Meeting Agenda
Matters concerning ideal government and organizations (public finances, with special reference to their control by the Diet and the question of social security funding, including the problem of the social security burden on taxpayers and the relationship between the pension system and national finances)
After statements were heard from Professors USUI Mitsuaki and HIROI Yoshinori concerning the above matters, questions were put to them. This was followed by free discussion among the members.
Informants
- USUI Mitsuaki, Professor, Graduate School of Law and Politics, University of Tokyo
- HIROI Yoshinori, Professor, Faculty of Law and Economics, Chiba University
Members who put questions to Prof. USUI and Prof. HIROI
- NAGAOKA Yoji (Liberal Democratic Party)
- GENBA Koichiro (Democratic Party of Japan and Club of Independents)
- SAITO Tetsuo (New Komeito)
- YAMAGUCHI Tomio (Japanese Communist Party)
- DOI Takako (Social Democratic Party)
- MORIYAMA Mayumi (Liberal Democratic Party)
- TSUMURA Keisuke (Democratic Party of Japan and Club of Independents)
- IWANAGA Mineichi (Liberal Democratic Party)
Main points of Prof. USUI's statement
1. The principle of public control of public finances
>> There are many possible ways of realizing the principle of public control of public finances, which is a part of popular sovereignty. The easiest to carry out is control by the Diet. To achieve this, the public must be provided with adequate information on public finances.
>> Since popular opinion is split between the public's wishes as taxpayers and public pressure for government spending, in the past, the government relied on painless fiscal mechanisms such as government bonds and treasury investments and loans. However, it is necessary to change to mechanisms which will allow the public to feel the pain.
2. The relationship between the Constitution and legislation with regard to public finances
>> In regard to the question of how much provision for fiscal matters should be made in the Constitution, there are many aspects that can be left to the discretion of the legislature, such as adoption of a multiyear budget and preparation of balance sheets.
>> Because there is no constitutional principle that requires a balanced budget, it is possible to issue deficit-financing government bonds by enacting exceptional-case laws, and their issue cannot be restricted under the Constitution. In fact, it is quite difficult to restrict them even with legislation such as the Fiscal Structure Reform Law.
3. The budget system
>> The role of the budget is mainly to authorize spending and the assumption of debt.
>> To ensure the soundness of public finances, the single-year budget is a necessary principle. In this system, a budget of revenues and expenditures for a period of one year is compiled annually and the Diet votes on its adoption.
>> Although the Constitution does not directly stipulate the principle of independent annual budgets, public finances should not be managed in a way that does not permit their control by matching expenditures and revenues, as this would undermine the very foundations of the budget system.
>> The harmful effects of the single-year budget are due to the difficulty in carrying items over, but I argue that we should introduce a system to permit a fixed proportion of estimated expenditures to be carried over, separately from the approved carryover expenses, without requiring the approval of the Minister of Finance.
>> There is a problem when it is left to the Cabinet's discretion to implement spending, in the form of a reserve fund, on items for which the need was foreseen when the budget was compiled, as this oversteps the bounds of the reserve fund system laid down in the Constitution. However, under certain conditions, such as public works spending to stimulate the economy, it may be permissible to establish items of expenditure whose purposes are only loosely specified.
4. The system for the situation where the budget is rejected
>> The fact that no provisions have been made for extraordinary measures, while implementation of the previous year's budget is excluded, serves the function of "expediting deliberation of the budget," i.e., encouraging cooperation to pass the budget. However, out of practical necessity, a law should be enacted to authorize spending in case of emergencies such as major disasters.
5. Article 89 of the Constitution
>> Constitutional scholars have made repeated efforts to interpret "the control of public authority," but I believe that we need to consider deleting or revising the second part of Article 89.
6. The Board of Audit and related matters
>> Possible organs of fiscal control other than the Diet include the executive branch, the Board of Audit, and the courts. However, the internal audit systems of government ministries and agencies themselves cannot be expected to function well when called upon to investigate improper handling of funds in which the whole ministry or agency was involved.
>> In light of the requirement in Article 90, Paragraph 1, that statements of audit be submitted via the Cabinet, it seems that the Constitution does not foresee making the Board of Audit an auxiliary agency of the Diet.
>> The Board of Audit itself should undergo external audit every three to five years.
>> If the Board of Audit's role as a kind of court is to be strengthened further, it may be necessary to make express provision for those powers in the Constitution.
>> As one form of control by the courts, it is worth considering a national equivalent to the existing system of citizens' lawsuits for malfeasance against authorities at the local level, but care would be needed to guard against the risk of indiscriminate litigation and the possible inhibiting effects on public employees.
7. Conclusions
>> I hope that the Diet itself will make ongoing efforts to study
the ideal institutional form of fiscal control and release a report of
its findings.
