Japan’s DPJ Talks With Opposition to Bridge Gaps on Tax Plan

The ruling Democratic Party of Japan began talks today with the main opposition party to try to win support for Prime Minister Yoshihiko Noda’s plan to double the sales tax and settle differences over social security bills.

The Liberal Democratic Party agrees with the proposal to raise the sales tax to 8 percent in April 2014, and 10 percent in October 2015, from the current 5 percent, Takeshi Noda, a member of the party’s tax panel said today. The LDP says the ruling party must withdraw welfare bills, including one guaranteeing a minimum basic pension, in return for its support.

“We agree with the government plan to raise it in two stages -- there is a risk attached to a sudden 5 percent rise,” the LDP’s Noda said. “There is also the question of what happens to social security. None of us can agree to pushing ahead with the sales tax while leaving that undecided.”

Dropping the social security bills, some of which fulfill promises made in the run-up to the DPJ’s 2009 ousting of the LDP from half a century of rule risks splitting the party. DPJ power broker Ichiro Ozawa has already said he won’t support the sales tax bill.

The two parties said they agreed to seek a deal by June 15.

“There is a possibility they won’t agree,” said Kazuhisa Kawakami, a professor of political science at Meiji Gakuin University. “Prime Minister Noda is very determined to pass the bills, so he may swallow the LDP’s proposals to achieve this. That will create a rift in the Democratic Party, but I think he may be prepared to risk it.”

Social Security

The prime minister, who has staked his career on the tax rise aimed at raising funds to help cover Japan’s ballooning social security costs, is trying to pass the tax bill in the lower house by the end of the session on June 21.

Noda, who says the bills are necessary to address Japan’s declining birthrate and aging society, earlier this week acceded to opposition calls to replace two of his Cabinet ministers in order to win support for the legislation.

Failure to raise the 5 percent tax threatens to worsen the world’s largest debt, an issue Fitch Ratings cited last month in cutting Japan’s credit rating.

The public is increasingly at odds with Noda’s push to pass the legislation. The number of voters opposed to the tax rose 5 percentage points to 56 percent this month from May, while those in favor fell 7 points to 32 percent, an Asahi newspaper poll showed this week.

To contact the reporters on this story: Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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