Chand, S.K., and A. Jaeger, Aging Populations and Public Pension Schemes, Occasional Paper 147, International Monetary Fund, Washington, D.C., 1996.
Mühleisen M. “Too Much of a Good Thing? The Effectiveness of Fiscal Stimulus” in: T. Bayoumi and C. Collyns (eds.), Post-Bubble Blues: How Japan Responded to Asset Price Collapse, International Monetary Fund, Washington, D.C., 2000.
Prepared by Martin Miihleisen (ext. 38686).
The fiscal year starts on April 1.
A detailed examination of the composition and impact of stimulus programs is contained in Mühleisen (2000).
A separate supplementary budget, passed in October 1998, authorized bond issues and public guarantees worth ¥65 trillion (13 percent of GDP) for resolving problems in the domestic banking system. The government also authorized ¥20 trillion in special loan guarantees extended by regional credit-guarantee associations through March 2000.
Other measures in the FY1999 budget included an extension of the period for which mortgage holders qualified for special tax deductions from six to 15 years (for house purchases taking place by December 2000). Moreover, the securities transactions tax was repealed as of April 1999, withholding taxes were suspended for Finance Bills and Treasury Bills (if registered with the Bank of Japan), and nonresidents were being exempted from withholding tax on government bonds from September 1999.
Public works orders increased sharply in early 2000 in response to the package, but the impact on the national income accounts has yet to be felt (see Figure II.2).
General expenditure excludes debt service payments and transfers of local allocation tax.
The government also introduced a bill on the tax treatment of contributions to private defmed-contribution pension plans, which has however not yet passed the Diet (see below).
The staff’s lower cumulative deficit over the two years reflects an expected shortfall in local government spending, discussed further below.
Under the official classification, bond issues and borrowing are counted among revenues, and the deficit reflects only changes in financial reserves. Based on information in the White Paper on Local Government Finance, the deficit reported here reflects the definition in the guidelines for Government Finance Statistics.
The LGFP is an indicative initial budget plan for the local government sector—compiled jointly with the central government—that forms the basis for the allocation of tax transfers.
Two fiscal indicators in particular trigger central government intervention: (i) a local authority’s bond issues are restricted if its ratio of debt service to local tax revenues exceeds 20 percent; and (ii) a prefecture is mandated to undertake fiscal restructuring under direct national control if its fiscal deficit exceeds 5 percent of a standardized expenditure measure (20 percent in the case of municipalities).
Had the governments levied the tax on all enterprises doing business in their prefectures, they would not have been able to claim unique circumstances, and would thus have had to obtain permission from the Ministry of Home Affairs.
For example, non-profit corporations run by the Postal and Welfare Ministries use FILP funds for portfolio investments that mostly involve government bonds.
These results have been obtained from the model described by Mühleisen in this year’s Selected Issues paper. They are roughly consistent with Chand and Jaeger (1996), who obtained an estimate of 108 percent of GDP for the pension system’s net projected liabilities, taking account of information relating to the 1994 pension reform.
See OECD, Gross and Net Debt Measures in Japan, 1998.
The regional credit guarantee associations paid out ¥801 billion in guarantees during FY1999. Government losses from the special guarantee scheme—which expires in March 2001—have amounted to ¥200 billion so far, implying a 1 percent loss rate.
Inflation is assumed to be flat at 1 percent a year throughout.
Variations in the paths of interest rates and growth towards their endpoints have only small effects on the required adjustment.
Maturing deposits will be subject to ¥9 trillion in taxes, while accumulated interest in excess of the ¥10 million deposit cap accounts for ¥16 trillion, leaving ¥81 trillion in deposits eligible for rollover.
The FILP consists of the “general” FILP and portfolio investments. Portfolio investments are managed by non-profit institutions run by the Postal and Welfare Ministries, which gives the two ministries some role in allocating the funds collected by their respective postal savings and welfare systems.
The TFB itself is to be replaced by a yet-to-be established government agency.
A pilot study has identified the need for subsidies worth ¥5 trillion over the next 20–30 years for five major agencies that account for a combined ¥110 trillion of FILP loans.
The Ministry of Health and Welfare estimates that an average household with 40 years of contributions to an employee-pension plan will be paid ¥418,000 in FY2025, ¥10,000 less than if they were receiving benefits today. The estimated total lifetime pension payment to a, salaried worker who is currently 40 years old will fall from ¥61 million to ¥51 million under the current system.
Critics have pointed out that the need for future contribution increases could be higher, if the fertility rate does not recover as currently projected in the official populations models.
In the WHO’s World Health Report 2000, Japan’s health care system obtained the highest performance rating, and ranked among the 10 most cost-efficient health care systems.
The National Health Insurance scheme posted a ¥100 billion deficit in FY1998, likely to be followed by a similar deficit in FY1999. The combined deficit of corporate health plans was ¥210 billion in FY1999.
The elderly are exempt from premiums for the first 6 months of FY2000, and pay only half the premium for one more year. Worker contributions have been reduced for one year.
Spending on medical care is expected to drop by 4 percent in FY2000, with a substantial chunk of services being taken over by nursing care providers. However, the overall uptrend in health care spending will continue, with costs expected to increase by 2½ percent if nursing care expenses are included.