Bloomberg News

Japan Ruling Party Moves to Complete Tax Plan Amid Dissent

December 29, 2011

(Adds prime minister’s comment in the third paragraph.)

Dec. 29 (Bloomberg) -- Japan’s ruling party is struggling to agree on a plan to double the sales tax by 2015 over the objection of lawmakers who have resigned from the group saying the stance violates a campaign promise.

Prime Minister Yoshihiko Noda is pushing Democratic Party of Japan members to settle their position on the increase by the end of this month. So far party executives have proposed raising the levy from 5 percent to 8 percent in October 2013 and to 10 percent in April 2015.

“Unless we send a message that we’ll maintain social security and fiscal discipline, we could find ourselves in a crisis,” Noda told party members today, urging them to decide on the tax. “I want you to include the rates and timing of the tax increase in our draft.”

An aging population and two decades of low growth have saddled Japan with debt projected to exceed 1 quadrillion yen in the current fiscal year. Standard & Poor’s said last month it was considering lowering the country’s sovereign rating, already cut in January to AA-, as Noda’s government makes little progress at tackling the burden.

Noda’s push for the levy as he struggles to tackle the world’s largest public debt may end up hurting his public image, said Koji Nakano, an associate professor of political science at Sophia University. Nine DPJ members submitted their resignation yesterday, citing the DPJ’s failure to keep campaign promises, the DPJ’s Acting Secretary-General Shinji Tarutoko told reporters.

‘Doesn’t Understand’

“The public doesn’t understand why Noda is trying to force through the tax increase against the party’s campaign pledge,” Nakano said by telephone today. “There will be more defectors next year.”

A former DPJ prime minister said in 2009 the party wouldn’t raise the sales tax during the current lower house term, which ends in August 2013. Opposition Liberal Democratic Party Secretary-General Sadakazu Tanigaki highlighted the defections yesterday.

“The party has started collapsing and Noda’s ground is breaking down,” Tanigaki told reporters.

Once DPJ members agree on the tax, a government panel led by Finance Minister Jun Azumi must approve the measures before discussing them with opposition lawmakers. The government is unlikely to complete that process this year, Kyodo News said today, without citing anyone. The DPJ may modify the timing of the first step of raising the tax in 2013, Kyodo said.

Noda’s approval rating dropped to 31 percent from 40 percent last month according to an Asahi newspaper poll published Dec. 13. The phone survey of 1,655 voters taken Dec. 10-11 didn’t provide a margin of error.

--Editors: Patrick Harrington, Paul Tighe

To contact the reporters on this story: Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net; Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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