Monday, June 21, 2010

Japan govt support drops amid sales tax hike debate

TOKYO: Support for new Japanese Prime Minister Naoto Kan's government fell ahead of an election next month as voters appeared divided over the premier's call to debate a future sales tax hike, surveys showed on Monday, June 21.

But the ruling Democratic Party, which swept to power last year, kept its lead over its main opposition rival ahead of an upper house election on July 11, which the party needs to win to avoid policy deadlock.

Kan, who has made fiscal reform a top priority since taking office this month, stunned listeners last week when he said doubling the 5% sales tax was an option to curb Japan's massive public debt and avoid a Greek-style crisis.

A poll by the Asahi newspaper showed support for Kan's government dropped to 50% from 59% in a survey a week ago, with the newspaper citing an increase in opposition to the government among those who do not favour a sales tax hike.

A separate poll by the Yomiuri newspaper showed voter support for the government fell to 55% from 59% a week ago.

But 48% of voters supported Kan's remarks on possibly doubling the sales tax in the future, against 44% who did not, the Yomiuri poll showed.

Kan has declined to say when a tax hike might be carried out. The Democratic Party policy chief has said autumn, 2012 was the earliest technically feasible date while the chief cabinet secretary said the government should first seek a mandate in a general election, which must be held by late 2013.

Adviser wants tax rise soon
But an adviser to Kan said Japan should raise the sales tax and other taxes "substantially" from next year to create jobs and beat deflation, rather than seek more monetary easing.

"The consumption tax should be raised as early as next year," Osaka University Professor Yoshiyasu Ono, who has been appointed to be one of several advisers at the Cabinet Office, told Reuters in an interview on Friday.

Debate on raising the sales tax, one of the lowest among major economies, has long been politically touchy but many economists say an increase is unavoidable to deal with Japan's soaring public debt, now near 200% of GDP and fund the rising social security costs of a fast-ageing population.

The main opposition Liberal Democratic Party is calling for a rise to 10% in its election platform, while criticising Kan for taking its calculation without saying how the Democrats will mesh a possible tax rise with their previous promises to put more cash in consumers' hands to spur domestic demand.

The Democrats swept to power in a general election last year promising to cut waste and focus spending on consumers, but support for the party and the government nosedived during Yukio Hatoyama's eight months in office on doubts about his leadership.

Kan said on Sunday he would discuss reducing the tax rate for food and other necessities when considering a sales tax rise.

The Democrats will stay in power regardless of the outcome of the upper house election, but need to win an outright majority in the chamber to push through policies without relying on small coalition partners. ' Reuters


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