Prime Minister Yoshihiko Noda’s Cabinet on Friday approved an outline of integrated social security and tax reforms to pave the way for raising the consumption tax, betting the administration’s fate on the unpopular levy hike aimed at warding off a looming fiscal crisis.
Noda’s Democratic Party of Japan will face huge political difficulty getting the related bills through the divided Diet. The DPJ has failed to win support from the opposition bloc led by the Liberal Democratic Party, which controls the Upper House.
Opposition forces instead have called on Noda to dissolve the Lower House to put the tax hike to a vote by the public. If the ruling bloc suffers a crushing defeat in the next election, the resulting chaos would lead to a dramatic realignment of political forces, analysts say.
Given the misgivings over the planned tax hike even within the ruling party, the Cabinet’s approval could intensify conflict not only with opposition parties but also opponents within the DPJ, some lawmakers said.
The government and the DPJ finalized the outline Jan. 6 to increase the politically sensitive consumption tax from the current 5 percent to 8 percent in April 2014 and raise it to 10 percent in October 2015.
With concerns over the eurozone sovereign debt crisis continuing, Noda has promised to restore Japan’s precarious fiscal health since assuming office in September.
In the outline, the government and DPJ also vow to reduce the number of Lower House seats by 80 and cut the salaries of public servants as a precondition for the tax hike. This is seen as a political effort to ease expected voter anger.
At Friday’s Cabinet meeting, Noda urged government and ruling party members to “work as one” to accomplish the social security and tax reforms, Chief Cabinet Secretary Osamu Fujimura told a news conference.
Deputy Prime Minister Katsuya Okada said at a separate news conference: “The government’s view has become clear. We’ll sincerely call on (opposition) parties to start dialogue” on the tax rise.
Cooperation from the opposition bloc will be required to pass the legislation through the divided Diet.
The LDP and other parties have argued that Noda’s proposal violates the DPJ’s policy pledges in the 2009 general election, in which the party took power, not to raise the sales tax until the next general election, even though the LDP itself has sought to hike the levy.
LDP chief Sadakazu Tanigaki on Friday reiterated his intention to spurn Noda’s offer to hold cross-party talks on the tax hike, telling reporters the content of the integrated social security and tax reforms “is completely against” the DPJ’s 2009 election pledges.
Noda, a fiscal hawk, has vowed to submit related bills to the Diet by the end of March to carry out the sales tax hike to cover the nation’s swelling social security costs amid an increase in the number of retirees and seniors.
While Noda had hoped to map out the reform outline after discussing the tax issue with the opposition camp, Tanigaki has been reluctant to debate the matter before the government introduces the bills to the Diet, saying such a move could be considered “closed-door” talks.
The government is struggling to restore its fiscal health, with long-term debt at 200 percent of GDP.
To gain support for the tax hike, Noda decided to post a video message on the prime minister’s office website to stress the need for the integrated social security and tax reforms, Fujimura said.
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