Japan\'s Prime Minister Naoto Kan on Monday warned the public will have to bear their share of the "burden" to help offset the cost of a rapidly ageing society and its impact on the national debt.
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| An elderly woman passes in front of a shop in Tokyo. Japan\'s premier Naoto Kan has warned the public will have to bear their share of the "burden" to help offset the cost of a rapidly ageing society and its impact on the national debt. |
In a speech marking the opening of a 150-day parliament session, Kan said his government was working towards drafting a basic proposal by the end of June on overhauling the nation\'s tax and social security systems.
Kan faces what analysts say is a make or break battle over the issue, which has proved divisive with voters.
"Our country faces the need to reform the social security system drastically" as the social and economic assumptions on which it was built have changed, he said.
"It is inevitable to ask the people to bear burdens to some extent," he said.
Finance Minister Yoshihiko Noda warned that "excessive dependence on government bond issuance" could not be relied on and called for bold measures to rehabilitate state coffers.
The government will reveal its basic policies on reforming the social security and tax systems, including the five percent consumption tax, by June this year, said Kan.
It will also decide by then whether to enter into discussions on joining a trans-Pacific free trade pact that would require Japan to tear down the trade barriers surrounding its faltering economy.
The government had earlier deferred the decision amid opposition from the agricultural sector, which is concerned that cheap imports would hurt a farming industry that its critics say is badly in need of revitalisation.
Japan\'s public debt is the industrialised world\'s biggest at twice the size of the $5 trillion economy, with the welfare costs and revenue shortfall associated with a rapidly greying population adding further pressure.
The government has been able to fund its growing fiscal gap by raising debt in the domestic market, with around 95 percent of the country\'s huge debt held domestically via banks and pension schemes.
Japan\'s ability to finance its debt is therefore seen as sustainable for now, but analysts warn that this perception may change as the population ages and dips into these savings to spend in retirement.
Raising consumption tax and cutting social spending is seen as one solution, say analysts.
Fiscal policy minister Kaoru Yosano, a vocal supporter of a consumption tax hike, on Monday warned: "International confidence in Japan could be lost... if we don\'t address the situation in which bond issuance cover expenses that exceed tax revenue.
"Not leaving the burden to the future generations is my most important task as a politician."
Since coming to power last year, Kan has joined a chorus of economists and lawmakers in urging discussion over raising consumption tax as a way of boosting revenue and ordered his ministers to draft reform plans.
A heavy election defeat in the upper house of parliament last year was blamed partly on Kan\'s earlier ambiguity on the issue, and the government has since struggled to pass key legislation due to a resulting lack of a majority. This month Kan reshuffled his cabinet amid pressure from the conservative opposition as he sought the passage of crucial budget bills to energise an economy mired in deflation.
Analysts warn that policymakers will have to walk a political tightrope to reconcile Japan\'s dire fiscal situation with the potential negative impact of tax hikes on fragile economic growth.
