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LDP, DPJ work sales tax deal

Date Posted: 2012-06-27

The Liberal Democratic Party, New Komeito and Democratic Party of Japan have pushed aside some of their political differences to create agreement on a sales tax hike and reform the social security system, but opposition is still threatening to block a deal.

The three political parties, with the ruling DPJ normally at odds with the opposition, have made concessions to push the unpopular tax reform bill to the Diet for a vote before the session ends on Friday. The DPJ has agreed to shelve its promised goals of creating a new basic pension system, while abolishing the separate health care system for those aged 75 and older. Political leaders say the changes were essential to strike a bargain.

The agreement heading to the Diet would raise the 5% consumption tax to 8% in 2014, and then to 10% a year later in 2015. Prime Minister Yoshihiko Noda praised the parties for their bipartisanship just before he left for the Group of 20 nations summit in Los Cabos, Mexico. Noda’s hoping that opposition to the bill will slack off in the next day or so, so the bill cae come to a vote.

Ichiro Ozawa, a senior DPJ leader, and former Prime Minister Yukio Hatoyama, are calling for the vote to be deferred, so there can be further discussion. They both strongly oppose the bill going to 10%, and are calling Noda a traitor to the party’s goals. Noda thinks he can resolve his discussions with the two senior DPJ leaders.

Most of the ruling party’s rank and file members are opposed to Noda’s tax hike proposal. If these next couple days don’t improve, it could spell doom for the prime minister. The DPJH has agreed to create a multipartisan forum on social security issues, and that’s not sitting well. Likewise, plans for altering the longtime DPJ position on health insurance and pension reforms, which the DPJ has signaled it’s prepared to drop, could cost the prime minister.

Support from the LDP could provide enough votes to push the tax reform bill through both the Lower House and Upper House. That means, though, that DPJ members must fully support it, and Ozawa has suggested he will oppose it, calling it both a “suicidal act” and an “act of betrayal” to voters. The DPJ, in its 2009 run-up to power over the LDP, promised it would not raise the sales tax over the coming four years.

New Komeito isn’t completely enamored with the plan now ready to go before the Diet. Tetsuo Saito, deputy secretary general of New Komeito, says “we won’t be able to gain support from the public if we postpone raising the income and inheritance taxes when the consumption tax is raised”, something both the DPJ and LDP want to do. “It has to be drastic reform,” says Saito, for his party to support the plan, and he wants the income and inheritance tax hikes built back into the bill. That’s not likely to happen before Friday.

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