Takeshi Noda, head of the New Conservative Party, on Saturday urged Prime Minister Junichiro Koizumi to abandon his pledge to limit issues of new government bonds to 30 trillion yen a year.
"The 30 trillion yen cap is the main thing preventing the nation from rebuilding its finances," Noda said in a speech in the town of Nachi-Katsuura, Wakayama Prefecture.
Noda said the Koizumi administration should issue more bonds to stimulate the economy by building or improving public infrastructure.
"It's wrong to say the government can achieve fiscal reconstruction if it reduces public works projects," he said. "I've kept saying the government should implement tax cuts or draw up a supplementary budget if necessary."
Noda said the consumption tax should be raised after the government transforms it into a "social security tax" as part of efforts to help the elderly.
The proposed tax should be used exclusively for pensions, nursing care and medical services for the elderly, he said.
The NCP chief added that the tax is also designed to boost consumption by the elderly.
Noda said he is calling for the tax hike because he believes that Japan's finances cannot be rebuilt unless the government stops issuing deficit-covering bonds for social security purposes.
The NCP is part of the three-party ruling coalition with Koizumi's Liberal Democratic Party and the New Komeito party.