TOKYO, July 16 (Reuters) - Japan's main opposition Liberal Democratic Party (LDP) will not discuss policy matters such as tax and pension reform with the ruling Democrats unless they drop their "pork-barrel" plans, LDP executives said on Friday.
Prime Minister Naoto Kan’s Democratic Party of Japan (DPJ) and a small ally lost their upper house majority in an election last Sunday, threatening policies to curb public debt nearly twice the size of the $5 trillion economy and to engineer growth.
The DPJ will stay in power by virtue of its grip on parliament’s more powerful lower house, but needs a majority in the upper chamber to enact legislation.
"Of course, there can and should be discussions on healthcare, pensions and care of the elderly," LDP policy chief Shigeru Ishiba told Reuters in an interview. "(But) unless the Democrats give up such pork-barrel policies as child allowances, free high schools, farmer payouts and that kind of pork-barrel spending, they can’t draft the budget anyway," he said.
"We’re not saying they have to apologise (for their campaign pledges), but they have to frankly admit they are impossible."
LDP Acting Secretary-general Toshimitsu Motegi said similar conditions applied to discussions on tax reform.
"As a ruling party, the Democrats need to compile a well thought out plan. Otherwise, no one can start discussions," Motegi said in a separate interview with Reuters. "At the moment, it is unclear that what Kan is saying is official party policy."
The Democrats took power in a general election last year, ousting the long-dominant LDP with pledges to cut waste and focus spending on consumers to boost growth.
But Kan, who replaced an unpopular predecessor last month, shifted gears to make fiscal reform, including a possible doubling of the 5 percent sales tax, the core of his campaign, arguing steps were needed to prevent a Greek-style debt crisis.
Now Kan’s critics in the party are charging that his sales tax talk was the cause of the party’s stinging election defeat and are calling for a return to an emphasis on cutting waste before asking voters to accept a sales tax rise.
BUDGET DELAY?
Speculation is simmering that DPJ powerbroker Ichiro Ozawa, a critic of the sales tax proposal and architect of last year’s campaign pledges, will engineer a challenge to Kan in a DPJ leadership election in September, although Ozawa has been silent.
Finance Minister Yoshihiko Noda said on Friday the government would stick to a goal of capping new government bond issuance and spending for the year from next April when setting budget rules this month. But the government could face pressure from within the party not to backpedal too much on campaign pledges.
"Mr Kan, Finance Minister Noda and (DPJ policy chief Koichiro) Genba are already saying this (that revisions are needed), but the Ozawa group is not," Ishiba said.
"The budget drafting could be greatly delayed, and depending on the DPJ leadership election the prime minister could change," he said, adding that the Democrats could split.
If a pro-fiscal reform Democrat lost the party election, the LDP would even be willing to tie up with that group and vote for the defeated candidate to become prime minister, Ishiba added.
Ishiba said the upper house election should not be interpreted as voters’ rejection of a sales tax hike, since the LDP clearly proposed doubling the levy to 10 percent.
The LDP has ruled out a "grand coalition" with the Democrats, but Ishiba said there was room to cooperate in passing laws as long as ruling party bills took account of opposition views.
"It is the responsibility of the government to come up with legislation with which the opposition can agree," he said. "At the same time, our lawmakers will propose bills … I don’t think the hung parliament should be seen as such a negative thing."
Ishiba acknowledged, however, that despite the LDP’s strong showing there was no sign voters wanted them back in power.
The LDP, whose half-century of almost unbroken rule ended with their ousting last year, won 51 seats to the Democrats’ 44 in the upper house poll, but there was no surge of voter support.
"The people are not necessarily saying they want the LDP to return to government," Ishiba said. "We must make our policies clearer, make the LDP a more youthful party, and get rid of the enigma of factions. That is what the LDP must do."
Party lawmakers also need to go back to their districts and bond with supporters to make sure the party’s once-vaunted but recently rusted local machines rev up ahead of a lower house election that must be held by late 2013, Ishiba said.
"One reason for the LDP’s strength is personal ties," he said. "Now that it’s summer and there are festivals.
"We need to attend those festivals, not to give speeches but to shake hands, drink sake, sing songs and dance with the people there. That’s crucial."
