Leading politicians in Japan on Sunday renewed calls for an increase in consumption tax to tackle the country’s heavy debt burden, spurring concern that higher taxes could undermine Japan’s recent economic recovery.

Sadakazu Tanigaki, finance minister, said on television on Sunday that spending cuts and a reduction in debt issuance were not sufficient in restoring the government’s finances to health.

“We cannot rebuild our fiscal health through spending cuts alone,” Mr Tanigaki said.

Mr Tanigaki triggered controversy earlier this month when he suggested that the government should submit necessary legislation to increase the 5 per cent consumption tax by 2007.

Separately, Kaoru Yosano, economics and financial services minister, also pointed to the difficulty of relying on spending cuts to reduce Japan’s huge financial burden.

“We must not [give] the illusion that spending cuts alone can fix Japan’s fiscal situation,” Mr Yosano also said on television on Sunday.

The calls for higher taxes by two leading politicians came as government figures showed the Japanese economy grew faster than expected in the last quarter.

Figures released on Friday indicated gross domestic product expanded by 0.4 per cent in real terms in the three months to September, or an anannualised rate of 1.7 per cent, marking a fourth consecutive quarter of growth.

The International Monetary Fund also supports higher taxes in Japan, arguing that Japan will have to raise its consumption tax sooner or later in order to deal with its already high level of debt and a rapidly ageing society.

Japan’s government debt, at 150 per cent of gross domestic product, is the highest among industrial nations.

The IMF noted in an internal publication recently that Japan should raise consumption tax to deal with its budget deficit.

“If the country is going to be able to support a reasonable level of social welfare as its society ages, there will need to be significant increases in the consumption tax,” wrote Daniel Citrin, deputy director of the IMF’s Asia and PacificDepartment, in the latest edition of the IMF Survey.

However, some political leaders close to Prime Minister Junichiro Koizumi have warned against an imminent tax hike, saying such a move could undermine reform efforts.

Those politicians, including Heizo Takenaka, internal affairs minister, argue that the government should make efforts to reduce spending and sell government assets before resorting to raising taxes.

Mr Koizumi has pledged not to raise taxes while in office. His term expires next September and he is not seeking re-election.

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