Chuo Online - English

  • twitter-icon
  • facebook-icon
  • rss-icon

Research

How Should the Child Allowance be Funded?

Relying on social insurance premiums? Unbelievable!

Satoru Miyamoto／Professor, Faculty of Economics, Chuo University
Areas of Specialization: Social Policy and Social Security Theory

"Unprecedented Measures to Combat the Declining Birthrate" Focuses Revision of the Child Allowance

The Kishida administration's "unprecedented measures to combat the declining birthrate" have been subject to various criticisms, including concern for funding. However, the system was implemented on June 5, 2024, with the passage and enactment of the revised Child and Child Care Support Act. The main benefits of the revision, which has an annual budget of 3.6 trillion yen, include (1) expanding the child allowance, (2) relaxing the conditions for using daycare centers, and (3) expanding childcare leave benefits[1]. However, it is unclear to what extent these measures will be effective in combating the declining birthrate. Even those who propose the policy are avoiding specifying numerical targets for these measures and logically explaining the effects of the policy.

Although the policy's effectiveness as measures to combat the declining birthrate is unclear, the policy is likely to realize a certain degree of improvement in Japan's currently weak child-care support system[2]. However, even from the time the bill for "unprecedented measures to combat the declining birthrate" was being considered, there was an attitude of disregarding the historical experience and academic research results accumulated in the field of social security. In other words, in terms of benefits, the system is unbalanced, giving preferential treatment to large families with three or more dependent children. Examples of unbalanced benefits include a large increase in the child allowance and increased support for higher education expenses. The system places extremely little importance on financial support for households with one or two children. This makes the system insufficient both as a measure to combat the declining birthrate and as a measure to support child-care. Furthermore, the funding method has also been criticized, particularly by experts. For example, at the House of Representatives Special Committee on Regional Revitalization, Children's Policy, and Formation of a Digital Society on April 9, 2024, Kazuhiko Nishizawa (Counselor of the Japan Research Institute) sharply criticized the funding plan for the "unprecedented measures to combat the declining birthrate," saying "An attempt is being made to introduce a funding source that is not theoretically justified at all, such as child and child-care contributions."[3]

Among the various problems that have been pointed out in the "unprecedented measures to combat the declining birthrate," this article focuses on the child allowance, which is a core policy of the measures. Specifically, I examine how the allowance should be funded, with reference to international examples from the United Kingdom and France. To get straight to the point, family allowances (equivalent to the child allowance in Japan)[4] are generally funded by public funds or employer contributions. The Kishida administration's method of funding the child allowance is to invest Japan's unique social insurance premiums, which are called child and child-care support funding. This method deviates from international common sense.

Funding Method for Child Allowance in the UK Social Security Scheme: Public Funds

As a representative example of a country that raises funds for a family allowance through public funds, I will cite the example of the United Kingdom, which was the first capitalist country to institutionalize social security.

As is well known, a social security plan called the Beveridge Report was published in the UK in 1942, during World War II. Published as a post-war reconstruction measure, the Beveridge Report listed three prerequisites for social security to function properly: comprehensive health care and rehabilitation (NHS = National Health Service), maintaining employment (full employment), and a child allowance.

The Beveridge Report recommended that a child allowance be paid (1) for the second and subsequent children and (2) until children reached the age of 15 (or 16 if attending full-time education)[5]. As for (3) the source of funding, the report recommended that "the entire cost of the child allowance should be borne by the national treasury (the allowance be non-contributory)."[6]

Under this plan, the Family Allowances Act was enacted in the UK in 1945 after the end of World War II. In 1946, a family allowance was paid to over 4 million children[7]. After various revisions, the UK expanded its current family allowance (renamed the "Child Benefit") to (1) start from first-borns and (2) include children under 16 (under 20 if receiving education or vocational training), and the allowance is still (3) funded by the national treasury (general revenue).[8]

France's Funding Method for Family Allowance: Emphasis on Employer Contributions

France is known for providing comprehensive child-care support measures. However, unlike the UK, which raises funds through national treasury, France is a representative example of a country that has institutionalized a family allowance with an emphasis on employer contributions.

chuo_20241003_book.jpgThe first example of a family allowance[9] in France was a compensation allowance paid to marines and other military personnel in addition to their basic salary to cover the cost of raising children. This initial allowance was enacted by an imperial decree in 1860. This system of additional wages (which is essentially a family allowance) that took into account the costs of raising children gradually spread to both the public and private sectors. As the practice of providing a family allowance as part of the wage system spread, France enacted a law on the family allowance in 1932 as part of the promotion of a national response to the problem of a declining birthrate. This was the beginning of a national system in the field of family allowance. After that, the scope of recipients of the family allowance was expanded beyond wage earners to include various segments of the population, such as employers, self-employed individuals, and unemployed individuals. After World War II, France also established social security, which could be considered a new axis of policies to support life in society. As a constituent system of social security, the Family Benefits Department was established to consolidate various child-care related benefits, with the family allowance at its core. The year 2025 will mark the 80th anniversary of establishing social security in France. Over this period, the Family Benefits Department has undergone various reforms, including further expansion of the scope of benefits, the establishment, revision and abolition of various allowances, and partial changes to the method of raising funds.

Looking into the history of family allowances in France, we can see that the allowances have always been considered part of wages. Based on this historical fact, France has always emphasized employer contributions as a funding method for family allowances. This has been true when the allowances were part of the corporate in-house wage system, when they were institutionalized under a law on the family allowance, and even today when they have been restructured within the framework of the social security system. As the scope of application of family allowances has expanded beyond wage earners, the funding structure has undergone significant changes since fiscal 1990. Specifically, a special tax for social security (contribution sociale généralisée) was established in fiscal 1991, and the share of employer contributions in the financial composition of the family benefits sector was reduced from nearly 90% to about 60%.[10] However, even today, the main source of funding for the family benefits sector is still employer contributions. In this way, France retains its tradition of emphasizing the social responsibility of employers.

