EDITORIAL: Pension funding

When there is no choice but to rely on debt to cover budgetary revenue shortfalls, the government must not hide this from the public. In the meantime, the government should make every effort to reduce its reliance on deficit-covering bonds.

With the government now studying how best to allocate pension funds in the fiscal 2011 budget, we cannot stress the importance of total transparency enough.

The government has known for years that supporting the nation's pension system would require more than one-third of basic pension funding to be borne by the state. When the pension system was reformed in 2004, it was written into law that the state's burden would be raised to 50 percent in fiscal 2009.

A tax hike was necessary to secure the 2.5 trillion yen ($29.8 billion) in permanent revenues necessary to foot the bigger bill, but the government kept putting it off. As a result, the government is still unable to secure the necessary funding.

In fiscal 2009 and 2010, the government made do by dipping into reserve funds in the fiscal investment and loan special account. For fiscal 2011, the government is considering appropriating 128 trillion yen from the pension special account reserve fund.

This particular fund has been used in the past for fiscal juggling. While temporarily suspending the transfer of funds from the general account, the government spent an equivalent amount from the fund, reducing bond issues. Theoretically, the procedure was in keeping with fiscal discipline. However, in practice, this was no different from issuing deficit-covering bonds.

The reserve fund in the pension special account exists for the purpose of covering future payouts. It may look as if there is ample money lying around, but that is not true.

If the appropriation of funds is temporary, it will not directly lead to a pension cut or pension premium hike. But reviving what is dubbed "hidden borrowing" enables a casual appropriation of funds, which in turn will blur the true state of indebtedness.

Issuing deficit-covering bonds is preferable to resorting to cheap tricks, as we will at least be able to see the size of the fiscal shortfall.

In June, the Naoto Kan Cabinet itself approved a fiscal management strategy that cautioned strongly against any form of fiscal management "that relies on transfer of funds between accounts or shifting deficits around." Should the Kan administration break its own rule in this regard, it would further undermine its own credibility.

On the other hand, should it decide to issue deficit-covering bonds to enable the government to bear its share of basic pension funds, it would be out of the question for borrowing to exceed the 44-trillion-yen limit which the administration has set for itself.

We know it won't be easy, but the administration must make every effort to stay within that limit by cutting other expenses.

By now, it should be crystal clear that a tax hike is the only option left for the government to secure the 2.5 trillion yen revenue it needs annually. Failing to act will only revive the same problem every year.

Ever since the Upper House election loss, the prime minister and his Democratic Party of Japan have shelved the crucial task of overhauling the tax system and the key issue of a higher consumption tax rate. Unless Kan and his party change their attitude, there can be no real solution to the problem.

--The Asahi Shimbun, Dec. 1