Japan to consider environment tax

By Yuzo Saeki

TOKYO (Reuters) - Japan will consider imposing an environment tax as part of discussions this autumn on an overhaul of the tax system, the government's top advisory panel said on Tuesday, a move that could prompt opposition from businesses.

Prime Minister Yasuo Fukuda, who heads the panel, has put climate change as the centerpiece of his policy in the lead-up to a G8 summit next month, where global warming is high on the agenda.

In a draft of the economic policy outline for 2008, the panel also said the government will "put its utmost efforts" behind spending cuts, although Fukuda's faltering support rate is making it politically difficult to press on with fiscal reforms.

The annual report by the Council on Economic and Fiscal Policy upheld a five-year plan to cut spending by 11.4-14.3 trillion yen ($105.7-132.6 billion) to achieve a target of balancing the budget, excluding debt issuance and servicing, by fiscal 20011/12.

Fiscal belt-tightening efforts have been prompted by Japan's mounting public debt. Outstanding public debt is estimated at 778 trillion yen, or roughly 148 percent of gross domestic product by the end of the fiscal year to next March, the worst among major industrial nations.

But pressure on the government from ruling party lawmakers to loosen the spending faucet are increasing as they fear further cuts in public spending would hurt voters' support.

Government sources have said a "coalition" of lawmakers from the both ruling and opposition parties has been pressing the government to increase spending on social security and education, the areas most likely to catch voters' attention.

The ruling lawmakers will have opportunities to scrutinize the panel's draft report at party committees before it is formally approved by the cabinet in late June.