Japan's tax hike set to clear last hurdle; early election pressure

TOKYO Tue Aug 7, 2012 4:57am EDT

Japan's Prime Minister Yoshihiko Noda arrives at his ruling Democratic Party of Japan board members' meeting at the parliament in Tokyo July 2, 2012. REUTERS/Yuriko Nakao

Japan's Prime Minister Yoshihiko Noda arrives at his ruling Democratic Party of Japan board members' meeting at the parliament in Tokyo July 2, 2012.

Credit: Reuters/Yuriko Nakao

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TOKYO (Reuters) - Japan's ruling Democrats agreed with opposition rivals to hold a final vote on their tax hike plan on Wednesday, which if passed would be a victory for embattled Prime Minister Yoshihiko Noda, but leave him under pressure to agree to an early election in exchange for support for the rest of his political agenda.

Elections are not due until August 2013 and Noda is reluctant to call an early election, with opinion polls forecasting almost certain defeat for the Democrats.

But opposition rivals are unlikely to give Noda any further support without his commitment to an early election, preferably this year, and will now start horse-trading with a government keen to buy some time before facing voters.

Opposition Liberal Democratic Party (LDP) president Sadakazu Tanigaki told reporters on Monday: "If the bills are enacted, (Noda) needs to go to the people and set things right."

"Even if Noda wants to promise an early election, his party members would not let him do so. Everyone knows calling an election right now would be suicidal," said Koichi Nakano, political science professor at Sophia University.

Noda has staked his political future on his plan to double the sales tax to 10 percent by 2015, in an effort to curb Japan's snowballing public debt, splintering his party in the process. He has said he would risk his job to pass the bill.

The opposition deal to put Noda's tax plan to an upper house vote now virtually assures its passage. It cleared the lower house in June after a rare deal between the Democrats and opposition parties. The vote is scheduled for Wednesday afternoon.

The tax hike law would be a breakthrough for Japan, long trapped in a cycle of revolving-door governments and policy paralysis, and a personal victory for 55-year-old Noda.

But many lawmakers are wary of raising taxes ahead of a general election. Six minor opposition parties submitted a no-confidence motion against the government in a symbolic last-ditch attempt to block the tax plan.

Asked if the LDP would seek a no-confidence motion or censure motion unless Noda promises to dissolve parliament, Tanigaki said such arguments were gaining momentum in the party.

ELECTION HORSE-TRADING

Despite backing Noda's tax plan, the LDP is expected to revert to stalling tactics in the opposition-controlled upper house and block other legislation to force Noda to the ballot box. Noda has indicated he still wants to tick off more boxes on his to-do list before facing voters.

One is finalizing a new energy plan for the country after the previous one from 2010 -- which sought a greater role for nuclear power -- was scrapped after the 2011 Fukushima disaster.

Secondly, the government plans a supplementary budget, to keep the economy ticking over once the impact of reconstruction spending worth 3.6 percent of Japan's gross domestic product starts fading.

Finally, Noda will also need opposition votes to secure approval for a bill that authorizes the government to sell new bonds to finance the budget deficit.

Regardless of whether Noda succeeds with his agenda or when he calls an election, his Democrats appear destined to lose power just three years after they ousted the LDP. Noda's party rode a wave of public disillusionment after 50 years of nearly non-stop LDP rule.

Now the Democrats face a similar backlash over broken promises, a confused response to last year's earthquake, tsunami and nuclear crisis as well as Noda's drift towards LDP policies on everything from taxes and the role of bureaucracy in policymaking to nuclear power and international diplomacy.

The latest poll by the Asahi newspaper showed support for Noda's government at a record low 22 percent and only 13 percent of those surveyed said they would vote for the Democrats if an election was called now.

According to the poll, the LDP could count on 23 percent, with 48 percent undecided, suggesting a wobbly coalition and more of policy gridlock as the most likely election outcome.

(Writing by Tomasz Janowski; Editing by Michael Perry and Richard Borsuk)

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