Finance Minister Kiichi Miyazawa said Tuesday that raising Japan's consumption tax rate to around 10 percent, the same level as in European nations, from the current 5 percent is inevitable in order to realize fiscal reconstruction.

"Should we conduct a simulation (of fiscal reconstruction), its answer will quite likely be that the consumption tax must be raised," Miyazawa said, responding to a question by ruling Liberal Democratic Party lawmaker Makiko Tanaka before the House of Representatives Budget Committee.

While spelling out the possibility of raising it to the European level, Miyazawa said the government also needs to introduce multiple tax rates in order to impose a lower rate on daily necessities, such as food.

"People will not approve a consumption tax hike close to the European level unless we adopt a multiple tax rate system," he said.

Miyazawa apparently aims to tackle the issue of rising social security costs amid the declining birthrate in Japan, political analysts said.

It remains unclear, however, whether his aim will be realized soon as a drastic cut in government spending has not yet been fully discussed and the nation's economy remains sluggish.

Tax reform primer eyed

Two of the government's key economic ministers said Tuesday they were ready to look at new tax measures that would encourage individual investment in stocks.

Speaking at a Lower House Budget Committee session, Financial Service Minister Hakuo Yanagisawa said, "We would like to reform what we need to reform concerning taxation on dividends and capital gains."

Finance Minister Kiichi Miyazawa said, "The issue is very important and we will take it into serious consideration."

The two were responding to a question by lawmaker Makiko Tanaka of the Liberal Democratic Party. Tanaka asked them what their stances were on the decline of the Tokyo stock market.

The Tokyo Stock Exchange's benchmark 225-issue Nikkei average on Monday temporarily plunged below 13,000 before closing at 13,119.59, its lowest close since Oct. 15, 1998.

Miyazawa has been opposed to reforming the securities tax system, saying its impact would be limited.

However, the finance chief has apparently reconsidered his position amid increasingly gloomy prospects for the stock market staging a recovery.

In a related move Tuesday, the policy affairs chiefs of the LDP and its two coalition allies -- New Komeito and the New Conservative Party -- decided to discuss the securities tax system again.

Pension plan approved

The Cabinet approved a bill Tuesday to introduce new defined-benefit pension plans that provide beneficiaries with better protection.

The government will submit the bill to the ongoing Diet session so that it can take effect on April 1, 2002, government officials said.

The bill calls for the creation of hybrid pension programs that combine the features of both defined-benefit and defined-contribution plans.

Under the new legislation, companies would be compelled to maintain a certain level of reserves in order to meet guaranteed pension benefit payments to workers, regardless of investment returns.

Firms would also be required to reassess their pension plans at least once every five years to maintain their financial health.

Under the new legislation, the government would allow two types of defined-benefit pension plans; a contract-type program to be handled by outside managers based on agreements between workers and employers, and a fund-type program under which funds will be jointly managed by companies.

Companies would be forced to abolish current pension plans within 10 years and shift to either the new defined-benefit or defined-contribution plans. The rules for the new schemes would be set by separate legislation.

The government hopes to gain Diet approval for a bill carried over from the previous Diet session calling for the introduction of defined-contribution plans, which would be the Japanese version of the U.S. 401(k) pension scheme under which benefits hinge on investment performance.