Pension fund shift from premiums to tax may raise sales levy to 18%

If funding for pensions is shifted from premiums to taxes, the 5 percent consumption tax would have to be hiked to 18 percent, according to a government estimate.

The estimate calculated future consumption tax levels on the assumption that a uniform ¥66,000 a month — the maximum a pensioner is entitled to — in basic benefits will be paid.

Depending on the form of employment, some pensioners would also have added benefits separate from the basic plan that is the focus of the latest estimate.

In fiscal 2009, which starts next April, the consumption tax needs to be raised to 9.5 percent even if pension benefits are reduced for people who failed to pay premiums for a certain period in the past.

The tax will rise to 11 percent in fiscal 2009 if the government pays the uniform pension benefits to all pensioners regardless of any past failure to pay premiums.

If additional pension benefits are paid to those who paid more premiums than the average, the consumption tax would have to be raised to 18 percent in fiscal 2009.

In any case, current salaried workers and pensioners would have to bear a heavier financial burden than the present plan, which is based primarily on premiums. On the other hand, businesses that currently pay half of the premiums for their employees would see a reduced burden.

The estimate was presented to a meeting Monday of the National Commission on Social Security. The 16-member government panel is tasked with discussing employment, pension, medical, nursing-care and welfare program reforms, and measures to fight the declining birthrate.

Hiroshi Yoshikawa, a University of Tokyo professor specializing in macroeconomics, heads the panel. Other members include former Finance Minister Masajuro Shiokawa; Hiroshi Okuda, senior adviser at Toyota Motor Corp.; and Keiko Higuchi, a commentator and head of the Women's Association for a Better Aging Society.