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Mar 08, 2012, 05.12 PM IST | Source: Reuters

Japan lower house approves budget, but hurdles for Noda mount

JAPAN-ECONOMY-BUDGET:Japan lower house approves budget, but hurdles for Noda mount

By Tetsushi Kajimoto

TOKYO (Reuters) - Japan's government won approval of the parliament's lower house for its $1.12 trillion 2012/13 budget, but may fail to implement it before new fiscal year starts on April 1, a bad omen for negotiations with opposition over an unpopular plan to double the sales tax.

The bill will become law even if the upper house, controlled by the opposition, rejects it, because the lower house can override it. But if the upper house drags its feet and does not put it to a vote, it will only come into force after 30 days, so on April 6, a week into the new fiscal year.

That would force Prime Minister Yoshihiko Noda's cabinet to prepare a temporary budget, further weakening its bargaining position in its efforts to win opposition backing for the tax plan.

"The provisional budget itself would not have much impact on the economy and markets but a delay in passage underscores Prime Minister Noda's weak political power and signals higher hurdles for the passage of a sale tax bill and a deficit-bond bill," said Hidenori Suezawa, chief strategist at SMBC Nikko Securities.

"Noda can't expect the kind of a political truce that was seen in the wake of last year's earthquake and the political situation could destabilise towards the summer," Suezawa said, adding that lack of political stability could lead to a downgrade of Japan's credit rating.

While Noda's Democrats retain control of the lower house and can get both the main and stopgap budget passed, they need upper house approval for the tax reform and a key bill authorising the government to issue new debt to finance the budget deficit.

The opposition has been trying to leverage that to pressure Noda to call an early election, though so far Noda has resisted those calls saying he was focusing his energy on winning support for the tax increase and rebuilding from last year's earthquake and tsunami.

Japan will mark the first anniversary of the disaster that killed about 16,000, left more than 3,000 unaccounted for, more than 300,000 homeless and triggered the worst nuclear crisis since Chernobyl.

Noda has argued that despite the enormity of the task and the cost of the reconstruction and the clean-up after the nuclear disaster, Japan must act to rein in its snowballing debt that has already reached two year's worth of the nation's economic output.

Underscoring the gravity of the debt challenge, nearly half of the next 90.33 trillion yen budget will have to be financed by new borrowing, and the opposition is expected to use the approval of new debt as a bargaining chip.

The lower house passage of the budget bill came a week later than last year and if the delay forces the government to compile an interim budget it will be the first such bill in 14 years.

Finance Minister Jun Azumi has said he might need to consider such a budget as early as mid-March if it is clear that the full budget will not pass before April 1.

(Reporting by Tetsushi Kajimoto; Editing by Tomasz Janowski)

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