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Aging population could hamper LDP's economic reform agenda

English.news.cn   2012-12-31 12:41:37            

TOKYO, Dec. 31 (Xinhua) -- Japan has proved on many occasions that it is a resilient country and can bend and flex in times of adversity.

Recent examples of this was how the nation rebuilt and refocused its attention on social cohesion and growth following the 2011 Great East Japan earthquake last March, which pummeled Japan's northeast, and quake-triggered nuclear crisis that resulted in all of resource-poor Japan's reactors being taken offline indefinitely.

The nation rallied and moved on, as it has done historically.

But Japan can only roll with the punches for so long as its ultimate destination is being chartered by its own population -- a populace that is concomitantly aging and shrinking at a pace the nation cannot and will not be able to contend with, unless dramatic measures are taken.

Latest statistics from the National Institute of Population and Social Security Research show that depopulation in Japan is increasing precipitately. Statistics show that Japan's population will fall from 128 million to 116 million by 2030 and to 85 million by 2060.

Sociologists speculate that by 2100, the nation's population could total just 38 million people -- with the average depopulation rate hitting 1 million people per year.

According to United Nation's statistics Japan's total fertility rate (TFR) fell abruptly from 5.10 in 1925 to an ultra-low 1.39 by 2010. This compares to a UN world average of 2.52 for 2010.

As Japan's population shrinks, so will the numbers of its " economically active" citizens, who are classified as those aged between 15 and 64. The projected decline of Japan's working population, charts a slide from a current 64 percent of the current total to 51 percent by 2060.

Recent figures suggest that Japan's aging population has hit an all time high, hovering around 30 million people, which accounts for around 23 percent of the nation's total population, and these numbers are on the rise.

Government statistics show that the annual cost of social security benefits necessary to cater to this rapidly growing aging social sector exceeds 1.20 trillion U.S. dollars annually, and as the sector grows, so will this figure augment, against a backdrop of deflation, a stagnant economy and public debt standing at more than 200 percent of the nation's GDP -- the highest amongst developed countries in the world.

"Japan's aging population is causing this increase: every year, people get one year older and more people start receiving pensions, which forces the government into putting more money into the system," said Hiroshi Yoshikawa, a Professor of Economics at the University of Tokyo, in a recent editorial on the matter.

"Likewise, the medical costs of the aged are five times higher than those of the working population. Again, this requires the government to put more money into sustaining nationwide medical insurance. Social security and aging are at the core of Japan's public deficits," Yoshikawa said.

New Prime Minister Shinzo Abe has been waxed-lyrical about strong-arming the central bank to set an inflation target and his newly-formed cabinet is mulling a plethora of stimulus initiatives to lift Japan from its economic doldrums.

But Japan's recovery, according to local and international analysts, will be "lead-footed" because of its population crisis.

"Don't expect the Japanese economy to make a fast recovery after its political change," said Songtum Pinto, director of Thailand's central bank's Monetary Policy Office.

"Japan has been facing structural problems with the large number of elderly people. With this population structure, people do not want to go ahead with investment, and this leads to deflation. We have to wait and see how much the stimulus will help boost the economy," he said.

Similarly local experts have highlighted the potential and dramatic downside affects of Japan's inherent structural problems and the implications for its antiquated social security system.

"Japan currently has the world's fastest aging society and by 2025 more than 27 percent of the population will be over 65 years old," political commentator and author Philip McNeil told Xinhua.

"If we are to assume that the present trend will continue, Japan's social security system is and will increasingly face almost insurmountable financing problems henceforth."

"It will have to be financed by taxes paid by a shrinking working population and thus the aging society will concurrently lead to a drop in revenues and an increase in outlays. This presents a dangerous fiscal scenario for the government when the figures reveal that the ratio of the aged to the working population is expected to be nearly one to one by 2050," McNeil explained.

Government figures reveal that annual social security benefits amounted to 1.27 trillion U.S. dollars in 2011, with this figure, one fifth of the nation's GDP, expected to be higher for the current year and rising precipitously year after year.

Social security contributions cover only 60 percent of these benefits with the outstanding 486.4 billion U.S. dollars being raised through taxes and debt issuance, which is compounding the nation's monumental public deficit.

"The national budget for the 2012 fiscal year illustrates how concerning the situation is," Yoshikawa said.

"From a total budget of 1.14 trillion U.S. dollars, 28 trillion U.S. dollars will finance social security. While all public expenditures have been steadily cut over the last 10 years, social security programs have climbed by more than 12.7 billion U.S. dollars per year," he added.

Former Prime Minister Yoshihiko Noda's signature sales tax hike plan is one potential solution towards solving Japan's widening fiscal deficit and one which the LDP will likely run with, pending the outcome of GDP figures in the second quarter next year.

"It's impossible to raise the tax if deflation deepens," Abe said during a Fuji television program recently. A decision will be made after data on economic conditions from April to June become available next August," the new prime minister said. Enditem

Editor: Bi Mingxin
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