democratic Party and the Democratic Party of Japan find it difficult to do anything that will make them unpopular with that group,” said Yuji Genda, an economics professor at Tokyo University, referring to the main ruling and opposition parties. “They have affected elections, that’s for sure.”