TOKYO (Reuter) - Japan's Prime Minister, Morihiro Hosokawa, and his economic ministers talked until the early hours of the morning with leaders of the ruling coalition party on how to finance the planned three-year tax reform package to be published today. The package is expected to total at least Y14,000bn ( pounds 87bn).

An Economic Planning Agency official said the tax cuts this year, part of the government's economic stimulus package, were expected to total about Y6,000bn.

In order to finance the income tax reductions, the government plans to replace its 3 per cent consumption tax with a 7 per cent welfare tax, but the Socialists, the largest partner in the coalition, have said such an increase should be postponed in order to allow the economy to recover from recession.

Tomiichi Murayama, the Socialist Party chairman, said: 'If the Prime Minister seeks cabinet approval for his tax policy, he may face difficulties in winning agreement from ministers (from the Socialist Party) or support from the party as a member of his ruling coalition in drafting next year's budget.'

Mr Hosokawa said the tax reforms comprised cuts totalling Y6,000bn, including income tax cuts worth Y5,300bn to take effect retroactively from 1 January, and a new 7 per cent welfare tax to take effect from 1 April, 1997, replacing the 3 per cent consumption tax.

Mr Murayama said the Socialists would decide on their course of action at a party executive meeting later today.