Budget, tax remain high hurdles for Kan's Cabinet+

TOKYO, Jan. 14 Kyodo -
The new Cabinet of Prime Minister Naoto Kan launched Friday faces a number of
difficult hurdles to overcome if it is to achieve its goal of returning the
Japanese economy to a solid footing.
The key issues remain how to get the national budget for the next fiscal year
passed by the Diet, whose upper chamber is dominated by the opposition bloc,
and how to lay the groundwork for a stronger social welfare system, an issue
that must be argued together with the possibility of future tax hikes.
Kan has called for cross-party cooperation in rebuilding Japan's troubled
public finances, expressing his intention to craft a comprehensive reform plan
around June. The Diet is to convene a 150-day ordinary session on Jan. 24.
The opposition camp, which has a majority in the House of Councillors, has said
it will not accept the draft of a record 92.41 trillion yen ($1.12 trillion)
budget for fiscal 2011 starting April, approved by Kan's previous Cabinet in
December.
The ruling coalition led by Kan's Democratic Party of Japan has a majority in
the more powerful House of Representatives, so even if opposition parties
reject the draft budget it could still pass the Diet.
However, Kan must also get parliamentary approval of related laws. Bills can be
enacted into law, even after the upper house rejects them, if the lower house
clears them in a second vote with a two-thirds majority under constitutional
rules. But Kan's ruling coalition does not hold the number of seats required to
make it happen.
The laws include one that would enable the government to issue deficit-covering
bonds. Without it, the government would not be able to count on around 40
trillion yen in revenues.
Kan is moving to seek cooperation on the budget from some smaller parties,
including the Social Democratic Party, the DPJ's former coalition partner.
While DPJ Secretary General Katsuya Okada has implied the possibility of
modifying the budget plan to meet opposition demands, Finance Minister
Yoshihiko Noda, who survived Friday's Cabinet reshuffle, has denied such a
compromise will be made, saying the current draft is ''the best'' the
government can create.
As for tax issues, 2011 will be a crucial year for Kan as he is calling for a
full debate among ruling and opposition parties on the proposed comprehensive
tax reforms which would secure necessary funds to cover the nation's swelling
social security costs resulting from an aging population.
Kan drew attention in the Cabinet reshuffle by giving the economic and fiscal
policy portfolio to Kaoru Yosano, a veteran lawmaker who had criticized the
DPJ's economic policies as co-head of the small opposition Sunrise Party of
Japan. Yosano quit the party, which he had created with others, on Thursday.
A fiscal hawk, Yosano has spoken of the need to raise the consumption tax rate
above the current 5 percent as part of efforts to restore the country's fiscal
health. Kan says he shares Yosano's view on fiscal reforms.
Kan also picked former Finance Minister Hirohisa Fujii, another advocate of
fiscal restoration, as deputy chief Cabinet secretary, in a move widely seen as
a step toward raising the sales tax.
In December, a DPJ panel, headed by Fujii and discussing tax and social
security reforms, reported that the government should use all revenues from a
higher consumption tax to cover social welfare costs, although it did not
clarify when and how much the tax should be raised.
Some economists say the Cabinet reshuffle represents Kan's strong intention
toward fiscal reconstruction, but others are not so optimistic.
''It remains unclear whether Mr. Kan can raise the consumption tax. Before
that, we don't even know how the government could get the budget through the
Diet,'' said Masamichi Adachi, senior economist at JPMorgan Securities Japan
Co.
Adachi also said he cannot see any capable ''negotiator'' in the new Cabinet
who could broker a deal between the ruling and opposition parties, dismissing
the view that Yosano could be the one.
With a number of regional government elections scheduled later this year, if
Kan fails to win enough public support then only ''chaos'' would remain, and
this would be no good for the Japanese economy, he said.
==Kyodo
2011-01-14 23:28:05


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