Tue, Jan 25, 2011 - Page 10 News List

Kan renews calls for fiscal reform talks

TOUGH TIMES AHEAD:The Japanese prime minister’s key economic ministers have promised to impose fiscal discipline, while Kan warned he may have to raise the sales tax

Reuters, TOKYO

Japan’s prime minister, facing a divided parliament and doubts over his political survival, yesterday stepped up his campaign for a sales tax rise he argues is vital to pay for huge welfare costs in the fast-ageing society.

Japanese Prime Minister Naoto Kan’s key economic ministers, also speaking to the opening session of parliament, promised on their part to impose fiscal discipline, as the government presses ahead with a proposed budget from April last year with record spending of ¥92.4 trillion (US$1 trillion).

Kan has made social security and tax reform his policy priorities and warned in his speech that he would have to ask the public to “bear the burden” to secure stable funding — a reference to a future hike in the 5 percent sales tax.

His government is grappling with a public debt that is the largest among advanced nations, double the size of the US$5 trillion economy.

However, even the budget for this year and next is far from secure. To pass bills needed to implement it, Kan must either cobble together a simple majority in the upper house with opposition help or build a two-thirds majority in the lower house to override the upper chamber.

RESPONSIBILITY

“Limits are emerging to the securing of greater revenues for social security under only existing efforts,” he said in a speech at the start of the regular parliament session. “Every single lawmaker, in both the ruling and opposition parties, is responsible for responding to this major issue.”

Japan’s consumption tax rate is among the lowest in major economies, but successive governments have put off tackling the issue, fearful a rise would anger voters.

Kan said the Cabinet would also present basic outlines for tax and welfare reform by June. Analysts said it was not certain Kan would be in office that long if opposition parties refused to budge on their position.

‘CRUNCH TIME’

“Crunch time will come in March or April,” Sophia University professor Koichi Nakano said, noting the possibility that Kan might resign or call a snap election if budget bills stalled.

The prospects for talks on tax and social welfare reform also appear dim because of a combative opposition and division within the ruling Democratic Party (DPJ) on the issue.

Japanese Minister of Finance Yoshihiko Noda sought to reassure markets about fiscal policy by vowing to pursue a prudent approach to debt issuance and to maintain a close dialogue with financial market participants.

Although the government can enact the budget because the ruling DPJ controls the powerful lower house, it needs support from the opposition, which controls the upper chamber, to pass legislation to implement spending.

The head of the biggest opposition party, the Liberal Democratic Party (LDP), which some polls show is now more popular than the DPJ, said last week the LDP would have a hard time agreeing to those bills unless the DPJ abandons costly campaign pledges such as special allowances for families with children.

The No. 2 opposition group, the New Komeito, said it was undecided. Its support would be enough to pass the bills through the upper house.

Japanese Minister of State for Economic and Fiscal Policy Kaoru Yosano, a former LDP heavyweight drafted by Kan in a Cabinet reshuffle this month to bolster his tax reform push, urged the central bank to do its bit to fight deflation. Japan has been in mild deflation since 2000.

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