Japan’s Budget OKd but Without Sales Tax

Parliament approved Japan’s annual budget late Thursday night, but without a controversial new sales tax proposed by Prime Minister Yasuhiro Nakasone, which fell victim to opposition delaying tactics.

Nakasone wanted the budget passed before his trip to the United States, beginning Wednesday, so the governing Liberal Democratic Party in effect shelved a tax reform plan that included the 5% levy on sales.

The fiscal 1987 budget of 54 trillion yen ($382 billion) passed on a 291-196 vote in the lower house, where legislative power lies, and will take effect in a month whether the upper house acts or not. The approval ended a deadlock that had paralyzed the government since January.

Approval of the budget will strengthen Nakasone’s hand in his talks with President Reagan on easing friction over Japan’s $59-billion trade surplus with the United States and ending U.S. trade sanctions imposed in a dispute over computer chips.

But the full impact of the budget vote on the trade issue was not immediately clear.

U.S. officials have been demanding that Japan stimulate its domestic economy and boost imports. But because the budget is austere, containing no substantial measures to pump up the economy, it is only a first step needed to begin work on a planned $35-billion economic stimulus package.

Opposition parties said the plan for Japan’s most sweeping tax changes since 1950 would increase taxes for lower-income groups, reduce private consumption and raise business costs.

Nakasone said it was needed to reduce government deficits and ease the tax burden of the middle class.

The tax was opposed by all four opposition parties and even some members of Nakasone’s own party, and it prompted demonstrations in Tokyo after Nakasone proposed the idea in January.

The tax setback could force Nakasone to step down between now and the expiration of his term in October. Nakasone’s approval rating dropped from 54.9% in December to 26.9% last month in public opinion polls, a decline largely attributed to widespread opposition to the sales tax. His popularity is now at its lowest point in his career.