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Saturday, June 16, 2012

DPJ, LDP, Komeito forge sales tax hike deal

Staff writers

The Democratic Party of Japan, Liberal Democratic Party and New Komeito basically agreed Friday to hike the sales tax and reform the social security system, with the ruling DPJ effectively shelving key goals to create a new basic pension system and abolish the separate health care system for people aged 75 and older.

News photo
Yoshihiko Noda

The agreement marked a key step for the government to save its unpopular tax reform bills, which would raise the 5 percent consumption tax to 8 percent in 2014 and 10 percent in 2015.

In a major concession to the LDP, the DPJ agreed to create a multipartisan forum on social security issues and the DPJ's pension and health insurance reforms will be on the agenda for the forum's discussions. This means the DPJ is effectively dropping its two key reform plans as official policy for now.

The trilateral talks temporarily stalled Friday as New Komeito kept insisting the DPJ-led government formally scrap the Cabinet's decisions to submit pension and health insurance reform legislation. But New Komeito eventually relented.

"New Komeito has expressed understanding over our position," said the DPJ's Ritsuo Hosokawa, one of the key negotiators.

Many of the DPJ rank and file are against the tax hike plan, which means the fate of the bills — and of Prime Minister Yoshihiko Noda — is unclear.

LDP support alone would be enough to secure passage of the tax reform bills by both the Lower House and Upper House. But many DPJ members have indicated they may vote against the bills, which would split the party and perhaps cripple the fiscally hawkish prime minister's power base.

"We must overcome the high hurdle for party unity . . . and internal discussions are essential," former farm minister Michihiko Kano said in addressing the internal strife.

DPJ kingpin Ichiro Ozawa and former Prime Minister Yukio Hatoyama are against the tax hike. Ozawa has hinted he will vote against it and has slammed the proposal as a "suicidal act" and an "act of betrayal" to the voters.

The DPJ pledged in the 2009 Lower House campaign that it would not raise the sales tax during the next four years. It and the LDP have agreed to raise the tax to 8 percent in April 2014 and to 10 percent by October 2015.

Besides giving in on the creation of a basic pension system that would guarantee monthly minimum benefits of ¥70,000 and abolishing the separate health insurance system for the elderly, the DPJ is also set to scrap consolidating kindergartens and nurseries.

New Komeito policy chief Keiichi Ishii said his party still wasn't on board following a trilateral meeting in the morning. "I'll do my best (to negotiate) until the last minute," Ishii said.

New Komeito also proposed that hikes in the income and inheritance tax should be included in the plan, while the DPJ and LDP hope to postpone those increases to the end of the year.

"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," said Tetsuo Saito, deputy secretary general of New Komeito.

"It has to be drastic reform (of taxes) . . . but this will only reform the consumption tax," he said, adding the party considers it crucial to include the income and inheritance tax hikes in the plan.

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The Japan Times

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