SPRINGFIELD, Ill. – Gov. Rod Blagojevich proposed the biggest tax increase in Illinois history Wednesday, portraying it as both a matter of fairness to average Illinoisans and the key to meeting the state’s moral obligations.

In his fifth State of the State address, Blagojevich said the $7 billion in new business taxes should be used to provide health care to the uninsured and pump more money into public schools.

The state could cover 1.4 million uninsured adults, he said. The taxes would also provide a 23 percent increase in education spending next year alone.

But critics countered that the taxes, although they apply to businesses, would translate into higher prices for consumers and a blow to the economy.

Blagojevich argued that Illinois businesses don’t pay their fair share of taxes, so taxing them more heavily would improve state services and ease the burden on regular people.

“The moral imperative is this: While the middle class pays more and huge corporations just walk, a child pays the price with increasingly crowded classrooms, the family in need of health care pays a price in health care they can’t afford,” he said in a 33-minute address that combined his annual State of the State speech and budget presentation.

The Chicago Democrat also proposed letting a private company take over the state lottery and borrowing billions of dollars.

Those steps would generate about $26 billion that would be used to shore up the state’s shaky retirement systems.

Business groups immediately condemned his proposals – particularly the taxes – as certain to drive up consumer prices and discourage companies from doing business in Illinois.

“This is nothing more than a hidden tax that will be passed through to consumers,” said Doug Whitley, head of the Illinois State Chamber of Commerce. “Illinois continues to send a message that we are not business-friendly.”

The legislative response was mixed.

Senate President Emil Jones, D-Chicago, embraced the governor’s proposals even though he had been pushing for a “tax swap” that would increase school funding by raising income taxes and lowering property taxes.

Other Democrats showed little enthusiasm during the speech, applauding health care and education improvements but falling silent at any mention of tax increases.

House Speaker Michael Madigan, D-Chicago, declined to answer questions afterward. A spokesman said Madigan wants to see more detail before commenting.

Some downstate Democrats, who could be key to passing the plan, questioned whether it makes sense to expand health care and education if the state can’t afford to do it without a massive tax increase.

“It will be probably the most contentious budget I’ve seen in the last 15 years,” said Rep. Frank Mautino, D-Spring Valley.

Blagojevich said little about the surge in electric prices that has angered so many consumers. He said he’s eager to sign legislation protecting consumers but didn’t spell out whether that means rolling back rates or phasing in the increases.

In all, Blagojevich’s budget for the fiscal year that begins July 1 calls for a record $60.1 billion in spending, a 9.5 percent increase over the current year.