Japan's many elderly voters a risk to fiscal reform

TOKYO (Reuters) - Fear of losing the votes of the elderly, many of whom are staunch backers of Japan's ruling party, is making it tougher to tackle bulging social security costs even as their growing ranks make doing it so urgent.

That bodes ill for government efforts to curb a public debt that, at nearly 150 percent of gross domestic product, is already the heftiest among industrialized countries.

Older voters have tended to support the conservative Liberal Democratic Party (LDP), but now a feisty opposition Democratic Party is wooing them as part of a strategy to win a lower house election that must be held by late 2009, and could come sooner.

Once, the LDP could afford to shrug off elderly voters' concerns for want of a viable opposition but last year the Democrats and smaller allies won parliament's upper house.

"The LDP can no longer count on the blind loyalty of elderly voters," said Koichi Nakano, a professor at Sophia University in Tokyo.

"The LDP needs to worry more at a time when the government is compelled to introduce policy changes that will hurt the elderly, he said. "The crunch is coming at a time when there are other options to the LDP for conservative elderly voters."

Opposition parties, seeking to tap anger about a new medical insurance scheme that forces some elderly to pay more, last week passed an unprecedented, though non-binding censure, against unpopular Prime Minister Yasuo Fukuda in the upper house.

Hundreds of demonstrators rallied near parliament to demand abolition of the new insurance scheme, carrying banners saying "Abolish the 'ubasuteyama' system!" -- a reference to a legendary mountain where elderly parents who could no longer work were taken and left to starve to death.

EMOTIONAL DEBATE

Japan already has 13 million citizens aged 75 or over, about one tenth of its population and the figure is forecast to rise to 22 million in 2025. Two in five Japanese are expected to be aged 65 or over by 2050, double the current percentage.

Despite some recent reforms, public social spending -- pensions, health care, long-term nursing care and welfare -- is projected to rise 3 percent annually over the next decade to 18.4 percent of GDP by fiscal 2015/16, the OECD said in April.

"We need to beef-up social security services and at the same time, achieve financial sustainability," said Hiroshi Yoshikawa, a professor who heads the National Council on Social Security, set up by Fukuda to discuss reforms to the system.

But the opposition campaign was complicating efforts to achieve those two goals, Yoshikawa said in a lecture. "We need to have objective, constructive debate and it is quite unfortunate that the current discussion is too emotional," he said.

A finance ministry advisory panel last week urged the government to stick to a pledge to cut social security costs by 1.1 trillion yen ($10.2 billion) over five years to 2011, and stressed the need for tax reform so the burden could be shared among generations.

Yoshikawa's commission has estimated Japan's broad sales tax would have to rise as high as 18 percent, from 5 percent, now if tax was substituted for premiums to pay for national pensions, a potentially explosive change economists say would hit the elderly and poor hardest.

Older Japanese are a less organized group and lack the lobbying prowess of elderly in the United States, but they turn out to vote at far higher rates than younger citizens.

ELDER ANGER AND ELECTIONS

Unfortunately for a government trying to curtail spending, they also tend to favor a bigger public sector role.

"It's quite clear that the older you get, the more dependent you are on public services so the older you get, the better big government sounds," said Jesper Koll, CEO of investment advisory firm Tantallon Research Japan.

"The risk is very high of being dragged toward bigger government and greater inefficiency."

The LDP got a taste of elder anger in late April when it lost a lower house by-election in southwestern Japan held shortly after the new elderly health insurance scheme was implemented.

Ruling party lawmakers have since been scurrying to revise the plan, although they seem determined to preserve its basics.

But the LDP got a second shock when the ruling camp lost its majority in a local assembly election on the southern island of Okinawa.

Not all influential Democrats agree with the party's current strategy and many of their policies are still sketchy, so just what steps the party would take if it took charge is murky.

"We can't simply pander to the elderly," former party chief Katsuya Okada told Reuters in a recent interview.

"If we did, younger generations would criticize us."

Still, with elections looming, lawmakers on both sides are unlikely to turn a cold shoulder to older voters.

"At least until the general election is over, everyone will try to please elderly voters," said Sophia University's Nakano.

"Then there is the upper house election (in 2010), so the pressure can continue for quite some time."

(Editing by David Fogarty)

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