Population will define Japanese PM’s legacy

Shinzo Abe’s party has won the upper house election and he is now virtually guaranteed to become the longest-serving Japanese prime minister in November.

However, the failure of his ruling coalition to retain its two-thirds majority in the upper house casts a shadow on his constitutional amendments efforts. And as Japan gears up to host the 2020 Tokyo Olympic and the spring state visit by Chinese President Xi Jinping, preparations for these extremely important events are bound to be extremely high priorities for Abe and his government. It will be virtually impossible for Abe to find time within the political schedule to discuss amendments to the constitution.

Rather than trying to form a consensus on constitutional revision, I would like to advise Abe to focus his attention on one very pressing issue that could define his legacy and the fate of Japan.

Firstly, Japan is facing a demographic time bomb with its live birth rate for 2019 hitting the lowest level since official recording began in 1899. The rapid aging of its population has put unprecedented pressure on the government’s fiscal position, with its public debt reaching 226% of total GDP as of 2019.

How Japan manages this will determine its fate in the 21st century.

Abe’s victory gives him the vital political strength to proceed with the planned sales tax hike from 8% to 10% in October.

The hike in consumption tax is a vital but insufficient step to bringing public debt under control.

The government in 2018 unveiled its new fiscal plan titled: Basic Policies on Economic and Fiscal Management and Reform for 2018.”

However, the plan can be further improved by having a detailed and solid strategy to help Japan achieve better than a primary surplus. Such plans should include specific strategies to increase government revenue and control spending. Abe should not stop at 10% after hiking the tax in October; the OECD (Organisation for Economic Co-operation and Development) average tax is around 19%. This means there is more room for further tax hikes without harming Japan’s economic competitiveness.

Abe should also build on his 2018 tax reforms by addressing flaws which remain unaddressed in the 2018 reform bill.

Income tax revenues account for only 19% of tax revenue in Japan, compared to the OECD average of 24%. This is largely because a significant share of personal income is exempted with generous tax exemptions for wages and public benefits. Hence high wage earners disproportionately benefited from it. There is a need to close this leakage within the system by removing deductions that favor high earners that boost tax revenue and make the system even more progressive.

Beside raising revenues, controlling public spending is equally important as its social welfare spending is projected to rise 60% by 2040.

Japanese public healthcare spending is growing at a rapid pace due to its rapidly aging population. Unless reforms are made, the system will fall short of some 19.2 trillion yen in 2020 and of 44.2 trillion yen by 2035.

Reforms are essential to improve the efficiency of the system and to reduce wastage.

For a start, the Japanese see their doctor an average of  12.6 times annually, which is higher than other developed countries like the UK.

The average hospital stay in Japan is 16 days, the highest of all developed countries in the world.

Japanese doctors can bill separately for each service – for example, examining a patient, writing a drug prescription, and filling it.

Japnese hospitals tend to keep their patients for a longer duration since the system rewards them for serving a larger number of patients and there are no controls in place to manage the costs.

Japnese hospitals tend to keep their patients for a longer duration since the system rewards them for serving a larger number of patients and there are no controls in place to manage the costs

Abe should introduce bills to reform the system.

There is a lack of central control in Japan over allocation of resources in the country. There is no central authority to oversee staffing, hospital openings, expansions and closings, or the purchase of very expensive medical equipment.

For a start, Japan’s Health Ministry should be empowered to have sweeping oversight over these areas.

Central control should be established over the healthcare industry in Japan.

Doctors should not be allowed to bill separately for each service. It should be replaced by a universal flat fee.

A flat fee can be introduced based on patient diagnosis and a variable amount based on the duration of stay. To prevent hospitals from gaming the system by keeping the patients longer than necessary, a cap should be imposed on the amount of funds the hospital is eligible to claim for each patient. Special approval is required if the funding cap for a patient is exceeded and reasons must be given. This will help reduce the length of hospital stays. 

Government hospitals should also be empowered to use generic drugs in lieu of expensive patented ones. 

Abe should also push for the naturalization of zainichi – Koreans who have lived in Japan for generations. These people have grown up in Japan, speak perfect Japanese and long for acceptance in Japanese society.

Giving them citizenship should be a no-brainer issue. However, I understand that this runs counter to the Japanese narrative of a one-race nation.

Abe, who has campaigned himself as a hardline nationalist, is ironically the only leader in Japanese politics who can weaken this narrative. Abe and his government should bravely step forward to call for an embracement of a more multicultural and diverse population for such discrimination to end. There are many mixed-blood Japanese who have made huge contributions to Japan such as Ariana Miyamoto, the first mixed-race beauty queen to represent Japan in the Miss Universe pageant.

Japan should continue to bring in more foreign workers to supplement its shrinking workforce.

Desperate times call for desperate measures. The government should enact new laws and fund an advertising campaign to persuade the public to accept foreigners and minorities.

There is one piece of advice I can give Abe should he decide to sell this policy to the public. He should remind the public that the acceptance of immigrants will assist in helping Japan maintain its status as one of the largest economies in the world. 

It is a tragedy for Japan to be trapped in its narrative of keeping its society racially pure, which rules out many available options.

Population determines the fate of a country, and it is time for Abe to pursue a radical solution to manage this issue.

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