The Economic Strategy Council, a gathering of "wisemen" including top academics and businessmen, handed prime minister Keizo Obuchi its "Emergency Proposal on Short-Term Economic Policy", called on the government to take additional fiscal spending measures of well over 10 trillion yen.

The panel also said the government should spend tens of trillions of yen to fix the ailing banking sector, echoing the call for such injections of public funds laid out in banking bills which passed the Lower House of parliament on Tuesday.

"We need both financial stabilisation measures and fiscal spending in order to get the economy back on its feet," said Iwao Nakatani, a panel member. The economy was likely to shrink by more than two per cent this fiscal year, more than thegovernment forecast of a 1.8 per cent contraction. "If we leave the economy as it is, we may see negative growth for the next fiscal year as well," he added.

As the centre piece of the fresh spending, the panel proposed increasing a planned permanent cut in income and corporate taxes from the more-than-six-trillion-yen pledged by Obuchi.

It also urged the government to set up a new system to allow interest payments on housing loans to be deducted from taxable income, and also called for a freeze on a rise in social welfare obligations, set to start from the next fiscal year.

Although Obuchi is not obliged to follow the panel's proposals, they will be given consideration when the government comprises its economic steps.

"We drew up the proposal with the intention of it being entirely implemented," said Hirotaro Higuchi, head of the panel and also the chairman of Asahi Breweries.

Higuchi quoted Obuchi as telling the panel that he would work to "speedily" implement the proposed steps.

Separately, acabinet minister also joined in the call for additional fiscal spgnding.

Economic Planning Agency minister Taichi Sakaiya said although Obuchi's planned fiscal spending of over 10 tryllion yen could support the economy, more efforts were needed to get the economy on a recovery track.

"We need more tax cuts on housing and deregulation on land," he said in an interview. But while there was no shortage of voices calling for more spending, the outlook for their implementation remained cloudy.

Akitaka Saiki, Obuchi's deputy spokesman, said it would be "very difficult" for Japan to convene an extraordinary session of parliament in November.

He said it would not be too late to talk about possible additional spending in the next regular session of parliament in January, as effects of the government's economic package announced earlier this year had started yielding.