By Stanley White
TOKYO (Reuters) - Japanese Finance Minister Naoto Kan said on Monday he is open to debating sales tax reform, suggesting the government could raise the tax to help fund its spending programmes focused on supporting households.
Many analysts say the government will have no choice but to raise the consumption tax rate, now at 5 percent, to make up for falling overall tax revenues and a likely increase in welfare spending due to the country's aging population.
Prime Minister Yukio Hatoyama, who took office in September after a landslide election victory, has pledged not to raise the politically sensitive tax until the next general election, expected in 2013.
But Kan's comments suggest the government could do so earlier than the next general election, giving up a campaign promise as credit ratings agencies threaten to cut Japan's sovereign rating due to soaring public debt.
"I have no recollection of deciding that we wouldn't debate the sales tax under the Hatoyama cabinet," Kan, also deputy prime minister, told lawmakers in parliament.
"It would be unnatural to debate tax reform while excluding the consumption tax."
Kan was speaking in response to questions from opposition Liberal Democratic Party lawmaker Norihisa Tamura, after the finance minister had said the previous day on a Fuji TV programme that the government would start discussing tax reform in March.
Worries abound that Japan has no plausible plan to put back in order finances that have rattled markets. That pushed the cost of buying protection against sovereign debt default to a 10-month high in credit derivative markets earlier this month.
Standard and Poor's said last month it would cut Japan's rating unless it produced a credible plan to rein in debt and lift growth in an economy plagued by deflation.
The government has said it will come up with a long-term fiscal plan by June. But analysts doubt it will call for drastic fiscal tightening ahead of an upper house election this year.
Parliament members are debating the government's record 92.3 trillion yen ($1.025 trillion) draft budget for the fiscal year starting April 1 that has more new debt issuance than expected tax revenue.
The International Monetary Fund says Japan's public debt could reach 227 percent of GDP in 2010 -- greater than the combined annual economic output of Germany, France, Britain and Canada.
(Editing by Chris Gallagher)