January 4, 2011 9:56 am

Kan calls on opposition to back tax plan

Naoto Kan, Japan's prime minister, has set a June target for cross-party agreement on sweeping reform of the tax system, waving aside suggestions that slumping public support could force him from office well before then.

In a new year press conference intended to set out his priorities for 2011, Mr Kan also promised to push for a lowering of Japan's trade barriers while preparing policies to reinvigorate the notoriously uncompetitive agricultural sector.

The prime minister's call for non-partisan discussion on how to fund a fast-growing social security burden highlights widespread concerns about Japan's huge fiscal deficit.

The government expects that new bond issuance will outstrip tax revenues in the 12 months from April for the third year in a row, while gross state debt is set to soar to more than 200 per cent of gross domestic product in 2011.

Raising consumption and other taxes could shore up confidence in fiscal sustainability, but would also raise concerns about the effect on an economy dogged by deflation and weak domestic demand.

Mr Kan made fiscal reform one of his top priorities when he became Japan's fifth new prime minister in four years last June, but his willingness to consider a possible doubling of the 5 per cent consumption tax was seen as a factor in the ruling Democratic party's defeat in a Diet upper house election the following month.

"I didn't win full understanding when I touched upon the consumption tax issue somewhat abruptly during the [upper house] election," Mr Kan said. "But anyone can see that we need to discuss reform of the tax system – including the tax consumption – so that we can find ways to fund social security."

Cross-party discussion should start as soon as possible and come up with a direction for reform by June, the prime minister said, noting that leading opposition groups such as the former ruling Liberal Democratic party and the New Komeito party were also committed to considering a consumption tax hike.

Analysts say that to forge any agreement on tax, Mr Kan will first have to weather what is likely to be a difficult three months winning passage of the state budget and related legislation over likely fierce resistance by the opposition-controlled Diet upper house.

Both the LDP and New Komeito gave the prime minister's call for co-operation a chilly initial reaction, with Kyodo news agency quoting LDP president Sadakazu Tanigaki as saying the ruling Democratic party ''should prepare first the outline [for tax reforms] before calling for a dialogue''.

With support for the DPJ at dangerously low levels, analysts say the LDP hopes that blocking the passage of budget-related legislation until the start of the fiscal year in April will force Mr Kan's resignation and lead to an early general election.

The DPJ has a hefty Diet lower house majority, but Mr Kan faces dissent within the ruling party from supporters of heavyweight former leader Ichiro Ozawa.

However, Mr Kan insisted he had "no thoughts" of dissolving the Diet lower house.

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