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Japan mulls politically dangerous squeeze on senior benefits

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(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.”

In Kono’s own constituency in Kanagawa prefecture, near Tokyo, 51 percent of those who voted in the December election were 60 or over, he said. Less than a quarter were in their 20s or 30s.

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“If you are a sane candidate, you will go after those elderly voters,” Kono said. “Cutting spending on elderly people is politically a very big issue. It’s almost suicidal.”

Kono’s panel warned of harder times to come, as the over-75 population, referred to as “late old age,” is forecast to swell.

Baby boomers

“At the beginning of the 2020s, the baby boomers will start to reach late old age and social security costs will rise again,” a separate panel headed by LDP policy chief Tomomi Inada wrote in a report that she handed to Abe on June 16. “If we do nothing, the system will clearly become unsustainable in 10-20 years. We must take this last chance to deal with it.”

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This proposal has been reflected in a draft report by the government’s key economic panel, which will guide economic policy over the next five years.

The government is encouraging people to work longer, and with some degree of success. About 40 percent of Japanese ages 65-69 were working in 2014, compared with 34 percent in 2003.

“I think it would be all right to talk about raising the pensionable age to 70, but that is still the taboo of all taboos,” said Tokyo University’s Genda.

Taxing wealth

Once relatively generous, Japanese pensions now provide about 35 percent of average worker incomes, compared with an average of 56 percent in Organisation for Economic Co-operation and Development (OECD) nations.

Rather than cutting spending, the government should focus on taxing the dormant financial assets of wealthy individuals and corporations, according to John Creighton Campbell, emeritus professor at the University of Michigan.

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“Japan is a very rich country. Why does it need to treat its old people like third-class citizens?” Campbell said.

Masatoshi Suzuki, a former insurance worker who is now a regular at the monthly Senior Salon music events, concurs.

“It all depends where they draw the line,” the 74-year-old said. “Some people might be pleased to be told they are on high incomes. I don’t think I would qualify for that badge of honor.”


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