In light of his postponement of the increase in the consumption tax rate hike to 10 per cent, Prime Minister Shinzo Abe will start sorting which enhanced social security programs planned for incorporation in the fiscal 2015 budget will be implemented as initially scheduled and which will be postponed, according to government sources.
The step will be taken because the postponement of the tax hike will reduce the expected tax revenues in fiscal 2015 by about 1.5 trillion yen (S$16.6 billion).
It is believed that curtailing the planned increase in medical service expenses and other spending will become unavoidable.
But given opposition to social security expense cuts from within and outside the Liberal Democratic Party, the prime minister will likely have to make some tough decisions.
The set of laws to comprehensively reform the social security and tax systems, which was enacted in 2012, stipulates that tax revenues from the increased consumption tax should mainly be spent on enhancements of social security services, including medical, nursing and child-rearing services. To realise these plans, the government has been working on devising specific plans.
During the House of Representatives campaign, the prime minister made clear that the government will launch a new child care and child-rearing support system in April next year.
The system is meant to eliminate the lists of children waiting to enter day care centers by increasing places that can offer day services, such as the government-authorised "nintei kodomoen," which integrate the functions of kindergartens and day care centers. Given such developments, the prime minister concluded the child support system must be given high priority.
The new child support system is projected to cost 700 billion yen a year. To cover the expenses needed to realise the child support plan, the government expects that Abenomics will help buoy corporate activities and result in increased tax revenues.
On the other hand, Abe indicated his intention to postpone the introduction of a system to provide benefits to the elderly receiving small pensions until April 2017, when the consumption tax rate is expected to be raised again to 10 per cent.
Among other reforms that may be reviewed is the plan to shorten the period people are required to make premium payments to become entitled to receive pension benefits from 25 years to 10 years.
It has been reported that the prime minister intends to generate necessary revenue sources by curtailing medical expenses and other social security costs. But the plan may face opposition from LDP members with interests in certain industries as well as industrial organisations.
Abe is also set to make full-fledged efforts to revamp regional economies, which reportedly have not fully benefited from Abenomics.
The government plans to draw up economic stimulus measures by the end of this month to be incorporated into the fiscal 2014 supplementary budget, which will be submitted to the ordinary Diet session to be convened early next year.
With the move, the prime minister intends to promote his stance of shifting more focus on regional economies to the public, with a view to the unified local elections in April next year.
Regarding reduced consumption tax rates on food and other daily necessities, the LDP and its coalition partner Komeito will step up efforts to coordinate their opinions in the ruling parties' tax system negotiation committee, which will be resumed shortly.
The parties have spelled out an agreement to introduce the system when the consumption tax rate is raised to 10 per cent in the "coalition parties' key policies," which outlines their shared pledges for the lower house election.
While Komeito aims to introduce the reduced consumption tax rate in April 2017, the LDP's Research Commission on the Tax System is still taking a careful stance on the issue with the commission's senior official saying, "We didn't promise to introduce the system at the same time as the consumption tax hike [to 10 per cent]."
Given the difference in the two parties' stances, observers say ironing out their differences, including which items to include, may take some time.