Japan's working poor left behind by Abenomics

TOKYO Thu May 15, 2014 2:57am IST

1 of 2. Ririko Saito prepares dinner in Tokyo May 14, 2014.

Credit: Reuters/Yuya Shino

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TOKYO (Reuters) - Last Christmas Eve, Ririko Saito and her 11-year-old daughter gathered some plastic bottles, pots and a kettle and made several trips to a nearby park to get water. Their utility had just turned off the tap after months of unpaid bills.

"I was going to take care of it as soon as I got my paycheck in a few days," the 49-year-old single mother said. "I figured they wouldn’t be so callous to cut us off at that time of year. I figured wrong."

Saito, who works part-time caring for the elderly in a Tokyo hospital and gets welfare to supplement her salary, represents a growing army of poor in a nation that continues to pride itself on being an egalitarian society despite a decades-long rise in poverty.

At 16 percent, Japan’s relative poverty rate – the share of the population living on less than half of the national median income – is already the sixth-worst among the 34 OECD countries, just ahead of the United States. Child poverty in working, single-parent households like Saito’s is by far the worst at over 50 percent, making Japan the only country where having a job does not reduce the poverty rate for that group.

As Prime Minister Shinzo Abe charges ahead with his “Abenomics” policies to revive economic growth, things look set to get harder, not better, for Japan’s down-and-out.

Having ramped up spending on public works and business incentives, the government has also moved to shore up its finances, cutting welfare benefits last summer and last month raising the national sales tax to 8 percent from 5 percent.

The regressive tax puts the biggest burden on the poor and another increase to 10 percent is planned for October 2015.

Team Abe's success in reversing 15 years of price declines that have hurt business confidence and investment also squeezes the poor, who cannot count on bonuses or financial profits to offset rising living costs.

TRICKLE DOWN

The government says it plans more aid for welfare recipients, largely through job training. That, however, is little consolation because even those with jobs often live under the poverty line. The government does not officially define the "working poor", but the number of part-time, temporary and other non-regular workers who typically make less than half the average pay has jumped 70 percent from 1997 to 19.7 million today -- 38 percent of the labour force.

“The Abe administration’s stance is more about fixing things, including poverty, with a trickle-down effect from overall economic growth,” said Takashi Oshio, a professor at Hitotsubashi University specialising in social security. “There’s little political capital spent on issues like alleviating child poverty. It doesn’t garner votes.”

Cases like Saito's suggest benefits of growth pickup over the past year do not spread to all, and experts warn that a deepening divide between the haves and have-nots could threaten Abe's vision of Japan's economic revival.

A broad recovery in consumption, a key ingredient of Abenomics, may not last if more and more households struggle to hold above the poverty line, some economists say.

In the longer run, problems associated with poverty such as worse access to quality education, poor health and crime could increase fiscal burdens and dent Japan's growth potential by shrinking the pool of skilled workers.

"Rising poverty leads to a wider gap in education," said Makoto Saito, an economist at NLI Research Institute. “Japanese companies are supposed to be creating value-added jobs, but at this pace there won’t be enough people to fill those positions.”

SPREADING THE PAIN

To be sure, higher sales taxes are widely seen as inevitable given Japan's public debt is more than twice the size of its economy, and growing.

But economists say the government could limit the pain with policies that redistribute wealth better.

With social spending skewed towards pension and healthcare schemes that mostly benefit the elderly, Japan is the only OECD country where the poverty rate among working households and households with children increased after benefits and taxes, according to a recent study by the Organisation for Economic Co-operation and Development.

Many economists say adopting a system like the U.S. earned income tax credit, which reduces the amount of tax owed, would go a long way in helping the poor. But politicians favour introducing preferential tax rates for basic goods and services to ease the pain of the next hike.

“Politically, it’s easier to get the understanding of the electorate since multiple tax rates would benefit everyone, not just the poor,” said NLI's Saito.“But if effective countermeasures aren’t adopted to help low-income earners, the poverty rate is just going to keep rising.”

For those like Ririko Saito, who lives hand-to-mouth with her daughter on an hourly wage of 1,080 yen ($10.6), last month's tax hike has made life considerably harder. An extra 1,300 yen a month she will be receiving from the government to offset the higher costs of essentials is just not enough to avoid the repeated utility cuts.

“As it is, we can only afford discounted groceries.” Saito said. “I’m not sure how we'll manage, but I'll just have to find a way."($1 = 102.2250 Japanese Yen)

(Editing by Tomasz Janowski)

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