Nukaga Says Japan to Increase Pension Burden on Time

By Keiko Ujikane

July 11 (Bloomberg) -- The Japanese government will increase its contribution to the national pension program as scheduled, Finance Minister Fukushiro Nukaga said, after the Nikkei newspaper reported it may postpone the plans.

``The government is not thinking of delaying its promise for now,'' Nukaga said at a press conference in Tokyo today. Japan has pledged to increase its contribution to the program to half from the current third by the year starting April 1.

The Nikkei said the plan may be postponed by at least six months because of opposition to raising the sales tax to fund it, citing Hiroyuki Sonoda, deputy policy chief of the ruling Liberal Democratic Party. The government estimates it may need 2.3 trillion yen to raise the contribution, equivalent to revenue earned by a 1 percentage-point increase in the sales tax.

``The LDP would have to have a political death wish to increase the consumption tax at this time,'' John Richards, head of debt markets strategy at RBS Securities Japan Ltd. in Tokyo, wrote in a report today. ``A cigarette tax hike is now more likely than a consumption tax hike to fund increased government contributions to the public pension fund.''

Prime Minister Yasuo Fukuda said last month that he will consider whether to raise the 5 percent sales tax ``over the next two to three years.'' Fukuda's popularity has slumped since he took office last September, and his LDP-led coalition must defend its two-thirds majority in lower house elections due by September 2009.

Cigarette Tax

Lawmakers from ruling and opposition parties began meeting last month to discuss raising tobacco taxes. Hidenao Nakagawa, a former LDP secretary-general, wants the government to consider tripling the retail price of a pack of cigarettes to 1,000 yen to help fund rising social welfare costs.

Richards of RBS Securities said a 200 yen increase ``would produce enough revenue to more than cover the required pension contribution, since the demand for cigarettes is highly inelastic.''

Economic and Fiscal Policy Minister Hiroko Ota also told reporters today that the government wasn't discussing delaying the plan to increase the pension burden.

Nukaga said the government has promised the public that it will secure stable funding based on the assumption it will raise the government's pension contribution from April 2009.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net