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Hiroshi Okuda, chairman of the Japan Business Federation (Nippon Keidanren), thinks he has a cure for the sick economy, but consumers aren’t likely to enjoy his bitter medicine.

Okuda’s remedy: Substantially raise the consumption tax and use the revenues to sustain the social security system.

“One reason why Japan’s economy has fallen (for over a decade) is that we haven’t built a (sustainable) social security system (to cope with a rapidly aging society),” Okuda said in a yearend interview with reporters. “A proper system could erase public concerns over the future and consequently stimulate consumer spending.”

Although Japan presently has over 3 million people out of work, a labor shortage has been forecast.

The National Institute of Population and Social Security Research has estimated that the nation’s working population will decrease to 62.6 million people in 2025 after hitting a peak of 68.7 million in 2005.

The dwindling number of workers will thus face the burden of mounting social security spending on pensions and medical services for the elderly. Raising the consumption tax will spread the burden across a broader spectrum of the public, Okuda figured.

Okuda, who is also chairman of Toyota Motor Corp., did not specify how much the tax should be hiked. But in a recently released grand vision of an ideal socioeconomic system leading up to 2025, Nippon Keidanren proposed hiking the tax by 1 percentage point every year beginning in fiscal 2004 until it reaches 16 percent in fiscal 2014. The proposal also says that public spending on social welfare programs should be concurrently reduced to establish a sustainable system.

“If the consumption tax is raised drastically at once, it could snuff out consumer spending,” Okuda said. “So it should be raised gradually, and the rate should vary depending on what is taxed.”

For instance, the tax on daily necessities, including food and clothing, could remain low, while luxury goods could be taxed higher, he said.

Another way to maintain social security and prevent a labor shortage would be to accept more foreigners into the workforce, Okuda said.

“We will still face a labor shortage even if more female and elderly Japanese join the workforce, so we would need to employ more foreigners,” he said, noting that foreigners who can contribute to scientific advancement should be encouraged to immigrate to Japan to stimulate the nation’s intellectual fields.

Despite the oft-repeated forecasts of a labor shortage, however, the nation currently has a glut of workers. Corporations are accelerating restructuring efforts amid the protracted economic slump, forcing an increasing number of people out of jobs. The unemployment rate came to 5.3 percent in November, with 3.38 million people left idle.

Okuda said that in the short term the government must spread a safety net to support unemployed people and make more efforts to create jobs.

To this end, he said Nippon Keidanren will try to place more pressure on politicians.

This year, Nippon Keidanren will also craft corporate political donation guidelines based on its assessment of each political party’s policies and their results, he said.

One of Nippon Keidanren’s predecessor organizations, the Japan Federation of Economic Organizations (Keidanren), exerted strong influence over politics, coordinating donations from member firms and associations and channeling them mainly to the ruling Liberal Democratic Party.

However, Keidanren stopped the practice in 1994 — a year after the LDP left the government’s helm for the first time in 38 years. Observers say the business circle’s leverage over politicians has since weakened.

Nippon Keidanren was created last May by the merger of Keidanren and the Japan Federation of Employers’ Associations (Nikkeiren), a business lobby dealing with labor-management issues.

“We will not force our members to make political donations (as Keidanren used to do),” Okuda said. “But if we display a positive attitude (toward donations by making the guidelines), it would encourage some companies (to donate).”

On economic prospects for 2003, Okuda predicted that Japan can achieve 1 percent annual economic growth if international events such as a U.S.-led war against Iraq or a major terrorist incident do not take place.

“I think (this year) will be uncertain, as the economy is affected by international affairs,” he speculated, adding that at any rate, to boost the domestic economy, industries must create new technologies and attractive products to stimulate consumerism.

The government is now stepping up efforts to counter deflation and accelerate bad-loan disposals through a comprehensive economic package, including the creation of an official industrial-revival and -cooperation body.

Okuda said Nippon Keidanren will work with the government to resolve such problems by providing human resources to the planned government entity, which will be established this spring to purchase bad loans to problematic but viable companies.

He also pointed out that property and stock dealers should be given tax incentives in order to boost the liquidity, and thus the price, of assets.

Okuda also said the public and private sectors should work to create a single free-trade zone in Asia, creating a major regional market that can match those of the United States and Europe.

“Japan would (in the process) be able to prosper together with rapidly growing economies like China and Vietnam,” he said. “To become a leader in the region, (Japan) must also make its society more trustworthy, and the private sector can contribute by engaging in further dialogue in Asia.”

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