TOKYO -- Japan will spend nearly one-fourth of gross domestic product on social welfare in fiscal 2040, according to the government's first-ever projections for that year, with nursing care expenditures to more than double as a shrinking working-age population struggles with the cost of caring for the elderly.
Annual outlays on programs including medical and nursing care, pensions and child care are projected to reach 190 trillion yen ($1.7 trillion) that year, up roughly 60% from fiscal 2018, according to estimates presented on Monday to the Council on Economic and Fiscal Policy.
This represents the government's baseline scenario, predicated on a roughly 2% economic growth rate. Social spending is seen at 121.3 trillion yen this fiscal year.
The world's third-largest economy already faces one of the steepest demographic challenges, with a wave of postwar baby boomers moving from elderly to 'superelderly.' Japan's last set of social welfare spending projections, issued in 2012, reached through 2025, when the youngest members of that generation will turn 75.
In fiscal 2040, the 65-and-over population will peak near 40 million people -- around a third of the overall population. More than 10 million seniors will be 85 or older, nearly double the current figure.
More than half of those 85 and older require long-term care. Japanese spending on nursing care is expected to shoot up 140% by fiscal 2040, to 25.8 trillion yen from 10.7 trillion yen. Medical spending is projected climbing 75% to 68.5 trillion yen.
The working-age population -- those aged 15 to 64 -- will decline by around 15 million between now and fiscal 2040, with the number of workers actually supporting social security programs falling by 9.3 million. Pension payouts will automatically decline as this figure falls, and spending in this category is expected to rise just 29% to 73.2 trillion yen. Child care spending is seen increasing 66% to 13.1 trillion yen.
All in all, spending on social welfare programs is expected to reach 24% of gross domestic product, up from 21.5% now.
These estimates may overshoot actual expenditures. Growth in medical services costs, for example, does not take into account reductions that could come from improving efficiency. Nursing care projections, meanwhile, assume that efforts to cut costs will remain inadequate. In fact, free long-term-care planning services are already available and are seen encouraging in-home nursing care rather than pricier institutional options.
On the other hand, cost growth associated with developments in medical care is difficult to predict, according to the Ministry of Health, Labor and Welfare, and so could raise total outlays more than expected if regenerative medicine, for example, reaches the stage where it becomes covered by benefits.
No matter the final tally, workers will pay more to support social programs. Medical and nursing care insurance premiums paid by workers at large companies are seen growing to 13.9% of annual income, with employers and employees each putting in half. This is 3.2 percentage points higher than now.
"The problem is shifting from one of a surge in the elderly population to one of a plunge in the workforce," a health ministry official said.