Japan PM, opposition clinch deal on tax, election

TOKYO Wed Aug 8, 2012 8:46am EDT

Japan's Prime Minister Yoshihiko Noda holds on to the final report after it was handed over to him by Yotao Hatamura, University of Tokyo engineering professor and the head of government-appointed panel to investigate the cause of the Fukushima nuclear crisis, in Tokyo July 23, 2012. REUTERS/Yuriko Nakao

Japan's Prime Minister Yoshihiko Noda holds on to the final report after it was handed over to him by Yotao Hatamura, University of Tokyo engineering professor and the head of government-appointed panel to investigate the cause of the Fukushima nuclear crisis, in Tokyo July 23, 2012.

Credit: Reuters/Yuriko Nakao

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TOKYO (Reuters) - Japanese Prime Minister Yoshihko Noda clinched on Wednesday an 11th hour compromise with the opposition, saving a hard-fought deal on a contentious sales tax increase in return for a pledge to hold a general election "soon".

A final upper house vote on the tax plan had, until recently, seemed a formality after Noda reached an agreement with two main opposition parties in June and secured its smooth passage in the lower house.

But Noda's sliding ratings, caused in part by his embrace of unpopular causes such as the tax increase and nuclear reactor restarts, emboldened the opposition, which made a clear commitment to early polls the price for backing the tax bill.

Faced with a threat of a no-confidence motion and possible parliamentary paralysis that would sink his signature tax plan, Noda struck a compromise deal with the main opposition Liberal Democratic Party and the smaller New Komeito party.

Speaking to reporters after he met their leaders, Noda said they agreed to pass quickly the sales tax and social security reforms and seek a mandate from the people soon after.

Asked, however, whether he had clarified the timing of the election, he said: "We had no such conversation."

That left the timing of an election unclear and that is likely to be a source of friction.

Noda, who took over last year as the ruling Democrats' third leader since they swept to power in 2009, has staked his political life on the plan to double the sales tax to 10 percent by 2015 in an effort to curb snowballing public debt.

The plan's fate is viewed as a test of whether Japan, long trapped in a cycle of revolving-door governments and policy paralysis, can begin to get its public finances back in order.

Few expect lower house members to serve out their full term through to August 2013, but the Democrats are eager to put off a vote as long as possible, given opinion polls showing they would lose badly.

Besides the tax plan, Noda will need opposition votes to secure approval for a bill that authorises the government to sell new bonds to finance the budget deficit.

Asked whether the parties had also agreed to back that bill, Noda said it would be the subject of separate discussions.

(Writing by Tomasz Janowski; Editing by Linda Sieg and Robert Birsel)

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