Exclusive - Japan's Ozawa warns PM against sales tax hike
TOKYO (Reuters) - Japanese ruling party heavyweight Ichiro Ozawa threatened to vote against bills to increase the sales tax, the latest sign of trouble for Prime Minister Yoshihiko Noda and his battle to fix the nation's tattered finances.
Analysts say if the proposals are voted down, Noda, Japan's sixth leader in five years, will be under pressure to resign.
Ozawa, 69, a former Democratic Party of Japan (DPJ) leader, told Reuters in an interview that he still hoped Noda would reconsider his plan to enact bills to double the 5 percent sales tax in two stages by October 2015.
The ruling party powerbroker, who heads the DPJ's biggest faction, declined to spell out precisely what he would do if Noda stood firm.
"What we are saying is that it has become just a tax hike and is 'social security and tax reform' in name only. There is no vision for social security reform," Ozawa said in the interview that was cleared for publication on Thursday.
"Therefore, there is basically no change to my stance that I cannot agree to it (the legislation) as it is," he said.
Whether all Ozawa's backers, who by some counts total about a third of the DPJ's lower house lawmakers, would join him in voting against a tax hike is unclear.
But if Noda backs down or the proposals fail to find sufficient support, staying in office could be difficult since he has staked his political career on fiscal reform.
Noda, who took office in September, is struggling to bring his fractious party into line so he can submit the bills to parliament this month. He also needs opposition help to pass them since the Democrats lack a majority in the upper house, which can block legislation.
Ozawa made clear that latest efforts by party leadership to rally support behind Noda's plan had failed to soften his opposition.
"The Noda administration also knows that the party is a minority in the upper house. If the bill is forcefully presented in the lower house, we cannot agree to it. But at any rate, it will not pass the upper house," he said.
"So I think he will probably reconsider."
So far, Noda has given no indication that he might drop the plan, seen as a crucial first step toward reining in Japan's snowballing public debt, already twice the size of its $5 trillion economy.
"NOT TOO LATE"
Ozawa, given credit by some for engineering the Democrats' landslide victory in 2009 that ended more than half a century of almost non-stop rule by its conservative rival, the Liberal Democratic Party (LDP), said the party should keep its campaign promises to cut waste and pry control of policies away from powerful bureaucrats.
"But if it is difficult for the DPJ to change their ideas and their awareness under current conditions, I will have to think of the second best option," he said.
"At this point, it is still not too late for the DPJ if they return to their original ideas ... and work together.
Known for challenging Japan's political status-quo during a four-decade career begun in the long-ruling LDP, Ozawa last year helped bring down Noda's predecessor, Naoto Kan, by threatening to back an opposition no-confidence vote.
Speculation has been simmering that Noda might agree to call a snap election in return for help from the main opposition LDP in enacting the sales tax hike.
But Ozawa said a vote any time soon would be disastrous for the Democrats and that Noda, 54, whose voter ratings hover around 35 percent, was unlikely to call a snap poll during the current session of parliament that ends in June.
"Talk of an election deal between the ruling and opposition parties is something the mass media made up," Ozawa said.
"Neither the LDP nor the DPJ could win an election," he said. "If no party can get a majority, there would be great confusion."
Once seen as a bold reformer but plagued by an image as an old-style backroom fixer, Ozawa resigned as DPJ chief shortly before the party's 2009 triumph because of a funding scandal. He is now on trial on charges of violating the political funds law, and a verdict is expected next month.
Ozawa, who once advocated a 10 percent sales tax, said that first the government should cut waste and re-allocate spending -- the core of the DPJ election platform.
He also rejected suggestions that failure to pass the tax increases would jolt financial markets, boost interest rates, and damage Japan's fragile economic recovery.
Rating agencies have pointed to Japan's political paralysis as a factor in downgrading its sovereign debt and warned further downgrades might follow if the gridlock persisted.
"The ratio of Japan's debt to GDP is not good in appearance but in fact there are still funds," Ozawa said, noting that more than 90 percent of Japanese government bonds were in the hands of domestic investors and that there was scope to cut waste.
"For a while, there is nothing to worry about," he said. "The future is another matter."
(Additional reporting by Yuko Yoshikawa; Editing by Tomasz Janowski and Edwina Gibbs)
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