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Friday, January 17, 2003

Ageing Society: Time to Recognise the Consequences

Many western economists still stubbornly fail to recognise that the move to the "ageing society" marks a sea change for our economic systems, with important deflationary consequences. This latest round of debate in Japan over the consumption tax and social security subsidies should serve as a timely reminder to all of us of what is waiting, just round the corner.

Debate over a hike in the consumption tax rate is heating up in the government, ruling coalition parties and business sector as the nation's low birthrate and rapidly graying society are expected to make an increase in the tax rate inevitable to cover the rising cost of the social security system. The government's Tax Commission will begin discussing on Friday what form mid- and long-term tax systems should take, but as the government, ruling coalitionparties and business sector hold differing views on the issue, a conclusion is unlikely to be reached soon. Concerns over a consumption tax hike have mounted since the government spelled out pension system reforms that included raising the portion of basic pension covered by public funding from the current one-third to half. The government must compile a reform plan, including measures to secure financial resources, this year. Consumption tax, therefore, is being considered as a source of revenue. With tax revenues accounting for only about 60 percent of annual revenues, the government has been mired in a financial deficit. To raise funds to cover increasing social security costs, the government will have to rely on the consumption tax, the burden of which is spread widely and thinly over the public.
Source: Daily Ymiuri

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