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The government should hike the sales tax and cut public spending over the next eight years in an attempt to balance the national budget, an influential business organization said Thursday.

In its proposal for tax and fiscal reform, the Japan Association of Corporate Executives (Keizai Doyukai) — one of Japan’s three leading business groups — said the government should raise the current 5 percent sales tax to 16 percent by fiscal 2010 and 19 percent by 2020.

The proposal follows one in January by Hiroshi Okuda, chairman of the Japan Business Federation (Nippon Keidanren), which suggests that the sales tax be raised 1 percentage point each year beginning in fiscal 2004 until it reaches 16 percent.

This proposal also said public spending on social welfare programs should be slashed to establish a sustainable system.

The plan announced Thursday aims to diversify the means by which money is absorbed from the public, as revenue from income tax, currently a major source of funds, is expected to decline due to the nation’s rapidly aging population.

The plan proposes to cap the public’s financial burden at 30 percent of gross domestic product through 2010 by scaling back public works projects and central government subsidies for public entities, as well as by reforming the public pension system.

“The current budget does not make both ends meet, and the country would go bankrupt in the absence of reforms,” said Eiji Hosoya, vice chairman for Keizai Doyukai and executive vice president for East Japan Railway Co.

Hosoya said he hopes the association’s proposal will spur further debate on the country’s fiscal and tax reform policies.

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