This is the second of a three-part series of articles concerning political leadership and the policymaking process in Japan. This article closely examines the policymaking process of the current DPJ administration in connection with the child allowance, a policy measure that was highlighted in the party’s manifesto for last summer’s House of Representatives election and was included in the administration’s budget for fiscal 2010.

A Look at the Policymaking Process

The Democratic Party of Japan’s 2009 electoral manifesto outlined the child allowance that it proposed to implement as follows:

• Introduce a “child allowance” of ¥312,000 per annum (¥26,000 per month) for all children until they finish middle school (half this sum in fiscal 2010).
• Change from tax exemptions, which favor those with relatively high incomes, to cash benefits that favor middle- and low-income families.
• Cost: Approximately ¥5.3 trillion.

Government expenditures related to social welfare in Japan are disproportionately directed toward the elderly, including outlays for medical care and pensions; only a small portion goes toward child care and support for families. According to data from the Organization for Economic Cooperation and Development (OECD Social Expenditure Database 2007), family-related government expenditures (which include cash benefits, child care and preschool education, benefits for maternity and child-care leave, and allowances for families) as a proportion of gross domestic product in 2003 stood at 3.54% for Sweden, 3.02% for France, 2.93% for Britain, and 2.01% for Germany. By comparison, Japan’s total was 0.75% of GDP, and that for the United States was 0.70%, a figure even lower than Japan’s. It is only natural that public expenditures are lower compared to Sweden and France, where the combined burden of taxes and social security contributions are higher (as a proportion of GDP, the combined burdens were 56.0% for Sweden, 50.5% for France, and 31.7% for Japan in 2005, according to the OECD Economic Outlook , no. 86, 2009). Allocating more resources for families, though, is no doubt the right strategy if Japan is to create a child-friendly environment. The previous child allowance was subject to income testing (for example, a salaried employee with three dependents was subject to an income ceiling of around ¥6.5 million). It provided allowances of ¥10,000 per month for children under age 3, ¥5,000 per month for the first two children aged 3 and over, and ¥10,000 per month for every additional child thereafter. This compares poorly with other countries. (For example, in France, while there is no allowance for the first child, the monthly allowance is equivalent to roughly ¥15,000 for the second child and around ¥20,000 for every additional child thereafter.) The policy of eliminating tax exemptions that favor high-income earners is a logical means of financing the new child allowance.

Expanding financial support for child care is a good idea in principle; the problem lies in designing the system by which this is to be done. Various discussions concerning the introduction of the child allowance took place during the process of compiling the fiscal 2010 budget, which was concluded in late December 2009. The salient points are listed below.

• What is the purpose of the child allowance? Is it a measure to support low-income earners, a measure to address the declining birthrate, a means of boosting the economy, or something else?
• Should the allowance have an income ceiling? In the face of a deepening budget deficit, should it be paid even to wealthy households?
• How will the government finance the roughly ¥5 trillion for its cost?
• Would it not be better to expand child-care centers and other services than to distribute cash benefits that may end up being used for parents’ consumption?
• What is the basis for setting the monthly allowance at ¥26,000 per child?
• Won’t eliminating income tax exemptions increase the burden on some households, such as those supporting disabled adults?

These arguments even resulted in differing opinions among members of the cabinet. For example, Mizuho Fukushima, head of the Social Democratic Party of Japan and minister of state for consumer affairs and food safety, social affairs, and gender equality, argued that more resources could be allocated to child-care centers and other services by reducing the amount of the allowance. And according to one newspaper report, even as the budget compilation process was drawing to a close, opinions had yet to converge on the issue of an income ceiling ( Yomiuri Shimbun , December 19, 2009). At a press conference, Kenji Yamaoka, chair of the DPJ’s Diet Affairs Committee, remarked that the idea of setting the income ceiling at around ¥8 million was unreasonable, saying it should properly be something like ¥20 million.” As Yamaoka is an influential Diet member with close ties to DPJ Secretary General Ichiro Ozawa, the view spread that the government was leaning toward setting a ¥20 million ceiling. In the end, however, the issue was decided by Prime Minister Yukio Hatoyama’s political decision: At a press conference held on December 21, he announced his intention not to introduce a ceiling on income (and his decision to modify the DPJ campaign manifesto with respect to repealing the provisional tax on gasoline, among other items).

