Oil Report

Japan parliament set to clash over gasoline tax

TOKYO, Jan 28 (Reuters) - Japan’s main opposition party is trying to tap a reservoir of dissatisfaction with the ruling bloc by opposing the extension of a gasoline tax earmarked for road construction, a symbol of wasteful spending for vested interests.

The campaign to remove the tax of 25 yen (23 cents) per litre appears to resonate with many voters at a time gasoline prices are near record highs, but it also risks a parliamentary showdown that exacerbates worries over the economy and markets.

Investor concerns about Japan’s deadlock in parliament, where the Democratic Party of Japan and smaller allies have a majority in the upper house and can delay laws, have worsened the slide in Tokyo share prices triggered by U.S. subprime woes.

“The risk the Democrats run ... is playing into the worst fear that they are irresponsible,” said Jesper Koll, president of investment advisory firm Tantallon Research Japan.

“Blocking budget-related bills is a very dangerous game because you are negating the smooth administration of the state, and given where we are in the world and the Japanese economy, you need smooth progress, not political kabuki.”

Hoping to force a snap election that could give them a shot at ousting the long-ruling Liberal Democratic Party (LDP), the Democrats are opposing a government bill to extend the gasoline surcharge after its scheduled expiry on March 31.

“You say roads are necessary and that’s why these dedicated revenues are needed. But what about education? There is no special budget. The same goes for social welfare,” Democratic Party executive Naoto Kan asked Prime Minister Yasuo Fukuda in a parliamentary panel on Monday.

“Why do only roads require a special revenue source?”

The Democrats have also threatened to adopt a non-binding but embarrassing censure motion against Fukuda in the upper house if the ruling bloc uses its two-thirds majority in the lower house to override an upper house veto.

In an effort to forestall the crisis, initially expected in March around the time the national budget is enacted, the LDP and its junior partner are likely to seek to force through stopgap legislation to first extend the gasoline tax for a few months, Japanese media said.


Ending the tax would lower gas prices by about 16 percent from around 153 yen per litre now, a boon for consumers at a time when domestic consumption is sluggish.

The government argues, though, that the loss of the road-related taxes would leave a gaping hole in revenues that would also hurt already shaky local finances. Some Democratic lawmakers and their supporters have expressed similar concerns.

Some analysts say the Democrats have a good case to make against the gasoline levy -- a supposedly temporary surcharge adopted three decades ago whose revenues are devoted to what critics charge is often wasteful road construction.

Such projects have long provided income for the builders who are core LDP supporters, especially in rural areas.

“It’s an unfair tax, and all for public works that are largely unnecessary,” said Koichi Nakano, a political science professor at Sophia University.

That view appears to have traction among some voters, at least in urban areas such as Tokyo, where a survey of 500 voters by the Sankei newspaper showed 59 percent wanted the tax ended.

“Roads should be built where they are needed. But why do they build them where they don’t need them? It makes me angry,” said Akiko Shinomiya, a 57-year-old housewife listening to Kan speak in Tokyo’s upscale Ginza shopping district last Friday.

Doubts about Fukuda’s leadership have caused his support rates to slip since he took office in September.

But voters and analysts agree that the Democrats, an often fractious amalgam of former LDP members, ex-socialists and hawkish younger lawmakers, need to explain their case more clearly if they want to avoid charges of populist pandering.

“The Democrats need to explain better how they will make up for the revenue gap,” said Izumi Maeda, a 50-something salesman at a manufacturing firm after hearing Kan speak.

“If they make that clear, they will do better in an election. At present, this is too fuzzy. ($1=106.68 Yen) (Editing by Mike Miller)