THE JAPANESE Prime Minister Morihiro Hosokawa's emergency package of at least pounds 82bn to get the economy moving again was stalled last night by the continued refusal of the Socialists to accept part of the package concerning tax reform. Mr Hosokawa held talks late into the night with the Socialists and his other coalition partners to find a way out of this latest political impasse. The discussions will be resumed this morning but observers said a compromise was in sight.

The Socialists, who have opposed virtually every reform proposal Mr Hosokawa has made in the six months of his government, are increasingly becoming a millstone around the Prime Minister's neck. They held out against the import of foreign rice, derailed the political reform bills, and now find themselves opposing economic recovery.

Early yesterday, Mr Hosokawa had outlined a bold plan to revitalise the economy, including a steep cut of pounds 35bn in income tax to encourage consumers to spend again. To finance the income-tax cut the Prime Minister proposed raising sales tax from its current 3 per cent to 7 per cent in 1997.

But the Socialists, claiming such a change in the tax-collection system would benefit the rich and hurt the poor, threatened to pull out of the government if the plan went ahead. The Socialists' opposition to the sales tax rise was also prompted by their own electoral interests. Few in the party have forgotten the halcyon days in 1989, when the ruling Liberal Democratic Party (LDP) introduced the 3 per cent sales tax and then lost its majority in Upper House elections to the Socialists, who had campaigned against the unpopular measure. The Socialists clearly see electoral gains in keeping up their opposition to the tax.

Political chaos has become the rule, not the exception, as the government has struggled to push through various reform measures. Each time the main liability to Mr Hosokawa's seven-party coalition has been the Socialists, many of whose deputies still act as if they thought the Cold War could be won by the left. Although satirised in the press as 'Marxist dinosaurs' and 'Jurassic Socialists', the party has been unable to cleanse its ranks of fanatical left-wingers and present a more moderate public face.

The Socialist Party was set up in 1945, but apart from a nine-month spell in 1948-49, when it formed part of a coalition government, it had never held power until it joined the anti-LDP government last year. For the LDP's 38 years in power from 1955, the Socialists became a 'professional opposition', with no apparent desire to put forward policies that would attract enough voters for it to form a government.

Oblivious to the direction a modernising and increasingly middle-class Japan was taking, the Socialists declared themselves a 'national party with the working-class at its core' and in 1964 called for a Marxist-Leninist dictatorship of the proletariat. Throughout the 1970s and 1980s the party was torn between right- and left-wing factions.

In an indication of the party's inability to extricate itself from dogma, the executive announced in 1991 that the party's official name should be changed from the Socialist Party to the Social Democratic Party - but only in English. In Japanese it remained the Shakai-to - which means Socialist Party.

'It is a peculiar phenomenon, but this should be understood as best reflecting the latest compromise between the right-wing and left-wing members of the party,' said Masahiro Yamamoto, a former vice-chairman of the Socialists.

The Socialists had steadfastly refused to recognise South Korea, preferring the 'pure strain' of socialism of Kim Il Sung in North Korea. And it was not until last year, when the Cold War and the Soviet threat were well and truly over, that the Socialists finally brought themselves to accept the US-Japan Security Treaty, agreed upon in 1951 precisely to counter Soviet expansionism.

For Mr Hosokawa's 'reformist' government the backward-looking Socialists have become a constant liability. If they continue as they are going, the Socialists may soon find themselves back on the opposition benches they seem to prefer.

View from City Road, page 30

Hamish McRae, page 31

(Photograph omitted)