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Asia-Pacific - Tax row hits Japan economy deal

Updated - 28/8/2008 - bbc.co.uk.

Japanese plans to introduce an economic package to help people and firms cope with higher prices are being hampered by a political row over income tax.

Junior government coalition partner the New Komeito party is in disagreement with the main Liberal Democratic Party.

While New Komeito leaders are pushing for temporary tax cuts to benefit low earners, the Liberal Democratic Party is generally opposed to the idea.

The Japanese economy contracted from April to June as recession fears rise.

If the economic output also falls between July and September, then Japan will formally be in recession.

’Grave resolution’

New Komeito policy chief Natsuo Yamaguchi has told economics minister Kaoru Yosano that the tax cuts are vital.

"We will seek to reach an agreement on this with grave resolution," said Mr Yamaguchi.

His comments came a day after Liberal Democratic Party policy chief Kosuke Hori said it would be difficult to afford the proposed tax cuts, which could cost as much as 3 trillion yen ($27bn; $14.7bn).

The main aim of the proposed economics package is to provide financial relief to households and companies struggling with high energy and food bills, although no exact details have yet been revealed.

The apparent dispute between the New Komeito party and the Liberal Democratic Party comes against a backdrop of possible elections.

While no election for the lower house of Japan’s parliament is needed until September 2009, New Komeito leader Akihiro Ota said last week that a snap election could come at any time.

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