By Linda Sieg
TOKYO (Reuters) - The frontrunner to become Japan's nextleader will pledge tax cuts and bigger government spending toboost the economy, a newspaper said on Monday, a contrast withrivals worried about the country's huge debt.
The winner of the contest to replace outgoing PrimeMinister Yasuo Fukuda is widely expected to call a generalelection, perhaps in November, to take advantage of a hoped-forbounce in popularity and fight off a challenge from a feistyopposition.
In a manifesto entitled "Japan's potential strength --Creating a strong and cheerful Japan," former Foreign MinisterTaro Aso will pledge to stimulate the economy through incometax cuts and regulatory reforms, the Yomiuri newspaper said.
Other candidates set to run in a September 22 race for theleadership of the ruling Liberal Democratic Party are playingdown the need for spending and focusing on the need to rein inpublic debt or proceed with structural economic reforms.
Economics Minister Kaoru Yosano will pledge in hismanifesto "Dignified Politics, Agreeable Reforms," to overhaulthe tax system, including a rise in the 5 percent consumptiontax, over three years to cover rising social security costs,the Yomiuri said.
While few expect a return to the massive spending of the1990s that left Japan with the highest public debt amongadvanced nations, the LDP race is offering ruling party membersa choice.
"You're talking about sequencing. You're talking aboutpriorities," said Jesper Koll, CEO of investment advisoryTantallon Research Japan.
"Aso's priority is to counter a cyclical downturn withdeficit spending. Yosano's is to reduce the burden on futuregenerations."
SETTING PRIORITIES
Former Defence Minister Yuriko Koike, who wants to becomeJapan's first female prime minister, said she wanted tointroduce an environment tax, revenues from which could helpfund pensions, and improve working conditions for women to helpaddress Japan's falling birth rate and shrinking labour force.
"Women's power helps support Japan," she told reporters. "Iwant to create policies that make better use of that power,enabling them to maintain their private lives and bear andraise children while being part of society," she added.
Another former defence minister, Shigeru Ishiba, has saidhe wants to focus on security policy, but also wants to listento the concerns of those who were suffering economically.
Some economists dismissed the policy gaps as more apparentthan real. "In a practical sense, how much difference will itmake? Not much," said Richard Jerram, chief economist atMacquarie Securities (Japan) Limited.
"Their ability to make policy aggressively seems deeplyconstrained by the political situation, first of all, and interms of the split in parliament and a lack of unity in theLDP."
The unpopular Fukuda quit abruptly last week, the secondpremier to resign in less than a year, in the face of adeadlock where the opposition controls the upper house and candelay laws.
The new LDP leader is expected to become prime ministerbecause of the party's majority in parliament's lower house.
Despite Aso's apparent lead, some political analysts saidhis victory was not a done deal.
Aso's manifesto will not specify how he might changeconsumption tax, the Yomiuri said, but he pledged at theweekend not to raise it until the economy improved.
Whoever becomes the next prime minister will square off inthe looming general election against Democratic Party leaderIchiro Ozawa, whose third term was confirmed on Monday.
Ozawa is stressing the need to shrink social gaps, reducethe power of bureaucrats over policy formation, and pay forminimum public pensions with tax revenues. Like Aso, he hascome under fire from critics for not addressing Japan's fiscalwoes.
Although analysts have said the ruling bloc was likely tolose seats, if not its majority, in the next general election,Fukuda's resignation has given the LDP a ratings boost.
"The people's mistrust and dissatisfaction with the LDP-ledgovernment is great, so if we keep making our case over thenext one or two months, I believe we can achieve our goal,"Ozawa told a news conference. "But at present, the situation istough.
A weekend survey by Asahi TV showed support for the LDP wasup 5.6 points to 42.9 percent, while backing for the Democratsfell 3.5 points to 25.9 percent.
(Additional reporting by Isabel Reynolds; Editing by HughLawson)
