A rapid change has taken place in the political role from "positive allocation" to "negative allocation." To win the public's understanding, evidence-based institutions need to be designed while accurately comprehending the distribution of income and assets.
In reality, some institutional designs are not responding to the changing times. One such example is the "model household" used in debates on pension reform and fiscal review of pensions. A model household refers to a household where the husband is a salaried employee who receives an average income while working over a period of 40 years and the wife is a full-time homemaker during the same period. However, when we analyze actual pension distributions to pension recipients, we find a situation that is far different from the pension amounts assumed under the model household.
This indicates that the model household, in which there is a full-time homemaker, is not a model representing the generation. There is also analysis indicating that there will be a rapid increase in the number of elderly households living in poverty. What we need for the future is an analysis that projects pension distributions in 2020, 2030, and 2050 under the current policy and how that distribution will change if additional reforms are incorporated. Without such analysis, it is impossible to conduct policy making correctly.
From the perspective of an evidence-based institutional design, it is important to consider data on not only income but also assets. For instance, how has the increased burden imposed by the consumption tax rate hike been addressed? There have been discussions about alleviating the burden on people who cannot afford much by introducing a lower tax rate on food and other such necessities. However, people with high income and wealth would also receive such benefits.
Once it becomes possible to calculate people's income more accurately through the My Number social security and tax number system, which will go into full-scale operation soon, it will be easier to provide "tax deductions combined with cash refunds" to the lower income population who cannot afford to pay income taxes. The advantage of this system is that it can only target those in real need.
The same holds true for benefits such as medical assistance for children and livelihood protection. It will be important to design a social security and tax system that makes use of the My Number system going forward.
* Translated by RIETI.
November 2, 2015 Nihon Keizai Shimbun
