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Noda's Difficulties Grow Over Budget Funding Bill

by Mary Swire,, Hong Kong

31 August 2012

Prime Minister Yoshihiko Noda has found that his agreement with opposition parties to call an early parliamentary election, in order to pass his bill for future hikes to Japan’s consumption tax rates, has returned to thwart the legislation the government urgently needs to approve bond issues to fund its fiscal deficit.

Despite recent defections, the strength of the ruling party, the Democratic Party of Japan (DPJ), was still sufficient to push the bond issue bill through the lower house of parliament, but would require support, particularly from the largest opposition party, the Liberal Democratic Party (LDP) for it to succeed in the upper house.

However, early in August this year, Noda had to make a promise to the LDP that he would dissolve the lower house “soon” or “in the near-term”, and call for elections which are not actually due until August next year, in order to push through the government’s plan to increase consumption tax from its present rate of 5% to 8% in April 2014, and again to 10% in October 2015.

Noda had staked everything on seeing the measure through, as he sees the tax hikes as vital in going some way to proving Japan’s seriousness in bringing the rise in its public debt under control, and catering for increased social welfare spending on an ageing population.

However, he has now found that he no longer has the support of the opposition parties in the upper house for any subsequent government bills in the current legislative session, which ends on September 8, as the opposition parties press for him to dissolve the lower house and call for the promised election, with the DPJ currently well behind in opinion polls.

In particular, the special bill to approve the issue of additional government bonds is expected to fall foul of the opposition boycott. Such bonds are needed to finance around 40% of the country’s fiscal budget, and it has been indicated that, without it, the government could run out of revenue by early October.

Finance Minister Jun Azumi has already had to announce that, if the bill fails to be enacted, he will have to decide what spending should be delayed in order to make ends meet.

TAGS: Finance | tax | economics | sales tax | law | budget | legislation | tax rates | Japan

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