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The Japan Business Federation (Nippon Keidanren) recommended Tuesday that the government gradually raise the consumption tax from the current 5 percent to at least 10 percent starting in fiscal 2011 to meet rising medical care and pension costs.

Japan’s most powerful business lobby said the tax should eventually top 15 percent or more by the mid-2020s to a level comparable with European countries.

Also on Tuesday, national strategic minister Yoshito Sengoku said the Democratic Party of Japan should include a consumption tax rise in its campaign promises for the next Lower House election, saying the government “will face great difficulty” in managing the national financial picture given the rapidly falling tax revenues amid the current economic slump.

“People will not trust our government unless we clearly advocate tax reforms, including the consumption tax,” Sengoku argued.

He also said the government should put more emphasis on pension and medical spending at the same time.

However, Chief Cabinet Secretary Hirfumi Hirano said “it is too early” to mention a consumption tax hike in election promises, although he “will not rule (it) out in middle and long-term (policy) discussions.”

Another key business group, the Japan Association of Corporate Executives, announced in a separate report, a set of recommendations to boost economic growth through such measures as encouraging more spending by cash-rich elderly.

The association earlier proposed that the government raise the consumption tax to 10 percent by fiscal 2013 and 17 percent by fiscal 2017.

The business groups unveiled their recommendations with the hope of having their views reflected in economic growth strategies expected to be compiled by the government by June.

In addition to the consumption tax, Keidanren wants a reduction in the effective rate of the corporate tax to 30 percent from the current 40 percent to boost the competitive edge of Japanese companies.

“If the situation remains as it is now, it will clearly be impossible to maintain a sufficient level of investment and employment in Japan,” Keidanren said in a report. “Our economy will inevitably fall behind global competition and head for decline.”

The two business associations also said Japan should expand free trade with Asian countries and open its market to Asian neighbors to tap into vibrant growth in the region.

“We cannot expect sustainable expansion of our economy unless we can capture growing demand in Asia,” the Japan Association of Corporate Executives said, adding Japan should share its green technology with neighboring countries.

Keidanren announced a set of proposals for six core areas — health, environment and energy; Asian economic strategy; tourism and regional development; science and technology; employment; and development of human resources.

In the area of human resources, both business groups called for expansion of employment opportunities for women and the elderly, while encouraging investment in education to nurture Japanese personnel who can compete globally.

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