Main points of Prof. HIROI's statement
1. The characteristics of social security in Japan
>> Each country's social security system strongly reflects its own social structure, values, culture, history, and so on.
>> By international comparison, Japan's social security system is characterized by its small scale, the fact that pensions outweigh welfare, and the fact that it is funded mainly by social insurance contributions. Its revenue sources are a seamless blend of contributions and taxes, making the system complex and difficult to understand.
>> Japan has been able to keep its social security payments low due to: (a) the invisible safety net provided by employers and (nuclear) families (an "informal" system of social security), and (b) the existence of "social security in the form of public works spending."
2. International comparison of social security systems
| Type | Characteristics |
| (A) Universalist model | Large benefits |
| Covers all residents | |
| Mainly tax-funded | |
| (B) Social insurance model | Benefits proportional to contributions |
| Mainly for employees | |
| Mainly contribution-funded | |
| (C) Market model | Minimum public intervention |
| Mainly through private insurance | |
| Self-help and volunteerism | |
| Example | Basic Principle |
| (A) Scandinavia | Public assistance |
| (B) Germany, France | Mutual assistance |
| (C) U.S.A. | Self-help |
>> Japan has a mixed or compromise type which started out as (B) and later introduced elements of (A), while being close to (C) in terms of scale. In recent years, the different national systems have all been moving closer together.
3. Values and principles of social security
>> If we understand "freedom" as "breadth of future options," and "equality" as "equality of opportunity," freedom and equality are mutually reinforcing concepts.
>> The basic principle of social security is to guarantee freedom in this sense. It provides an institutional guarantee of the freedom (i.e., opportunity for self-realization) of the individual guaranteed by Article 13 of the Constitution.
4. The future direction of social security
>> Japan's social security basically needs strengthening. The appropriate model under conditions of low economic growth is a system that emphasizes health care and welfare, making generous public provision for these while expanding the role of the private sector with regard to pensions. This is because the risks in the areas of health and welfare are less predictable than those related to pensions and there are also bigger differences between individuals, making a public guarantee more necessary.
>> The relative weight of taxes in funding social security will increase in future, because the age group to which it is difficult to apply the principle of balancing insurance contributions and costs will grow in numbers as the population ages. Hence, taxes should be the main source of funding in the areas of basic pensions, elder health care, home nursing, welfare, and child welfare.
>> Taxes that should be considered as revenue sources are: (a) the consumption tax, (b) the inheritance tax, to promote equality of individual opportunity, (c) an environmental tax, to pursue a "sustainable welfare state/society" in which social security (welfare) is compatible with maintaining the quality of the environment.
5. Concluding remarks
>> The Constitution does not necessarily provide unequivocal answers about the detailed design of social security.
>> Amid great changes in the social structure, there are calls to rethink social security from a number of viewpoints, including: freedom and equality; the role of the state as the entity responsible for whatever is public in nature; the ideal division of roles among the public sector, mutual assistance, and the private sector; and creating a social system in harmony with the environment.
>> In a mature economy in which the individual is becoming the basic unit of social activity, the role of the public sector, and especially social security, must inevitably grow larger. Against this background, a basic challenge is to pursue a model of social security that could be called "a sustainable welfare state/society," paying attention to harmony with the environment.
Main points of questions and comments to Prof. USUI and Prof. HIROI
NAGAOKA Yoji (Liberal Democratic Party)
(To Prof. USUI)
>> In my view, we need to consider multiyear budgets, due to (a) the Ministry of Finance's increasing rigidity in regard to budget examinations, (b) the rush to use up budget allocations that takes place at the end of each fiscal year, and (c) the fact that budgets are in fact being compiled for more than one year at a time due to the use of supplementary budgets. I suggest that we should consider an approach similar to the American PPBS (Planning-Programming-Budgeting System), in which agencies draw up plans projecting their expenditures over about five years, and then budget allocations are spent on a single-year basis.
>> Some people consider that the second part of Article 89 in the existing Constitution maintains a tension that is actually preferable to explicitly allowing assistance for private schools. If this article were to be revised, how do you think it should be done?
(To Prof. HIROI)
>> In thinking about the social security framework, what exactly are the "value choices" facing politicians?
>> I think it would be difficult to obtain a national consensus on using the consumption tax, inheritance tax, and environment tax for welfare purposes as you suggested, as they have little obvious connection with social security. How do you think the public can be persuaded?
GENBA Koichiro (Democratic Party of Japan and Club of Independents)
(To Prof. HIROI)
>> It seems to me that the Prime Minister's moves to discuss the consolidation of public pension plans once the current proposals have been passed are inconsistent with the government's statement that, if its proposals are passed, the pension system will be safe for another fifty to a hundred years. Would you like to comment?