Repealing the Introduction of Child and Child-Care Support Funding

The funding sources for family allowances in both the UK and France can be seen as a form of social assistance to support citizens or workers in raising children based on a certain degree of social responsibility. This is true regardless of whether the allowances are funded by state or employer contributions. The method of raising funding sources for family allowances based on social assistance is commonly adopted at least in major developed countries, and this funding can be described as international common sense.[11] It should be noted that this does not include funding sources of a self-help nature, such as insured contributions in social insurance.

Looking at the current situation in Japan, as mentioned above, the funding method for "unprecedented measures to combat the declining birthrate" has been criticized by many people both inside and outside the Diet. There is still room for discussion from various perspectives, including historical experience, academic research results, and international common sense. The Japanese funding method of using child-care support subsidies added to medical insurance premiums as part of the funding for child and child-care support measures (including the child allowance) is extremely unreasonable. In the end, it can be interpreted that the increased portion (an increase of approximately 600 billion to 1 trillion yen per year from fiscal 2026 to fiscal 2028)[12] of medical insurance premiums will be used for child and child-care support funding, which are "unprecedented measures to combat the declining birthrate." Prime Minister Kishida and other Japanese government officials who promoted these unprecedented measures were only concerned with explaining the bill to clearly distinguish between health insurance premiums and child and child-care support funding. However, it is important to note that the calculation basis (standard monthly remuneration) and people paying for both are the same. In reality, this means that the health insurance premium rate will be raised and the increased amount will be diverted to part of the funding for child and child-care support. As we have confirmed, it is an international common sense that at least the funding for family allowances should be raised through social assistance such as public funds and employer contributions. However, when examining the changes in the financial structure of the child allowance for children aged 3 years and older in employed households, which are expected to have a large number of recipients, the current system is funded solely by public funds; however, the new system intends to add a pseudo social insurance premium called the child and child-care support funding, which will cover one-third of the total funds. This unusual move to use social insurance premiums--and, of all things, medical insurance premiums to cover illness and injury--as financial resources for child allowances is a clear attempt to relatively reduce the burden on public funds.[13] The child and child-care support funding, which can be considered a parting gift of the Kishida administration, is scheduled to be collected from fiscal 2026. However, it would be wise to retract the introduction of this unconventional method of raising funds.

[1] June 5, 2024 edition of The Nikkei (evening edition), p. 1.
[2] For example, with regard to the child allowance, which is the core income security of child-care support measures, the content of the system prior to expansion (until September 30, 2024) was significantly inferior to the family allowance in advanced capitalist European countries in terms of the following: (1) low amount of benefits (10,000 yen to 15,000 yen per month depending on age), (2) short payment period (from birth to graduation from junior high school), and (3) continued existence of income restrictions (Japan Institute for Labour Policy and Training [2023], pp. 281-282).
[3] House of Representatives (https://kokkai.ndl.go.jp/#/detail?minId=121305367X01020240409&current=1), viewed on September 20, 2024.
[4] In this essay, I use the terms of "family allowance" and "child allowance" differently. Although both refer to public social benefits to support the upbringing of children, I use family allowance as the general term used internationally, while I use child allowance to refer to the allowance as used in Japan's current system and the system as introduced in the UK social security plan (the Beveridge Report).
[5] Beveridge (2014), paragraph No. 301.
[6] Beveridge (2014), paragraph No. 415.
[7] Bruce (1984), pp. 495-496.
[8] Japan Institute for Labour Policy and Training (2023), p. 281.
[9] For more information on family allowance in France, see Miyamoto, S. (2017), Historical Study of Family Allowance in France, Ochanomizushobo.
[10] CCSS (1991), p. 154; CCSS (2022), p. 30.
[11] According to a report by Tohmatsu (2023; pp. 93, 126, 182) compiled as part of the Cabinet Office's Research Project in the fiscal year 2022 to Promote Support for Children and Child-Raising, countries such as Germany, Italy, and Canada fund family allowances through public funds, just like the UK.
[12] Kanpo (Official Gazette) (June 12, 2024; Special Edition No. 141), p. 6.
[13] A detailed and precise analysis of the mechanism for reducing public funds by transforming the financial structure through the use of social security for child allowances is provided by Kita, A. (2024). Kita presents a chronological examination of the concept of social security for the dependence child allowance, which is an unprecedented concept internationally. This format makes it an ideal essay for understanding the essence of child and child-care support funding.

<Reference Literature>

Satoru Miyamoto／Professor, Faculty of Economics, Chuo University
Areas of Specialization: Social Policy and Social Security Theory

Satoru Miyamoto graduated from Tachikawa High School in Tokyo. He graduated from the Faculty of Economics, Chuo University. He completed the Master’s Program and Doctoral Program in the Graduate School of Economics, Chuo University. He holds a Ph.D. in economics. He worked as Full-Time Lecturer and Assistant Professor in University of Shizuoka Junior College, and as Assistant Professor and Associate Professor in the Faculty of Economics, Chuo University before assuming his current position in 2011.

His current research themes include policy analysis of the family allowance in France, the historical development of French social allowances from a social policy perspective and more.

His main works include Historical Study of Family Allowance in France: From Corporate Welfare to Social Security (Ochanomizushobo, 2017), The Reality of Economy, Society, and Culture in France in Chuo University Institute of Economic Research Kenkyu Sosho (Research Monographs) 66, edited and written by Chuo University Press, 2016 and more.

  • Share articles
  • twitter-icon
  • facebook-icon
  • line-icon

Recent Research

中央大学公式サイトへ移動 中央大学について 教育番組 知の回廊 movie