INTERVIEW-Small Japan opposition party wants big spending

TOKYO, June 22 - Japan should boost its slumping economy with a mix of big spending and tax cuts and the resulting increase in tax revenues will help fix tattered public finances, the No. 2 official of a small opposition party said.

Recent surveys show the main opposition Democratic Party of Japan and its allies have a good shot at taking power in an election that must be held by October and could well come sooner.

The Democrats would need support from the conservative People's New Party and the tiny Social Democratic Party even if they win a majority in parliament's lower house in order to control the less powerful upper chamber, which can delay bills.

"We need to aggressively expand demand, improve the situation for households .... expand personal consumption and thus address fiscal reform," People's New Party Secretary-General Hisaoki Kamei told Reuters in an interview on Monday.

The party has called for a five-year, 200 trillion yen ($2 trillion) stimulus plan including 150 trillion yen in public works spending and 50 trillion yen in tax cuts, and wants a rethink of plans to privatise the postal system, long a source of patronage for conservative politicians in rural areas.

Japan's outstanding public debt is already around 170 percent of GDP and financial market players are worried about both ruling and opposition parties' commitment to addressing the problem.

The Democrats and the People's New Party agree on the need to revise postal privatisation plans and both want to keep the sales tax at the current 5 percent for the next four years, Kamei said.

But he added it was unclear to what extent his party's demands for mammoth spending and tax cuts would be adopted by a Democrat-led administration.