(Agencies)
Updated: 2008-03-27 13:37

TOKYO - Japanese Prime Minister Yasuo Fukuda will unveil a new proposal on Thursday to try to break a political deadlock over tax steps, including a contentious gasoline tariff, set to expire on March 31, Japanese media said.

The political paralysis -- which has also prevented the appointment of a new Bank of Japan governor -- has eroded Fukuda's public support due to doubts about his leadership, making his future murky.

A spokesman for the prime minister's office could not confirm the media reports but said he would not rule out the possibility of a news conference by Fukuda.

The main opposition Democratic Party, which with smaller allies controls parliament's upper house and can delay laws as well as veto appointments, wants to abolish a three-decades-old "provisional" gasoline tax, seen by critics as a symbol of the long-ruling Liberal Democratic Party's practice of wasteful spending on vested interests.

The Democrats also want to free up other revenues dedicated to road construction and maintenance for general spending.

Without a deal the gasoline tariff and other measures such as an exemption to a 20 percent withholding tax in Japan's offshore market, will expire come Monday.

"I have no intention of sticking rigidly to the government's proposal," Fukuda said in his weekly email magazine on Thursday.

"I will boldly re-think what needs to be re-thought, so I would like the opposition, especially the Democratic Party, to join us in talks."

The Democrats have so far dismissed as insufficient a ruling bloc compromise proposal that calls for enactment of the tax bills by March 31 and discussion later of other key points.

The ruling bloc could use its two-thirds majority in the lower house to enact the tax legislation but only if it has either been rejected by the upper house or 60 days have passed since initial approval by the lower chamber on February 29.

Some analysts have said the best chance for compromise might be if Fukuda promised to transfer road-related revenues to the general budget from 2009/10 in return for enactment of the tax bills including the gasoline tax for the fiscal year from April 1.

But heavyweights in the LDP with close links to the construction industry would likely be unhappy with such a deal, while it is far from clear whether the Democrats would agree.