Japan Democrats to pitch fiscal reform in platform

TOKYO (Reuters) - Japan's ruling Democratic Party was set on Thursday to appeal to voters with a pledge to rein in the country's huge debt, shifting policy gears as it seeks to ride a rebound in popularity to victory in a July 11 election.

The party will call in its manifesto for bipartisan debate on drastic tax reform including the 5 percent sales tax, media said, opening the door to a future tax hike that the party is betting worried voters will accept, if not welcome.

The Democrats ousted their long-dominant conservative rivals in a historic general election last year, promising to cut waste and focus spending on households to spur growth. They face an upper house election next month they must win to forge ahead smoothly with major policies like cutting Japan's huge debt.

Europe's debt woes have fanned concern about a Japanese public debt already twice the size of the economy.

Prime Minister Naoto Kan has made fixing state finances a top priority and surveys show voters have become less resistant to a sales tax rise, once viewed as anathema at election-time.

"Public opinion is in favour of changing the manifesto to make it more practical," DPJ senior lawmaker Hajime Ishii told Reuters in an interview. "I think what the people want is to achieve healthy finances in the next five to 10 years."

The opposition Liberal Democrats have said Japan's sales tax -- low by global standards -- needs to be raised to around 10 percent, while some economists say it should be as high as 20 percent.

A 1 percentage point increase in the sales tax would boost revenues by about 2.5 trillion yen, according to Seiji Shiraishi, chief economist for Japan at HSBC Securities.

VOTER SYMPATHY

Voter support for the Democrats has rebounded since Kan took over from his unpopular predecessor Yukio Hatoyama, improving the party's chances in the upper house election.

The Democrats will stay in power regardless of the outcome next month given their majority in the lower house.

Their manifesto will call for a non-partisan debate on tax reform including the sales tax, without specifying a time frame, three major newspapers said, suggesting the rise might come sooner rather than later.

But the DPJ's Ishii said the government would not raise the sales tax before the next election for parliament's lower house, which must be held by late 2013 but could come sooner.

"We want to make this a focus of the next general election," he said, adding that a majority of voters were now keen to see the government get its fiscal house in order.

The party will also promise to "do its best" to keep new bond issuance for the fiscal year starting next April 1 at or below the 44.3 trillion yen earmarked for the current fiscal year, and urge the government and the Bank of Japan to cooperate to defeat deflation quickly, reports said.

Some strategists welcomed the Democrats' policy shift as a sign of a breakthrough in tackling Japan's debt but others were sceptical.

"Tax hikes often don't proceed as planned. Expectations towards fiscal restructuring are there because a new prime minister came into office, but such expectations may be dented once tax hike plans run into difficulties." said Koichi Ono, senior strategist at Daiwa Securities Capital Markets.

The government is also expected to unveil on June 22 a medium- and long-term plan to rein in debt.

The steep rebound in voter support for the DPJ since Kan, a pragmatic former grassroots activist, took over means the party now has a shot at winning an outright majority in the upper house, Ishii said.

"If a vote were held now, we'd get around 50 seats or so, but over the next month, if we appeal as the ruling party with proper policies and fight in the districts, attaining an outright majority is not impossible," he said.

The party needs to win 60 of the 121 seats up for grabs in the 242-member chamber to take a majority without relying on current or new coalition partners to pass bills smoothly.

(Additional reporting by Yoko Kubota and Shinichi Saoshiro; Editing by Paul Tait)

WhatsAppFacebookTwitterLinkedinBeloudBluesky