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MNI ANALYSIS: Japan Basic Income Debate Highlights Slow Reform

By Max Sato
     TOKYO (MNI) - Japan's government is missing out on an opportunity to ease
the fears that are keeping consumer consumption low by backpedaling on fiscal
reforms that would provide basic income support and planning instead a form of
cash handout on education.
     Politicians have been debating the need for "reforms" but before national
elections, they don't call for the need for an income or sales tax hike, a cut
in public pension payments or a rise in pension premiums.
     Fearing a harsh response from people over 50 years old, who account for
more than half of all voters, political parties have been slow to propose a
drastic change in the public pension system or streamline social safety nets.
     Cabinet Office officials have acknowledged that concerns about whether
sufficient social security will be provided to retirees are making many
households cautious about spending, which is helping to keep Japan's economic
growth modest.
     Economists said the negative income tax approach, a progressive tax system
and a mild version of basic income support, would be a good model for advanced
and aging economies such as Japan.
     Many single-parent families are stuck below the poverty line due to the
lack of social programs and reluctance on the part of municipalities to approve
welfare for them. If basic income support were provided, it would remove this
social stigma and cut bureaucracy at the same time.
     Growing calls for basic income support on a global scale to reduce poverty
and simplify social security programs are shedding light on the need to reform
of Japan's public pension, medical and welfare systems -- a key policy goal set
by Prime Minister Shinzo Abe that has made little progress since he returned to
power in late 2012.
     Some opposition parties have called for adopting a negative income tax
policy under which the government will provide cash to people whose income is
below a certain level to ease fears and support economic growth as well as to
simplify welfare programs.
     The ruling Liberal Democratic Party has trimmed the welfare budget and is
shifting the focus toward funding job training but the concerns about the future
remain.
     Abe's move Thursday to dissolve the Lower House of parliament and call an
early election for next month is expected to further delay the process of fiscal
consolidation.
     He plans to use the sales tax hike now scheduled for October 2019 to fund
his latest project of providing free high school and university education
instead of helping to make public medical and pension plans more sustainable.
     "At a glance, it sounds good to provide free education, but it a
deception," Japan Research Institute senior economist Kazuhiko Nishizawa said.
"We must not rob the future generation of their fiscal freedom."
     In April 2014, the sales tax was raised to the current 8% from 5% in order
to cut the nation's huge public debt, now more than double its GDP, and pay for
an increase in government funding for public pension plans.
     The second stage of doubling the sales tax rate to 10%, which has been
postponed twice by Abe in what opposition parties called a political move to
shore up his voter support, was originally aimed at reducing public debt.
     But now that Abe is promising to use increased tax revenue to fund his new
free-education program, economists worry that it will slow the social security
reform and distort services provided by the private-sector.
     "Making higher education free has a risk of preserving low-quality
education services. The quality of existing universities is not being checked,"
Nishizawa said. "It will ease the financial burden of the current generation but
when their children grow up, they will face a higher debt servicing cost."
     "To ease the concerns among the younger generation, we must ask the
middle-aged and seniors to accept a cut in pension payouts."
     Japanese movie director Rena Masuyama made a documentary film on basic
income as a viable economic policy option to be released at an annual
international convention of the Basic Income Earth Network in Lisbon, Portugal
on Sept. 25-27.
     This followed a visit to Japanese cities this year by Swiss activist Enno
Schmidt, who prompted a national referendum on whether to adopt unconditional
basic income in Switzerland last year. Only 23% of the voters supported the idea
but the proposal gathered more than 100,000 signatures. Switzerland was the
first country to hold such a vote.
     Basic income experiments are being conducted in Finland, the Netherlands,
Scotland, Kenya and Uganda. The Canadian province of Ontario is also testing how
it can support low-income earners, starting this summer.
     "The pilot program in Ontario is a good example for people in Japan to
realize that it is not just about how to save the starving population in Africa
but also an urgent issue for industrialized economies," Masuyama said.
     Ontario has launched a three-year pilot project in three cities to "test
whether a basic income can better support vulnerable workers, improve health and
education outcomes for people on low incomes and help ensure that everyone
shares in Ontario's economic growth," said the province. About 4,000 low-income
people in the areas will each receive up to C$17,000 annually with no strings
attached.
     A similar experiment in the Province of Manitoba in the 1970s, which
provided an income guarantee or minimum cash benefit to low-income households,
showed a guaranteed income could cut utilization of healthcare resources and
increase high school completion rates.
     Europeans are focusing on universal basic income programs under which every
resident receives an allowance. This model is funded through the income tax
system, which would require a sharp tax hike.
     In Canada, a negative income tax model is used to target the poorest. It is
considered a replacement for existing welfare programs and some refundable and
non-refundable tax credits. It will cost more than the existing programs but the
upfront costs of this version are much lower than those for the European model.
     "I believe that a basic income constructed as a negative income tax is not
only feasible, but it is ultimately inevitable," said Evelyn Forget, professor
of community health sciences at the University of Manitoba. "It will fill the
gaps that exist in our current programs and allow people to adjust to the
rapidly changing nature of the economy and available jobs."
     This might not be introduced in Canada or elsewhere immediately, Forget
predicted. "But we do need to recognize that our existing social programs, which
have not changed in their fundamental design for more than 40 years, were built
for a different kind of economy when everyone could expect to have traditional,
full-time jobs with benefits. That is no longer the case," she said.
     Canada's income security system currently spends C$170 billion a year, or
8.5% of its GDP but 12.7% of Canadians live in poverty, which drives up the
costs of other social programs, including healthcare and special education,
according to Forget.
     Japan's poverty rate was 15.6% in 2015, above the average among major
economies. In fiscal 2016, social security payouts in Japan totaled Y118.3
trillion, or 22.8% of its GDP.
     Economists have been urging the Japanese government to overhaul the social
security system to make it more sustainable and efficient as the working
population shrinks and the huge public debt continues to grow.
     "I think universal basic income is a very good idea if we can actually
implement it," BNP Paribas senior economist Azusa Kato said. "But in Japan it is
unlikely to see national consensus because it would require a sharp increase in
the sales tax, for example to 25%" from the existing 8%.
     "Japan has a huge public debt and a large economy, it would be more
realistic to use a negative income tax and fix the existing social security
programs."
     Economists said if a basic income plan were to only replace the average
amount in the basic old age pension paid by the government, it would not provide
sufficient support to needy people.
     The Abe government has done little to make the labor market more flexible
but at the core of the inflexibility is a Japanese corporate culture which
prefers doing business in a way particular to each firm, rather than accepting
transferable skills of workers, JRI's Nishizawa said.
     "We also must change the culture of regarding being idle as lazy. People
should be allowed to spend some time off work to study for a career change, take
care of sick family members or simply go travelling to expand their horizons,"
he said. "Pursuing other interests in life, instead of being tied to the job,
would be better supported by unconditional basic income."
     Nishizawa also thinks the hurdle for adopting a universal basic income
program is too high in Japan.
     "A negative income tax policy would be more realistic here but Japan is
still behind in improving the administrative infrastructure to accurately
capture individual incomes including financial and real estate assets," he said.
--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
[TOPICS: M$A$$$,M$J$$$,MC$$$$,MGJ$$$]

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