Calls for higher spending put India's deficit targets in jeopardy
* Too early to say whether govt will allow deficit to slip
TOKYO Japan's Prime Minister Yoshihiko Noda is ready to call everyone's bluff in a drawn out political game over tax. Unlike his long line of ousted predecessors, he might even succeed.
If he does, Noda will be the first of the six leaders in the past five years to break the political paralysis that has for so long blocked any serious attempts to cut into the growing mountain of debt and social costs that threaten to drag down the world's third largest economy.
At stake too are Noda's own political future and the confidence of investors and rating agencies in Japan's ability to take tough decisions and pull itself out of an economic black hole.
For months, the centre of debate has focused on a plan to double the sales tax to 10 percent, not enough to stop Japan's debt from piling up, but which has come to symbolise a willingness to grapple head on with the problems.
On the face of it, Noda has a very weak hand.
Opinion polls show him with a barely more than 30 percent support rate.
The opposition controls the upper house and can block more or less any bill it chooses to.
And Noda's ruling Democratic Party of Japan (DPJ) has plenty of legislators who would be happy to see their own leader become the latest prime minister shouldered out of office.
Balance of power: link.reuters.com/vuq47s
DPJ factions: link.reuters.com/tyt47s
Graphics: interactive: link.reuters.com/kar66s
OPPONENTS HAVE A LOT TO LOSE
But his opponents also have a lot to lose, something Noda will hope to exploit by forcing a vote on the sales tax in the lower house, and calling a snap election if it fails to get through, two senior DPJ lawmakers told Reuters.
"If the bills were rejected by (DPJ) rebels, that would be an equivalent of a no confidence motion in the government," said one lawmaker close to Noda, who declined to be named because of the sensitivity of the matter.
"Everyone should know what the prime minister would think then: call an election, because resignation would not be an option."
That is bad news for Noda's detractors who have hoped that a threat of rebellion would persuade him to do what other risk-averse Japanese leaders have done - back down or quit.
WAR OF NERVES
Supporters of the 54-year-old former finance minister are confident it will be the rebels who will blink first.
Most of the rebels are followers of party maverick and veteran political brawler Ichiro Ozawa and most are rookie lawmakers who might well lose their seats in a snap election.
Ozawa himself told Reuters last month an early election would be "disastrous" for the party. Political analysts estimate no more than half of about 100 of Ozawa's followers would risk voting against Noda.
That would not be enough to defeat the tax plan in the lower house. It would, though, allow Noda to expel troublesome party members and preserve party unity, said Atsuo Ito, an independent political analyst who has worked for both the Democrats and rival Liberal Democratic Party (LDP).
The LDP, which lost badly to the Democrats in the 2009 election, is almost certain to fare better in the next one and has been pushing Noda to bring forward a lower house election that he does not need to call until autumn 2013.
But even for the party that had been in power for so long that many of its members still seem to see their opposition role as an aberration, an early vote carries real risks.
It ran Japan for more than half a century and still takes its fair share of blame for today's problems - a stagnant economy, mammoth debt burden and complacency that left the nation ill-prepared to cope with last year's nuclear crisis.
Noda would likely frame the election as a choice between his willingness to take tough decisions and those just throwing up obstacles to change, pointing out it was the opposition Liberal Democrats who first suggested raising the sales tax.
There is another risk, not just for Noda. A new player could step into the breach, leading to a hung parliament and leaving none of the mainstream parties better off.
"Voters are disappointed in the DPJ and fed up with the LDP, which has led to a rising popularity of the third force," said LDP lawmaker Taro Kono.
That third force is a regional party with national ambitions led by a lawyer, TV personality and Osaka mayor, Toru Hashimoto.
Two newspaper polls last month showed about 60 percent of voters would welcome the new party's presence on the national stage. A worrying sign for the Democrats and the LDP, given that other polls show them with 20 percent support each while 40 percent of voters remain undecided.
Voters have so far shown much the same enthusiasm for the sales tax as a visit to the dentist - a necessary evil to be put off as long as possible.
A recent poll showed that 58 percent accepted that the sales tax would have to rise at some point to sustain the social security system, but a majority opposed Noda's plan to double it by late 2015.
Yet Democrats hope that they can still sway the public their way and get enough opposition lawmakers to back the tax bill.
Interviews with nearly a dozen politicians from all major parties suggest that what gives Noda a fighting chance is his single-minded pursuit of his tax plan that makes his gambit credible.
Some of his close allies say in that he reminds them of Junichiro Koizumi, Japan's last prime minister to serve a full term, though Noda's everyman image is very different from the charismatic former LDP leader.
But just like Noda now, Koizumi in 2005 faced dissent over his postal privatisation reform, and when rebels struck it down he called a snap election in which he led his party to a landslide.
"Noda has some elements of Koizumi's thinking. That is to strive to achieve a policy objective for the sake of the people, even at the cost of his own party and political career," one close Noda ally said. "What the postal privatisation was for Koizumi, the sales tax hike is for Noda."
"What he thinks is good for Japan and future generations takes priority over prolonging the life of the administration."
(Editing by Tomasz Janowski and Jonathan Thatcher)
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