Reforms: Can't please all the people all
the time By Richard
Hanson
TOKYO - "Any plan designed to please
everybody will fail." - Japanese editorial writer.
"There is definitely a need to think about the
total social welfare system. We have to take into
consideration the opinions of labor and management." -
Prime Minister Junichiro Koizumi after top labor and big
business leaders opposed a hike in pension payments
without a clear map for reform.
Don't be
distracted by news reports that Japanese politicians
have been caught red-handed in cases of not paying their
public pension bills, the same invoices that they are
currently in the process of reforming in the Diet,
Japan's parliament.
Instead, keep your eye on
what the remarkably popular Prime Minister Koizumi has
been doing since he took over the job three years ago
and vowed to make reform into his own secular Grail, a
search for something that only exists in legend.
This is no easy task.
To obfuscate
matters, the prime minister cites a long list of
reforms: such as structural, postal privatization,
public pensions, public works, pork-barrel roads, local
government tax transfers, long-term whatever (read: a
long Koizumi reign) and what someone called "total
social welfare".
At the moment, the proposal
covering the main four points - pension, roads, postal
administration and central-local government relations -
are wending their way through the legislative maze, with
only minor hiccups. This is what the ruling LDP and and
its coalition partner, the New Komeito, cobbled together
late last year:
Pension reform. One critic of the public pension
reform plan says the Koizumi administration decided to
"put a cap on the contributions to the public pension
plan paid by employees and employers but made no
significant changes in the financial structure of the
troubled retirement program".
This amounts to
"pursuing reform at the expense of the society's weakest
areas" - mostly, the unemployed and the elderly on fixed
incomes. This means the government knows what it may
cost, but it is vague about how to pay for it. During
the last general election in November 2003 (won narrowly
by the LDP), the opposition parties argued for pension
funding through an increase in the national consumption
tax (currently 5 percent). The LDP is loathe to mention
new taxes before the election for the Upper House on
July 11.
Next in pork barrel politics is the plan for the
privatization of four heavily indebted road-building
public corporations. This was announced late last year.
The idea is to reduce the overall cost of building new
toll highways by some 10 trillion yen (US$90.5 billion)
but not to scrap or to retrench on any of the
construction projects included in the government's
current long-term highway development plan. Japan's plan
is to build everything on the drawing board, despite an
accumulated debt and interest owed of over 40 trillion
yen. That debt will be taken over by a new "independent
administrative organization". When Koizumi's
privatization committee passed this resolution, two of
the leading committee members resigned in protest. In
this case, the prime minister bowed to the road lobby
within the LDP.
The most sweeping proposal involves the relationship
of the central government and local governments. This
involved cutting central state subsidies to local
governments. At the same, time the central government
will transfer tax revenues to local governments. This is
being done in the name of "fiscal" decentralization.
This has been dismissed as just a matter of shuffling
the books.
By far, the reform and privatization of Japan's
postal system is closest to Koizumi's heart. One of his
first important jobs in government made him the minister
of posts and telecommunications, a post that has been
absorbed into a larger ministerial organization in 2000.
Under the name of Japan Post, a preparatory office was
established last week and is described as the
"centerpiece" of the prime minister's reform efforts. He
was on hand to pen the calligraphy for the new office
sign.
In spring 2002, there was a fierce battle
between Koizumi and the postal faction of the LDP (which
draws heavily on support from local postmasters in the
24,000-branch system). At one point, the prime minister
theatrically said he would "destroy" the LDP if the
party blocked his postal legislation. Japan Post, a
public company, was created in 2003 to take over the
government-run postal services. Private companies will
be able to compete in a limited fashion. At the heart of
the postal system, however, it serves as the world's
largest saving bank. Those funds traditionally have
helped fund the government's fiscal programs and have
been a captive customer for Japanese government bonds.
While the prime minister's reforms have faltered
at times, there is little doubt that embarking on
reform, no matter how vague, does make a difference.
For one thing, the reforms have been broadly
accepted by the voting public, which over the past
decade suffered wide swings in the economy, as well as
crises within a once stable banking system. Just one
year ago, the government was forced to inject a large
amount of money into the Resona banking group, the fifth
largest. But investors reacted positively, by pushing up
stock prices and generally cheering people up.
Taxpayer bailouts of Resona Bank, and later the
smaller regional Ashikaga Bank, helped to accelerate a
government-led effort to view bank assets more strictly.
That has meant faster write-offs of bad debts in the
banking system. Koizumi's structural reform campaign
helped restore health to the nation's public finances.
That seems to be the consensus.
As one economist
points out, the longer reforms are put off, the greater
the chance of things getting worse. On the case of road
building alone, he said: "Koizumi started a broad range
of structural reforms, including an overhaul of the road
construction system, to eliminate the government's
wasteful expenditures and thereby curb the rapid growth
of the financial burden on future generations."
The point he made is that the "longer structural
reforms are postponed the more likely it is that the
eventual reconstruction of public finances will cause
greater hardship to the poorer people of society than it
will to the well-to-do."
Now back to the
distractions in the news.
Japan's population may
be getting older and the government needs to beef up its
public pension system. Then you read in the morning
papers that the government's efforts to get people to
pay their money into their public pension funds aren't
going well. In fact, some 40 percent of future pension
fund recipients are falling behind in their monthly
payments. For individuals living in Japan, there is an
obligation to pay a minimum of 13,300 yen ($120) a
month.
Large numbers are simply not paying, even
though their future pensions may be compromised. In
2002, the government estimates that 40 percent of the
premiums in the state-run pension programs were in
arrears.
Then came the news that the sleek
actress, Makiko Esumi, who has been the government
campaign poster girl in urging people to "Pay Your
Pension Bill!" is a pension-payment delinquent herself.
She's in good (or rather bad) company.
Last
week, guess what?
After rumors grew rampant,
Prime Minister Koizumi's government revealed that his
cabinet itself is rife with pension dodgers, including
Chief Cabinet Secretary Yasuo Fukuda, who confessed to
having failed to pay into the national pension program.
This is not a confidence-builder for the pension system.
As the news trickled out, it turns that a total
of seven of the ruling Liberal Democratic Party (LDP)
coalition's cabinet ministers, at some point in their
careers, failed to pay into their pension systems.
The opposition party also confessed.
Naoto Kan, leader of the Democratic Party of
Japan (DPJ) said that he skipped premiums for 10 months
in 1996, when he was health and welfare minister (which
administers the public pension programs). There was
small comfort that 18 other members of the DPJ shadow
cabinet actually paid their pension premiums.
Among LDP members who lapsed: Finance Minister
Sadakazu Tanigaki and Financial Services Minister Heizo
Takenaka. Both of them are involved in plans for future
pension reforms.
LDP lawmaker Toshimitsu Motegi,
currently state minister in charge of Okinawa and
Northern Territory affairs, the islands Russia grabbed
at the end of World War II, also was a past non-payer.
Taro Aso, the minister of public management, home
affairs, posts and telecommunications, and Defense
Agency Director General Shigeru Ishiba admitted last
month to failing to pay the premiums, along with Shoichi
Nakagawa, the minister of economy, trade and industry.
Ishiba and Nakagawa said their failure to pay
was unintentional. Nakagawa admitted having not paid for
as long as 21 years.
This does not bode well for
the future of Prime Minister Koizumi's pension program
reforms. But as one Asahi Shimbun editorial writer
commented: "Any plan designed to please everybody will
fail."
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