Japan PM drops pledge due to bulging debt

Japanese prime minister Yukio Hatoyama, his ratings slipping on doubts about his leadership, gave up on Monday one important campaign pledge in order to rein in a huge public debt worrying investors and voters alike.

Hatoyama, scrambling to put together the budget for the year from April 1 by the end of this month, said he would replace a surcharge on gasoline with a new tax at the same rate due to falling tax revenues. This is a reversal of a main campaign pledge to end the surcharge.

He said he would keep his promise to hand out child allowances to families, regardless of their income. Hatoyama also said he would devote 2 trillion yen ($22.11 billion) to support jobs and regional economies.

Support for Hatoyama's 3-month-old government sank as low as 48 percent in surveys published on Monday and the weekend as he faced potentially divisive decisions to keep the fiscal 201011 budget on track.

The polls showed voters were disappointed by Hatoyama's apparent inability to make quick decisions, but were open to him backtracking on election promises in view of rising debt.

"I need to apologise as we didn''t follow our campaign platform," Hatoyama told reporters. "But when we look at reality, it is important to protect the environment. So we decided to maintain the surcharge."

Hatoyama's Democrats, joined in an awkward coalition with two small but noisy partners, took office in September pledging to put more cash in consumers'' pockets. 

But with public debt approaching 200 percent of GDP, more than 70 percent of respondents in two surveys said they believed income limits should be set on eligibility for child allowances. More than half said the gasoline surcharge should stay in place. 

Hatoyama's immediate budgeting task could become easier, because central and local governments would have lost 2.5 trillion yen in revenue had he scrapped the gas surcharge.

But unless Hatoyama's decision improves his standing with voters, the decline in ratings might undermine his party''s chances in a critical election to parliament''s upper house in mid-2010. 

Budget dilemma  

Some Japanese seem to understand Hatoyama's dilemma over whether to spend more to help consumers and stimulate the economy, or backpedal to try to rein in debt. 

"Generally speaking, I'd like them to cut the gasoline tax, but I'd also like them to pay back the (public) debt, so it's hard to say," said Yoshitomi Ichikuda, 39.  

Support for Hatoyama's cabinet fell to 48 percent in a survey by the Asahi newspaper, one of three polls published, down from 62 percent the previous month.

About three-quarters of respondents in the Asahi poll said Hatoyama had failed to show leadership and about a third in all three polls said they did not back his government.

Hatoyama needs to find ways to keep a promise to hold new bond issuance to 44 trillion yen next fiscal year despite falling tax revenues. 

Export figures issued on Monday, however, offered some relief, with a 4.9 percent rise in November from the previous month reducing fears of another recession next year.

The polls also showed public concern over Hatoyama's delay in deciding how to relocate a US airbase on Japan's southern island of Okinawa, irritating security ally Washington.

"Hatoyama's image has been badly damaged by his dithering over the Futenma base," said analyst Minoru Morita, referring to sliding popularity rates. "Even if he shows leadership on the budget, it won't be enough to overcome that."

The expected indictment of a former aide to Hatoyama over misreported political funds is also adding to voter doubts, but 54 percent in the Mainichi newspaper survey said the prime minister need not resign if the aide was charged in the scandal.                                           

Hatoyama's troubles have not so far translated into good news for the opposition Liberal Democratic Party (LDP). The Asahi said 42 percent backed the Democrats against 18 percent for the LDP.

The Democrats need to win a majority in the upper house to free themselves from the coalition with two tiny but vocal parties whose support is needed in parliament''s upper house to enact bills smoothly.

A ruling bloc loss would create new deadlock in which an opposition-dominated upper house could delay legislation.