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Japanese 'Bridging Bonds' Eyed to Fund Pension Plan
Source: yomiuri
Source Date: Monday, October 10, 2011
Focus: Institution and HR Management
Country: Japan
Created: Oct 11, 2011

The government is poised to issue "bridging bonds" to make up the expected shortfall of about 2.6 trillion yen in fiscal 2012 in state funding for the basic pension plan, it has been learned.


The bonds would be redeemed through a future increase in the consumption tax rate.


The idea of issuing bridging bonds surfaced because the so-called "buried treasure"--reserve funds in the government's special accounts and elsewhere that have so far been used to make up shortfalls--will most likely be depleted by the end of fiscal 2011, officials said.


However, the planned bond issuance could lead to further deterioration of the debt-saddled government finances unless the consumption tax rate is raised.


In its budget request for fiscal 2012, the Health, Labor and Welfare Ministry calls for 10.67 trillion yen in funds to help finance the government burden in running the basic pension plan.


Of this amount, a little more than 8 trillion yen can be covered by tax revenues, including the consumption tax, the officials said.


Where to obtain the rest of the funds, approximately 2.6 trillion yen, has yet to be figured out, according to the officials.


To remedy the situation, the health ministry and the Finance Ministry came up with the idea of issuing bridging bonds to make up for the shortfalls for fiscal 2012, they said.


The basic pension plan, also known as the national pension plan, has been covered by two means, premiums paid by subscribers and government budgetary appropriations.


The government raised its burden in the basic pension plan to 50 percent of the total contribution from fiscal 2009, up from the earlier 36.5 percent, to stabilize the pension system.


The government burden was raised under the assumption that the consumption tax rate would be increased.


Because this did not happen, the government made up the shortage of funds through buried treasure in the state budget compilations for fiscal 2009 through fiscal 2011.


During the three fiscal years, the percentage of government funds from the consumption tax and other tax revenues for financing the basic pension plan remained about 36.5 percent.


The rest of the 50 percent burden for the government was covered by buried treasure, reserves and surplus funds in special accounts under the Fiscal Investment and Loan Program, such as the foreign exchange special account.


Since the government now has to give top priority to recovery from the March 11 Great East Japan Earthquake in the use of the buried treasure, it has become extremely difficult to rely on reserves and surplus funds in operating the basic pension plan in fiscal 2012, the officials noted.


On one occasion in the past, the government covered the shortage of funds by borrowing reserves from the basic pension plan itself, but that turned out to be problematic from the viewpoint of managing the reserves, they said.


In its medium-term fiscal reform program for the coming three years, the government has adopted a policy of limiting the issuance of government bonds to 44 trillion yen or less for fiscal 2012.


Should bridging bonds worth 2.6 trillion yen be issued, the total bond issuance in the next fiscal year might exceed the 44 trillion yen limit.


In addition, bridging bonds could not be issued without resolving disputes over a higher consumption tax rate in the face of public opposition.


Deliberations on the issue in the Diet, however, will not be held before the end of consultations between the ruling and opposition blocs over the wisdom of raising taxes for recovery from the March 11 disaster, according to the officials.


A Cabinet decision on next fiscal year's state budget will have to be made in late December. Therefore, chances are slim the ruling and opposition camps will agree on a consumption tax rate increase as a prerequisite for approving the bridging bonds in time for the budget compilation, the officials admitted.


Much depends on what steps the Cabinet of Prime Minister Yoshihiko Noda will take to break the impasse, they said.

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