[December 10, 2008]

Aso prods LDP to specify timing for consumption tax hike+

(Japan Economic Newswire Via Acquire Media NewsEdge) TOKYO, Dec. 10_(Kyodo) _ Prime Minister Taro Aso pushed the ruling Liberal Democratic Party on Wednesday to specify the timing of a consumption tax hike from the current 5 percent when it compiles tax reform proposals for fiscal 2009 on Friday, lawmakers said.

The premier urged executives of the LDP's tax panel to "describe well" the sales tax hike schedule in a medium-term tax reform program, which he instructed the government and the ruling parties to work out by the end of the year, they said.

Senior members of the LDP Research Commission on the Tax System told reporters they will be compelled to clarify when the government plans to raise the sales tax in their tax reform proposals, even though they are not planning to stipulate by how much.

Aso has indicated his willingness to raise the sales tax after Japanese economic conditions improve, pledging to gradually implement a fundamental tax reform program including the consumption tax hike through the mid-2010s.

The premier has said he believes it will take around three years before the Japanese economy recovers.

The LDP and its coalition partner, the New Komeito party, agreed later in the day not to indicate the margin of the sales tax increase.

But the latter opposed presenting a precise timing for the hike, even though the LDP suggested a provision to abort the plan to increase the tax if economic conditions are not good.

Meanwhile, the two parties endorsed the government's plan to tap reserves in a special account budget so as to raise the state's contribution to the national pension scheme from the current one-third to one-half from April as scheduled.

In 2004, the government decided to boost its financial burden for the basic pension program to 50 percent in fiscal 2009 to sustain the scheme in rapidly aging Japan.

The program is financed by pension premiums and the government's spending. About 2.3 trillion yen is needed to raise the government contribution to one-half and a consumption tax hike was initially targeted as the financing tool.

The Finance Ministry plans to divert part of its reserves in the special account, originally kept to prepare for wild fluctuations in interest rates on national bonds, to cover the increase in the state's financial burden for the pension scheme for two years.

The ruling parties agreed the same day that they should look for stable revenue sources for the pension program, in a bid to secure state funding after the stopgap measure expires in two years.

The LDP tax panel also had a heated debate on whether to raise the tobacco tax to generate necessary revenues to cover ballooning social security costs, but members failed to reach a consensus.

Last week, Health, Labor and Welfare Minister Yoichi Masuzoe called for boosting the tobacco tax, saying it would help ease the government's obligation to curb natural increases in social security expenditures by 220 billion yen annually.

Aso repeated his view Wednesday that the government's efforts to slash social security outlays have "reached a limit," but he avoided referring to the cigarette tax.

Cigarettes in Japan usually sell for about 300 yen per pack of 20 with tax accounting for 189.17 yen, or 63.1 percent, according to Japan Tobacco Inc.

Some LDP members advocate raising the tobacco tax by 3 yen per cigarette, which would increase the price of a pack of cigarettes by around 60 yen.

Copyright ? 2008 Kyodo News International, Inc.

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