Japan's largest business group on Dec. 9 released a proposal that aims to achieve a “fair, equitable, and sustainable economy and society” by the year 2040.

Keidanren (Japan Business Federation) stated that tax revenues of around 5 trillion yen ($33.1 billion) should be secured in 10 years by strengthening taxation on the wealthy and that a “thriving middle class” should be created by reducing the burden of social insurance premiums on the working-age population.

This is the final proposal for Keidanren Chairman Masakazu Tokura, whose term of office will end in May 2025.

The title is “Future Design 2040.”

“I hope that the recommendations will serve as a starting point for deepening discussions on the ideal state of the nation from a mid- to long-term perspective,” Tokura said at a news conference on Dec. 9. 

The proposal looks ahead to the year 2040, when the number of elderly people will have almost peaked, and lays out a road map for Japan, an island nation without natural resources and facing a declining birthrate and aging population, to continue the “virtuous cycle of growth and distribution.”

It points out that Japan's challenges derived from two constraints—being an island nation without natural resources, and facing a declining birthrate and aging population—“form a nested structure that is intertwined with each other.”

Future Design 2040 presents a comprehensive set of recommendations from the perspective of total optimization, with six pillars: social security for all generations; environment and energy; regional economy and society; value creation through innovation; education and labor; and economic diplomacy.

The proposal reflects Tokura’s advocacy of a “social perspective,” which he has advocated since assuming the chairman's post in 2021.

With regard to the formation of a thriving middle class, the proposal points out that the burden of social insurance premiums has been increasing each year, putting downward pressure on the disposable income of the working-age population and leading to sluggish consumption.

It urges that the growing insurance premium burden be curbed in the future and that tax revenues be secured instead.

As for tax revenue sources, it says the central government should ensure that taxpayers pay their fair share and increase taxation on the income and assets of high-income earners to secure a total of 5 trillion yen in fiscal 2034.

If that is not enough, it says the government should consider increasing consumption taxes and corporate taxes to increase the burden on businesses.

It also calls on the government to establish a council to promote integrated reform of the tax and social security systems.

“We must avoid intergenerational divisions and disparities and carry out a fair and equitable social security reform," Tokura said. "I want a head-to-head debate on the issue. There can be no growth without distribution.”

To encourage women and other workers to participate in the labor force, the proposal also calls for the establishment of a social security system that is neutral with respect to working styles and ages.

To resolve the “annual income barrier” problem, which leads spouses to refrain from working, the proposal says that it is necessary to review the “Category 3 insured person” system of public pensions, under which spouses do not pay social insurance premiums themselves, as well as the spousal deduction under the Income Tax Law.

It also proposes a new “doshu" bloc concept as a way for regional economies to develop autonomously and sustainably even in the face of a declining population, which requires wide-area cooperation that transcends the boundaries of local governments.

The concept calls for the development of transportation networks and industrial clusters in each of the doshu blocs, which are larger than the prefectural governments, and have a population of 5 million residents or more.

In the past, Keidanren proposed the introduction of a doshu system, in which all prefectures would be reorganized into 10 or so doshu.

This time, the proposal envisions a flexible system in which each virtual unit promotes areawide cooperation, without dividing administrative units into districts.

If reforms based on these recommendations are implemented, the economy will continue to grow at around 2 percent in real terms, and nominal gross domestic product will increase to 1,006 trillion yen in fiscal 2040, which will enable a stable reduction in government debt as a percentage of GDP, the proposal says.