Japan Opposition Party to Endorse Tax Hike

TOKYO --The opposition Liberal Democratic Party will accept the government's proposed two-step consumption tax increase, aligning itself with the ruling Democratic Party of Japan on the heart of Prime Minister Yoshihiko Noda's package of tax and social security reforms, the Nikkei reported in its Friday morning edition.

On Thursday, LDP policy committee leaders settled on a party line on the tax issue ahead of three-way talks on revising the proposed reform legislation. The party will agree to raise the consumption tax in two stages: first from 5% to 8% in April 2014, then to 10% in October 2015.

The three biggest parties in the Diet--the DPJ, the LDP and the opposition New Komeito--will begin negotiations Friday, aiming to reach a deal by June 15 and vote on the bills in the lower house by June 21, when the legislative session ends.

They will tackle taxes and social security separately, starting with the latter, an issue on which the DPJ and LDP stand further apart. The LDP wants the DPJ to drop some of its defining social security proposals, such as creating a guaranteed minimum pension and eliminating the separate health insurance bracket for the elderly. Should they fail to reach a compromise there, an agreement on the tax hike may fall through.

On the tax hike, the LDP will call for a provision giving the final say to the sitting government six months before the first stage of the tax increase. At the same time, it seeks to drop economic growth targets linked to the tax hike, arguing they would tie the hands of future governments.

To cushion the impact on low-income Japanese, the government and the DPJ are considering an initial round of cash payments, followed in the longer term by refundable tax credits. The LDP is cool to both proposals and will try to push for more targeted, temporary measures.

Despite their rhetoric, both parties had already seen eye to eye on raising the tax to 10%. The LDP has concluded that agreeing to the basic structure of the DPJ's proposed tax hike offers the fastest way to that end. New Komeito, meanwhile, is more likely to accept the parts of the plan that the other two parties agree on.
06-07-12 1920ET

(END) Dow Jones Newswires
June 07, 2012 19:45 ET (23:45 GMT)