In tandem with these moves inside the government, newspapers and magazines provided reports on the net effects of the increased tax burdens resulting from eliminating exemptions based on income brackets and family makeup and the increased payments from the new child allowance—that is to say, they published winners and losers by income level. These calculations, however, were simply based on a model analysis that covers only a small proportion of households; the government did not provide a comprehensive analysis of the entire population. A discussion paper by Noriyuki Takayama and Kosuke Shiraishi (“Kodomo teate donyu koka no maikurosimureshon” [A Microsimulation of the Effects of the Child Allowance], Discussion Paper 454, Hitotsubashi University Center for Intergenerational Studies, Institute of Economic Research, 2009) was more comprehensive, based on the 2007 National Livelihood Survey (Ministry of Health, Labor, and Welfare) and analyzing the effects of the DPJ’s plan to introduce a new child allowance and eliminate benefits like tax exemptions for spouses. According to their analysis, of the country’s more than 50 million households, 38% would enjoy a net increase in income, 43% would see no change at all, and 19% would experience a net increase in their tax burden. The authors’ extensive analysis also incorporated such aspects as a breakdown of the child allowance’s impact according to annual income and family makeup, as well as the effects of reinstating tax exemptions for the elderly.

However, data and analyses of this sort have not been forthcoming from the government—that is to say, the Ministry of Health, Labor, and Welfare. The government’s newly established Tax Commission released provisional calculations and data concerning the impact resulting from the elimination of income tax exemptions and the institution of a new exemption for certain adults (the special exemption for adult dependents). But no data has been released either on the net impact of introducing the child allowance or concerning the resulting changes to the poverty rate and inequality. Although the child allowance is a major policy measure requiring over ¥5 trillion in funding, the draft of the fiscal 2010 budget approved by the cabinet in late December last year revealed only that half the allowance would be disbursed in the initial year and that no income ceiling had been set. The government failed to sufficiently address the earlier-stated points of contention. Did it simply assume that it was merely fulfilling the promise it made to the public in its manifesto, so that processes like analysis and review were unnecessary? Properly speaking, the government needs to examine the present state of income distribution and of matters relating to child care and clearly analyze what the problems are, whether it is cash or more services that are needed, where the inequalities lie, and so forth. Perhaps this task should be entrusted to outside independent experts. The government should then undertake discussion that involves the public with respect to things like what measures are needed and in what direction to take them, and work to achieve consensus.

Generally speaking, reforming systems related to social welfare results in both winners and losers, making it easy for interests to clash. Thus what is needed is a process that enhances transparency, coordinates among different interests, and leads to consensus. By no means is this to say that the old approach, wherein the debates took place within the policy divisions of the ruling Liberal Democratic Party and the councils set up by government ministries and agencies, was better. But at least a reasonable amount of data was disclosed through this process. And after the Council on Economic and Fiscal Policy was established in 2001, debate among cabinet members and other discussions was made public. But there was no such disclosure during the formation of the current budget. Decisions were made through “political leadership” by the cabinet ministers responsible for such organs as the Ministry of Health, Labor, and Welfare, the Ministry of Finance, and the National Policy Unit and by the secretary general of the DPJ. And the issue of whether to continue paying the current child allowances emerged to confuse matters near the end of the budget compilation process. Individual ministers and the cabinet as a whole should of course bear responsibility for decisions on policies and creating new systems, but once introduced, these policies are not easy to change. This makes it all the more necessary to analyze the current systems, define the objectives and impact of new policies, and subject them to thorough verification before they are adopted.