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Japan: Review of Taxation Must Also Be Discussed in Pension System Reform
Source: the-japan-news.com
Source Date: Wednesday, December 04, 2013
Focus: Electronic and Mobile Government
Country: Japan
Created: Dec 10, 2013

Finding ways to alleviate the sense of unfairness regarding financial burdens to be shared by pensioners and working generations is a crucial challenge for the nation that must be tackled to maintain the pension system with limited fiscal resources.

A bill that will set the procedures for a package of social security system reform programs is likely to pass the current session of the Diet. But the bill only says that pension system reform is necessary. The government must step up efforts to study ways to create a solid system and a timetable for its implementation.

In its August report, the National Council on Social Security System Reform, which laid the foundation for the bill, pointed out that “even the elderly must be asked to sustain the system in accordance with their burden-sharing ability.”

Pension payments amount to about ¥52 trillion, which is about half of social welfare spending. Welfare expenses are anticipated to increase year after year as the population ages. To ensure the system remains stable, pension benefits and payment burdens must be reexamined.

One concrete reform step would be to bolster pension taxation on high-income earners.

For example, in the case of single people aged 65 or older who receive public pensions, at least ¥1.2 million is deducted when their tax payment is calculated. No income tax is imposed on a married couple when their annual income is no more than about ¥2.05 million.

In the case of salaried workers, however, total tax deductions from their income amounts to ¥650,000, and the minimum taxable income is set as low as about ¥1.57 million.

Unfair taxation

Many people, including low-income irregular workers who pay taxes while supporting their families, apparently consider the current situation, in which no tax is levied on pensioners even with the same amount of income as theirs, as unfair.

Various measures for low-income earners are applied to pension-receiving households. For households with no resident tax imposed, their nursing care insurance premiums are reduced. In addition, a lower financial ceiling is set on treatment expenses they must pay to medical institutions.

However, many senior citizens possess a large amount of assets even if their income is low. It would not be proper to regard tax-exempt pensioners in the same way as the socially vulnerable.

Half of the basic pension is financed by state coffers. Even so, pension financing will remain difficult unless something is done. It is unavoidable to bolster taxation on pensioners to a certain extent so as not to impose an excessive burden on working generations.

Raising the age for beginning to receive pension payments is also a major challenge.

The age of people entitled to receive corporate employees pension benefits will be raised, in phases, to 65.

The United States, Britain and Germany have already decided to raise the entitlement age to 67 or 68. However, the population is aging faster in Japan than in these three countries. Raising the starting age for pension payments, therefore, is an inevitable course of action that Japan must take.

The next national election will be held almost three years from now at the latest. The ruling and opposition parties should work tenaciously and earnestly toward building a consensus on pension system reform.

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