Correction:

An earlier version of this article incorrectly called the current rate of Japan’s consumption tax the lowest among members of the Organization for Economic Cooperation and Development. It is Japan’s sales tax that is the lowest among OECD countries that have such a tax. This version has been corrected.

Prime Minister Noda says tax hike essential for Japan's sustainability

KAZUHIRO NOGI/AFP/GETTY IMAGES - Japanese Prime Minister Yoshihiko Noda speaks with the foreign media at his official residence in Tokyo on Saturday ahead of the first anniversary of the massive earthquake and tsunami that devastated Japan's northeast and sparked a nuclear power plant crisis on March 11, 2011.

TOKYO — Japanese Prime Minister Yoshihiko Noda said Saturday that his government “cannot sidestep” a controversial tax increase that has turned into the leader’s highest priority and largest potential stumbling block.

During a 30-minute group interview with 19 members of the international news media, Noda appealed for opposition cooperation on his tax plan, which would help the country pay for its escalating social security costs and ease global concerns about its massive debt.

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“There is no waiting in responding to this question” of how to create a sustainable social security system, Noda said. “We’re faced with an aging society and a declining birthrate unprecedented in the history of humankind, and we cannot sidestep this challenge. I believe all the political parties fully understand this.”

Noda has staked his six-month-old administration on the tax increase. He faces a deadline later this month to submit the bill, which would double Japan’s 5 percent consumption tax rate by 2015.

Noda’s hope for political cooperation runs counter to recent history, and he faces a critical test in the next weeks to rally support for a bill that many in his own party oppose. The leading opposition party, meanwhile, provides an even trickier obstacle: Although its members support the more taxes in theory — the Liberal Democratic Party platform recommends the hike — they also sense an opportunity to obstruct the bill, lower Noda’s approval rating and force a snap election.

But Noda said Saturday that talks with the opposition party were “beginning to jibe,” and he discounted the idea of dissolving the lower house — which his own party, the Democratic Party of Japan, controls — soon. According to reports in the Japanese news media, Noda had a private meeting last week with LDP President Sadakazu Tanigaki, their first one-on-one sit-down since Noda took office.

Because the LDP has power in the upper house, Noda, a fiscal hawk and former finance minister, will need cooperation from the opposition to pass the tax increase. Some political analysts in Tokyo think the LDP will agree to approve the consumption tax increase only if Noda promises to dissolve the lower house immediately thereafter. That would set off an election among equally unpopular groups; according to a mid-February poll conducted by the Yomiuri newspaper, 16 percent support the DPJ and 17 percent support the LDP. More than 50 percent support no party.

Japan’s consumption tax rate is one of the lowest among members of the Organization for Economic Co-operation and Development, and the government hasn’t raised the rate since 1997. Since then, however, the country has depended more on selling bonds than taxes to fund its budgets.

Japan also faces a major demographic challenge, with a booming elderly population and a thinning workforce to support it. By 2055, according to government data, 40 percent of the country’s population will be 65 or older. Just 8 percent will be younger than 15.

Opponents of the tax increase say it would further undermine an economy that has been stagnant for two decades.

Noda’s push for the increase comes at a time when the government is trying to regain support following its much-criticized response to last year’s natural and nuclear disasters. Noda on Saturday acknowledged that criticism, but he also highlighted the steps that his government has taken to help the recovery in the disaster-hit northeast. That includes the passage of four extra budgets and the allocation of 1 trillion yen ($12 billion) to pay for cleanup in areas contaminated by radiation from the nuclear plant.

Tsunami-battered areas farther from the Fukushima Daiichi plant, Noda said, “have recovered pre-disaster daily life.”

“Unfortunately there is criticism that what we’ve done has been inadequate — that we’ve been slow,” Noda said. “And we have to be receptive to such criticism.”

 
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