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The Democratic Party of Japan-led government plans to set up a new organization within the Cabinet Secretariat to draft the fiscal 2011 budget and formulate a basic policy on reforming the tax system, according to political sources.

The body, under Chief Cabinet Secretary Yoshito Sengoku, is expected to compile the budget for the year starting next April and will effectively replace the National Policy Unit, whose role is set to be redefined.

That body, set up after the change of power last year in an attempt by the DPJ-led government to strengthen its policymaking functions and lay out a broad vision for spending and other key national policies, has limited power.

The government has determined that a new organization is necessary to achieve political leadership in compiling the fiscal 2011 budget amid the continuing deterioration of the fiscal situation, the sources said.

The new body is also likely to consider raising the 5 percent consumption tax, according to the sources.

Prime Minister Naoto Kan called for discussing the tax hike to reduce the deficit during the campaign for the July 11 Upper House election, a proposal widely blamed for contributing to the DPJ’s defeat.

Despite hopes for the new body to allow the DPJ-led bloc to exert stronger political leadership, it is unclear how effective it will be because it won’t be backed by law, one reason the National Policy Unit has lacked teeth.

Finance Minister Yoshihiko Noda and DPJ policy chief Koichiro Gemba, who is also state minister in charge of civil service reform, are expected to take part in the new organization, the sources said.

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