Tuesday, June 26, 2012

Japan approves tax hike amid turmoil

Prime Minister Yoshihiko Noda could face a vote of no confidence because of a controversial plan to raise taxes.
Prime Minister Yoshihiko Noda could face a vote of no confidence because of a controversial plan to raise taxes.
  • NEW: The lower house passes a measure to double the sales tax
  • But members of the governing party have threatened to leave over the issue
  • That could cost Prime Minister Noda his majority and result in a confidence vote
  • Japan has had six different prime ministers in the past six years

Tokyo (CNN) -- Japanese lawmakers approved a contentious plan to double the country's sales tax on Tuesday even as Prime Minister Yoshihiko Noda battled to contain an uprising in his own party over the issue that could bring about his downfall.

The sales tax increase, aimed at reining in Japan's huge public debt, has been the defining policy initiative of Noda's premiership since he took office in September, becoming the latest in a string of politically fragile Japanese leaders.

He is the sixth prime minister to hold office in the six years since the departure of Junichiro Koizumi, who was in power for more than five years.

The lower house of the Japanese parliament passed the sales tax increase by 363 votes to 96, part of a series of social security and tax reform bills being put to the vote Tuesday. The measures will now be sent to the upper house.

Noda had amended the proposed legislation heavily to secure support from the biggest opposition party, the Liberal Democratic Party.

But at least 50 member's of Noda's own party, the Democratic Party of Japan, have expressed opposition to the bill and have threatened to leave the party. They are led by the influential Ichiro Ozawa, who is known for his political power-broking.

If more than 54 members decide to leave the DPJ, the party will lose its majority in the lower house, raising the prospect of a vote of no confidence against Noda. If he loses that vote, he will have to either quit or call a snap election.

The proposed increase in the sales, from 5% at the moment to 10% by October 2015, is considered crucial by many analysts to help tackle Japan's enormous public debt of 709 trillion yen ($8.89 trillion) .

That amounts to 219% of annual gross domestic product, the highest ratio in the developed world. Japan is grappling with ballooning social security and health care costs for its rapidly aging population.

Meanwhile, its economy its struggling to grow as the persistently strong yen hurts exports.

CNN's Jethro Mullen contributed to this report.

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