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

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