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"The tax hike will bring about another headwind to the economy, which is weaker consumption," said Hiromichi Shirakawa, Credit Suisse's chief Japan economist. He said the tax increase will drag down economic growth and erode income taxes and corporate taxes, thus worsening Japan's debt burden over time. He said the government instead should first focus on ways to cut public spending and bolster the economy, and then raise the sales tax. "In 10 years' time, we may see a more disastrous fiscal situation," he warned. Noda disputed criticism that a higher sales tax would harm the economy, saying that if the government waited any longer it would be too late. The rebellion within the Democratic Party raises the possibility of a party split, which would make it difficult for Noda to achieve his goals
-- and perhaps even force him to call a general election. Ruling party veteran Ozawa, who has often criticized Noda and controls a bloc in the ruling party, has suggested he may leave the party and take as many lawmakers as he can with him to form a new one. If 54 or more lawmakers join Ozawa, Noda's party would lose its majority in the key lower house. Fifty-seven ruling party members voted against the tax hike, according to a tally by public broadcaster NHK. Ozawa indicated after the vote that he wouldn't leave the party immediately, but would make a decision on what to do soon. Noda said it was "extremely disappointing" that so many ruling party members voted against the bill, and suggested that party leaders would consider penalizing them.
[Associated
Press;
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