The government should consider cutting back on pension benefits not only for future pensioners but also for seniors now drawing a pension, according to a proposal released Monday by an advisory committee to Finance Minister Masajuro Shiokawa.

The proposal by the Fiscal System Council subcommittee is aimed at cutting pension payouts amid rapidly aging demographics and the subsequent increasing burden on younger generations to pay for the social welfare system.

According to the report, the government must review the age at which seniors become eligible for a pension as well as the amount paid to seniors with high incomes. It also called for the removal of a cap on hiking premiums.

"Unless we drastically review mounting social welfare costs, the fiscal deficit will not improve," said Taizo Nishimuro, head of the subcommittee and chairman of Toshiba Corp.

But any hike in pension premiums is likely to face strong opposition from the welfare ministry, which has called for more government contributions to the pension system to curb premiums.

The revised pension reform law stipulates that the government should increase its contribution to the basic portion of the pension program from the current one-third to one-half in 2004 -- after it has secured a stable source of revenue.

Nishimuro meanwhile quoted Shiokawa as saying he would be willing to consider raising the consumption tax only after trimming the national budget.

The council handed the report to the finance minister on Monday.

It is the committee's final proposal for the 2004 budget.

The report says the national government must eventually halt tax grants to local governments and review subsidies to them.

Public works spending should be also be capped, it adds.