Japan goes full on crazy with welfare reform, adding costs instead of cutting

Perhaps the bureaucrats in the Health and Welfare Ministry misread the memo about Japan’s Ponzi scheme welfare system running out of funding and needing drastic reform.  Or maybe, it is just that they have been salivating over the extra revenue that will come from the proposed hike in the consumption tax that they lost all sense of reality.  Or maybe the policy of kicking problems down the road is so ingrained in the culture of the government, the thought of deviating from it is a heresy to the bureaucratic religion.

Whatever the reason, the reform that Japan has been waiting for for years and for which they will pay higher taxes in the near future is not what most people expected.

The Health and Welfare Ministry is advocating swift action to expand social security assistance to low-income individuals, while calling for a delay in reforms that place a larger financial burden on the public. The ministry evaluated the list of proposals for integrated social security and tax reforms that the government and ruling party compiled in June. The measures for pension, health insurance and nursing care reforms were classified based on whether they should be included in legislative changes for 2012 or pushed back to 2013 and beyond.

Changes to social security identified for next year include a provision to reduce from 25 to 10 the number of years that a worker needs to pay into the public pension system before becoming eligible for benefits.

Another recommendation is to expand eligibility for employee pension programs at private-sector firms to include part-timers who work at least 20 hours a week, down from the currently required 30 hours or more. Because employers are on hook to pay for half the premiums, a worker’s out-of-pocket burden would be reduced.

The ministry also seeks to reduce the national health insurance premiums paid by low-income earners.

On the other hand, the ministry’s recommendations appear to postpone measures that would place a heftier burden on the working generation. For instance, a plan that would make it easier to reduce pension benefits under deflation, part of a mechanism to curb costs shouldered by workers amid a rapidly graying population, has been set aside for now.

It also seeks to delay a measure that would raise the age at which individuals can begin collecting pensions from the current 65 to 68-70. – Nikkei

In other words, the government is expanding one of the primary causes of Japan’s failed economic model at a time when Japan’s debt threatens to collapse the economy.  And to make matters worse, it is pushing the costs of these actions onto future administrations and bureaucratic regimes.

The ministry is focusing more on the benefit expansion to allay public opposition to a consumption tax hike. “We want to make it clear that a tax hike is meant to help strengthen social security,” says a senior official.

Pushing the burden into the future, however, will likely cause a sharp increase in social security spending down the road. Such outlays topped 107 trillion yen in the fiscal 2011 budget.

The government and ruling coalition, led by the Democratic Party of Japan, will use the ministry’s proposals as a foundation for integrated reform plans to be crafted by year’s end. The initial round of legislation would be submitted to next year’s ordinary Diet session.

So, the logic is, by further burdening the welfare system (giving more benefit to more people) and adding to the yearly deficit, the government will be able to sell the consumption tax increase to the public, a tax hike which is specifically designed to reduce the current deficit for welfare benefits?

Does the government really think the Japanese people are that stupid?  We can only suppose that since they have been screwing the public with schemes like this for 20 years, they do, and maybe justifiably.

For all of those who think this is a good idea, we offer this.

Standard & Poor’s said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden, an indication it may be preparing to lower the nation’s sovereign grade.

“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said in an interview.

A reduction in S&P’s AA- rating would be a setback for Noda, who took office in September and has pledged to both steady Japan’s finances and implement reconstruction from the nation’s record earthquake in March. It’s unrealistic for Japan to think it can escape the debt woes that have engulfed nations overseas unless it can control its finances, according to Ogawa.

S&P has had Japan on a negative outlook since April. Ogawa said the nation needs a “comprehensive approach” to containing its debt burden, which the government projects will exceed 1 quadrillion yen ($13 trillion) in the year through March as the nation pays for reconstruction.

A reduction in S&P’s ratings would cause Japan’s cost of borrowing to go up as investors demand more return for the increased risk.  And what does that mean for Japan?

The International Monetary Fund warned in a new report that market concerns over fiscal sustainability could trigger a “sudden spike” in Japanese government bond yields that could quickly render the nation’s debt unsustainable as well as shake the global economy. The fund’s Japan Sustainability Report, released on Wednesday, was a signal to Tokyo policy makers that the international community is already worried about fallouts from Japan’s potential fiscal problems, after debt problems in some European economies evolved into a Continent-wide crisis.

Should JGB yields rise from current levels, Japanese debt could quickly become unsustainable,” the IMF said in the report.

“Recent events in other advanced economies have underscored how quickly market sentiment toward sovereigns with unsustainable fiscal imbalances can shift,” the fund said.

Higher government bond yields “could result in a withdrawal of liquidity from global capital markets, disrupt external positions and, through contagion, put upward pressure on sovereign-bond yields elsewhere,” the fund said.

Rather than reforming the system, Noda is expanding it for short-term political gain.  It’s almost as though he was purposely trying to destroy the economy once and for all.

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