Japan's gov't eyes social security, sales tax austerity measures amid economic malaise

An advisory panel from Japan's Ministry of Finance on Tuesday recommended the government cap its expenditure on social security in the fiscal 2016 budget in order to meet the government's own five-year economic and fiscal rehabilitation plan.

As Japan's society continues to age exponentially, while simultaneously shrink due to an increasingly low birth rate, social security costs are ballooning and the health ministry has already requested 670 billion yen (5.46 billion U.S. dollars) be allocated for costs related to Japan's greying society, from a total allocation of more than 30 trillion yen.

But the advisory panel on Tuesday advised Finance Minister Taro Aso to cap spending on the elderly at 500 billion yen, recommending that the ministry cut provisional spending from fees for medical services and from costs associated with pharmaceuticals.

The panel's recommendation was based on the fact that the next budget will be the first in a comprehensive five-year plan to restore the government's fiscal balance sheet through 2020, by which time the government hopes to turn its primary balance deficit into surplus.

The austerity measures come at a time when the government of Prime Minister Shinzo Abe is struggling to keep its fiscal house in order and has had to keep issuing new bonds to finance its annual budgets, against a backdrop of rising public debt at twice the size of Japan's economy and the highest in the industrialized world.

Japan, the world's third-largest economy, saw its economy contract in the third quarter owing to waning business investment and slumping inventories, with the 0.8 percent contraction in the July-September quarter of 2015 marking a second straight quarterly contraction, following a revised 0.7 drop in the second quarter.

The second straight quarter of contraction means Japan is once again in a technical recession despite Abe unrolling two versions of his personalized brand of "Abenomics" economic policies aimed at stimulating spending through monetary easing and encouraging spending by a knock-on effect of increased wages and more prosperous households, while tackling longer term issues through structural reforms.

Last April's consumption tax hike from 5 to 8 percent, however, triggered a gradual recession, and amid the latest austerity plans to rein in spending on social security, Abe on Tuesday said that items eligible for lower tax rates following the government's second tax hike to 10 percent in fiscal 2017 should be limited.

The prime minister said the number of items should be restricted as the tax revenue was needed to finance increasing pension costs and medical expenses, under the government's social security and tax reform policy.

The ruling Liberal Democratic Party's (LDP) tax panel chief Yoichi Miyazawa told a press gathering Tuesday that Abe said that in order to maximize tax revenue losses, lower rates should be kept below 400 billion yen (3.26 billion U.S. dollars) as the amount could be covered by cutting out some costs associated with social security.

Fresh foods will be designated as the only items eligible for lower tax rates, although the LDP's junior Komeito coalition ally are pushing for some processed foods to also be eligible for lower rates.

While Aso said that if too many items become eligible for lower rates it will lead to cuts in welfare spending, Komeito's proposition could necessitate 1 trillion yen in finances to ensure the inclusion of some processed foods.

Abe was quoted as saying the government "couldn't give what it doesn't have." If exemptions are made only on fresh foods the value of tax revenue minus reductions, according to preliminary estimates, would be around 340 billion yen (2.76 billion U.S. dollars). Endit