>> Should we include further provisions regarding social security in the Constitution?
(To Prof. USUI)
>> Japan has a particularly complex budget system. I think we need to issue consolidated budgets in which the general, special and other accounts are integrated, both as an aid to public understanding and discussion, and to help resolve the increasing loss of budgetary flexibility. Do you agree?
>> I understood you to say that the Constitution does not allow us to drop the single-year budget system, but that it would be possible to introduce multiyear budgets as a method of management. Is this a correct understanding of your view?
SAITO Tetsuo (New Komeito)
(To Prof. USUI)
>> I would like to hear your views on the relationship between taxation and the Constitution.
>> In connection with the system of funding compulsory education from the national treasury, I would like to hear your view of how responsibility for education should be divided between the national and local governments in the era of decentralization.
(To Prof. HIROI)
>> I would like to hear any comments you have on the diagram in your printed summary, entitled "Two opposing axes: The growth and distribution of wealth."
>> I would like to hear your views on the social security burden on taxpayers and the relationship between the pension system and national finances, with reference to (a) the present burden ratio in Japan, (b) comparison with other countries, (c) the level that can be tolerated in future.
YAMAGUCHI Tomio (Japanese Communist Party)
(To Prof. USUI)
>> Would you say that the Constitution's provisions on public finances are not only concerned with the system of government but also have a bearing on human rights?
>> Am I right in thinking that a single-year budget system was adopted in the Constitution out of concern for the historical fact that prewar state finances were led down the path to bankruptcy through the procurement of war funds?
(To Prof. HIROI)
>> I think that the main point of Article 25 is the fact that it sets forth the state's responsibility regarding social security, welfare and public health. I would like to hear your evaluation of this article.
>> You recommended about 160,000 to 170,000 yen per month as the proper level of a basic pension, but the current level of benefits falls far short of this. In light of Article 25's guarantee of "the minimum standards of wholesome and cultured living," I believe that radical measures are needed. Do you agree?
>> I am opposed to using the consumption tax as a fixed-purpose tax to fund social security because of the problem of regressiveness. I would like to hear your views on the low corporate tax burden in Japan.
DOI Takako (Social Democratic Party)
(To both informants)
>> Education in Japan has a high standard and a good reputation. Following the proposed change to disbursing compulsory education costs from the national treasury in the form of general revenue appropriations, how do you think harmony can be achieved between the scope that local governments will have for trying out their own ideas and the need to ensure a high level of education nationwide?
>> The National Personnel Authority's recommendations on public employees' salaries and related matters can be regarded as trade-offs for the restriction of the fundamental labor rights of public employees. However, given that the National Personnel Authority has recommended salary cuts due to the stringent fiscal situation, I would like to hear your views on what form the guarantee of the fundamental labor rights of public employees and the system of recommendations by the National Personnel Authority should take.
(To Prof. USUI)
>> Assistance to private schools does not contravene Article 89, even taking into account the intent of Article 26, Paragraph 1. I believe that we should establish clearly, by law, that private schools can be subsidized. What are your views in this regard?
MORIYAMA Mayumi (Liberal Democratic Party)
(To Prof. HIROI)
>> In the 1960s, I went to Sweden and saw for myself what their "welfare state" was like. If Sweden succeeded in achieving such a complete welfare system, why is Japan having so much difficulty deciding what to do about social security, even though it is now as wealthy as Sweden was in the 1960s?
>> How do you evaluate the pension system reforms carried out in Sweden in the 1990s?
TSUMURA Keisuke (Democratic Party of Japan and Club of Independents)
(To Prof. USUI)
>> Do you think that the Constitution has a "natural life span" or "useful life"? Also, how many years do you think it will take until there is social pressure for revision of the Constitution?
>> In revising the Constitution, we should set up major themes for the nation, looking ahead one hundred years. In my view, we should clearly state the principle of a balanced budget in the Constitution in order to send a message overseas as an international financial market. I would like to hear your opinion on this point from a legal-technical viewpoint.
IWANAGA Mineichi (Liberal Democratic Party)
(To Prof. USUI)
>> The existing system in which the individual ministries and the Ministry of Public Management, Home Affairs, Posts and Telecommunications evaluate policy while the Board of Audit carries out inspections in terms of usefulness and efficiency could be seen as gilding the lily. What part do you think that the Diet, the executive branch, and the Board of Audit should play in policy evaluation?
(To Prof. HIROI)
>> Why is the rate of payment of national pension contributions so low? Also, what do you think should be done to clear up the arrears?
>> You classified welfare states into three types: (A) the universalist model, (B) the social insurance model, and (C) the market model. Which heading does Japan come under? Also, in which direction do you think we should move?