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Prime Minister Naoto Kan is exploring the possibility of crafting a ¥2 trillion to ¥3 trillion extra budget in fiscal 2011 to help reconstruct areas affected by the devastating March 11 earthquake and tsunami, government sources said Tuesday.

Kan told the Upper House Budget Committee that he will try to draw up the first supplementary budget by the end of April.

Cabinet members have said two or three extra budgets could be needed for the fiscal year starting Friday, and they could total more than ¥10 trillion.

The first batch of emergency expenditures could be based on the contingency fund of ¥1.16 trillion in the initial fiscal 2011 budget, which was enacted by the Diet on Tuesday, as well as funds to be freed up by the Democratic Party of Japan trimming its key policy spending.

Kan suggested a possible tax hike as the government struggles to secure funds for the rebuilding. He also said he may freeze a planned corporate tax cut as business leaders have shown understanding that the country needs to place top priority on relief work.

“It is natural that we have to consider priorities, given such a massive earthquake,” Kan told the committee. “I want to build a consensus on where we should direct money through discussions between the ruling and opposition parties.”

The remarks apparently reflect Kan’s resolve to shelve, if necessary, the DPJ’s benchmark policies funded by the initial fiscal 2011 budget, and to transfer the money to rebuilding efforts.

In the face of deteriorating public finances, some Cabinet members, including Finance Minister Yoshihiko Noda, have indicated they are reluctant to fund the extra spending only through government debt issuance, intensifying talk of a possible tax hike.

“It is not that we are considering raising taxes right now,” Kan said. “We need to discuss every possibility.”

Another option has surfaced during the last few days, with some government officials and lawmakers saying the administration could freeze its plan to cut the corporate tax.

Kan didn’t deny such a possibility, saying, “I want to discuss where we should place our priority while compiling an extra budget for fiscal 2011.”

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