Noda warns that markets are watching tax debate

Kyodo

Prime Minister Yoshihiko Noda on Wednesday warned lawmakers opposed to raising the consumption tax that the financial markets are keeping a wary eye on the debate to gauge whether Japan can put its precarious fiscal health in order.

“We must discuss (tax hike legislation) while bearing in mind that the markets are keeping a watchful eye on the deliberations and that international society is paying attention to them,” Noda said during a special Diet committee meeting on social security and tax reform.

His remarks came after Fitch Ratings downgraded the long-term foreign and local currency issuer default ratings to A-plus, from AA and AA-minus, citing Japan’s rising public debt.

Fitch said the national debt is projected to reach 239 percent of gross domestic product by the end of the year, which is “by far the highest for any Fitch-rated sovereign.”

Chief Cabinet Secretary Osamu Fujimura also reiterated Wednesday that the Noda administration will continue striving to achieve its signature tax hike goal despite protests within both the ruling and opposition camps.

“Fiscal reconstruction is an inescapable issue,” Fujimura said at a news conference. “We have to take a first step toward securing stable financial resources for social security and realizing fiscal rehabilitation simultaneously.”

To break the stalemate in the tax hike debate, the prime minister is reaching out to former Democratic Party of Japan leader Ichiro Ozawa, a strong opponent of the tax hike. He’s trying to arrange a meeting on the issue, possibly next week.

“I’ll seek his cooperation (in the passage) of the important legislation,” Noda said. “I am confident that I can secure his understanding by speaking candidly from a broad perspective and explaining” the necessity of the bills.

Ozawa’s role in helping pass the tax hike legislation is crucial given his clout in the DPJ as head of its largest faction. The prime minister, known as a fiscal hawk, has repeatedly said he is staking his “political life” on getting the tax hike passed during the current Diet session through June.

If most of Ozawa’s allies were to vote against the tax hike legislation in the Lower House, the tax hike would be rejected.

Noda said he doesn’t believe Ozawa is “absolutely opposed” to the tax hike and hopes he realizes their party has made the increase part of its policy.

Noda said he is certain the Lower House will vote on the tax hike during this legislative session.