Japan's ruling party tax panel, facing growing public opposition, agreed on Friday on a new timetable for increases in the sales tax, with the first rise not coming until April 2014, six months later than originally planned.
Japan, which will rely on public debt to fund nearly half of next fiscal year's budget as tax revenues dwindle, wants to double the sales tax to 10 percent by mid-decade to fund social welfare programs.
"This is a very big step forward," Prime Minister Yoshihiko Noda told reporters.
"I am aware of criticism that the government should do more to cut spending first. We will also continue to look to that as well," he added.
But Noda has run into problems getting support, not just from the public and the opposition but also from some members of his Democratic Party. On Wednesday, nine junior members of the party handed in requests to leave the party over the issue.
Democratic lawmakers debated the proposal from Thursday afternoon until shortly after midnight, and agreed to raise the 5 percent sales tax to 8 percent in April 2014 and then to 10 percent in October 2015.
Lawmakers also won assurances that the government would push the Bank of Japan to do more to end deflation and that the government could halt tax hikes depending on the state of the economy.
The government plans to submit the bills to parliament by March, but passage is uncertain as opposition parties can use their control of the upper house to block legislation.
Noda earlier on Thursday appealed to party members to come up with a plan that included specific times for the sales tax to be increased and urging them to be mindful of Europe's debt woes.
"From the perspective of risk management, reform of social welfare and taxes is something that must be done," he said.
A meeting on Wednesday lasting more than eight hours but ended in stalemate as Democrat legislators failed to agree on the earlier plan to raise the sales tax to 8 percent in October 2013 and then to 10 percent in April 2015.
Japan's sales tax is among the lowest in developed countries but many politicians consider tax increases to be politically taboo, given the drubbings ruling parties have got in past elections when even just the possibility of raising taxes has been a main issue.
Since peaking at 60 trillion yen ($771 billion) during fiscal year 1991 amid the country's economic bubble era, Japan's tax revenue has been on a steady decline and is expected to shrink to about 41 trillion yen during the current fiscal year through March 2012.
"Even if the economy improves tax revenues are unlikely to top 40 trillion yen next year," Finance Minister Jun Azumi said, according to Jiji news service.
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