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By Yuzo Saeki and Yuko Yoshikawa
TOKYO, Dec 3 (Reuters) - Japan is unlikely to set a time frame for a mooted consumption tax hike while the economy is mired in recession, a senior ruling coalition lawmaker said.
In contrast to Europeans mulling whether to cut sales taxes to encourage people to spend, as Britain did from Monday, Japan has been debating when and by how much to raise its sales tax to help finance surging social security costs for an ageing population.
But a sharp economic downturn in the face of the global financial crisis has slammed the brakes on these talks. "We can't touch on an overhaul of the tax system unless the economic recovery gets back on track," Yoshihisa Inoue, tax panel head of junior coalition partner New Komeito, said on Wednesday.
It would be very difficult to give any clear timing for a change in the consumption tax in a policy outline that the government is expected to draw up by the end of the year, he told Reuters in an interview.
Prime Minister Taro Aso vowed to include tax reforms in the outline when the government unveiled on Oct. 30 a 5 trillion yen ($53.7 billion) economic package to reduce the impact of the global credit crisis.
But senior officials from his Liberal Democratic Party urged the government on Wednesday to back down on its fiscal consolidation pledges, calling for increased public works and social security spending.
Inoue added that it was difficult to discuss lowering corporate taxes in the ruling coalition's proposals for next fiscal year, which are due out later this month.
"Corporate tax rates will naturally be on the table when we discuss an overhaul of tax system, but the current situation does not allow such a discussion," he said.
"Instead, it is providing preferential tax treatment for research and development that would help to boost companies' competitiveness." The government is running a huge budget deficit. By next March, public debt is expected to hit an eye-watering 778 trillion yen, about 1-½ times gross domestic product.
In 2006, the government set a target of posting a budget surplus, excluding debt issuance and servicing costs, by the end of March 2012.
However, Japan faces the prospect of a big rise in spending on pension and health costs as a wave of postwar baby boomers retires, adding to fiscal pressure. (Editing by Hugh Lawson)