Silviase/jgov_v1.4_full_ann huggingface dataset:
## 5 Reform of Local Allocation Tax Computation

## (1) Introduction of New Type of Local Allocation Tax

From the perspective of drastically simplifying the method of calculation of the local allocation tax and enabling forecasting of the local allocation tax, a new type of local allocation tax involving a simplified calculation based on population and area will be introduced from fiscal 2007.

The system has been designed to minimize the amount of fluctuation so that no difficulties arise in the financial management of local governments.

① Introduction of a new type of local allocation tax for computation of administrative fields for which there are no national standards or which are weak (about 10% of the standard financial demand amount)

② Reflection of administrative cost differences by population scale and form of land use, such as residential land and fields or paddies

③ 30% reduction of number of items in "individual estimated expenses" (previous type) through integration of expense items

2006

95 (42 for prefectures, 53 for municipalities)

2007

68 (32 for prefectures, 36 for municipalities)

④ Ensuring of mechanism to respond to local governments that really do require consideration, such as remote islands and depopulated areas (establishment of local promotion expenses)

## Method of calculation

a: ¥12,390 (prefecture), ¥23,220 (municipality)

b: ¥1,114,000 (prefecture), ¥2,357,000 (municipality)

x: Population reflecting cost difference by scale of population

y: Area reflecting cost difference by form of land use

## Cost difference by scale of population

Coefficient

(Prefecture) Z = 1.7 million persons

(Municipality) Z = 100,000 persons

1.000

Z

Population

## Cost difference by form of land use

## Prefecture

Residential land: 1.00 (summary protocol of fixed asset price, etc.)

Agricultural land: 2.87 (agriculture and forestry industry census)

Forest: 0.60 (agriculture and forestry industry census)

Other: 0.59 (other area announced by the Geographical Survey Institute)

## Municipality

Residential land: 1.00 (summary protocol of fixed asset price, etc.)

Fields and paddies: 0.90 (summary protocol of fixed asset price, etc.)

Woodland: 0.25 (agriculture and forestry industry census)

Other: 0.18 (other area announced by the Geographical Survey Institute)
## (2) Support Program for Local Governments Making Efforts

Support measures, such as the local allocation tax, will be adopted for local governments that think up original projects by themselves and tackle them in a forward-looking manner so that enthusiastic local governments can freely develop their own policies and thereby transform their districts into attractive regions.

## Formulation and announcement of projects by local governments

● Local governments will formulate their own original projects (setting specific performance targets) and announce them to residents.

The Ministry of Internal Affairs and Communications will announce the projects of local governments on its website.

Project applications will be accepted for three years from FY 2007 to FY 2009.

Support measures through the local allocation tax (about ¥300 billion)

● Special allocation tax measures will be adopted to help municipalities cover the expenses incurred in tackling the project.

The results of the efforts (the performances indexes cited below) will be reflected in the calculation of the regular local allocation tax.

● Administrative reform index

● In-coming population

• Agricultural production value

● Manufactured goods shipment value

● Annual merchandise sales value of the retail industry

No. of businesses

● Employment rate for young people

Birthrate

Waste-disposal volume

● Local allocation tax measures for the promotion of company location

## Support measures through cooperation with related ministries

Through cooperation with the Ministry of Agriculture, Forestry and Fisheries, the Ministry of Economy, Trade and Industry, and the Ministry of Land, Infrastructure and Transport, consideration will be given to the priority selection of subsidy schemes, etc. relating to information and communications, symbiosis and circulation between urban and rural areas, export promotion of agricultural, forestry, and marine products and production-area brand formation, programs for the utilization of local resources by small and medium-sized companies, the promotion of company location, the promotion of tourism and exchange, the rejuvenation of local bus services and so on, etc.
White Paper on Local Public Finance 2007

FY 2005 Settlement

Illustrated

Financial Management Division, Local Public Finance Bureau, Ministry of Internal Affairs and Communications

Address: 2-1-2 Kasumigaseki, Chiyoda-ku, Tokyo 100-8926, Japan

Tel.: +81-(0)3-5253-5111(ext. 5649)

http://www.soumu.go.jp

All Rights Reserved
# FY 2006 Settlement White Paper on Local Public Finance, 2008 —Illustrated—

Ministry of Internal Affairs and Communications
## The Role of Local Public Finance

The State of Local Public Finance (FY 2006 Settlement)

Overall Condition of FY 2006

Settlement ..... 4
Scale of Account Settlement ..... 5
Revenue and Expenditure

Settlement ..... 5
Revenue ..... 6
1 Revenue Breakdown ..... 6
2 Revenue Trends ..... 7
3 Local Taxes ..... 8
4 Local Allocation Tax ..... 11
Expenditure ..... 13
1 Expenses by Function ..... 13
2 Expenses by Character ..... 16
Flexibility of the Financial

Structure ..... 19
1 Ordinary Balance Ratio ..... 19
2 Real Debt Service Ratio and Debt Service Payment Ratio Used for Permission to Issue Local Bonds ..... 20
Outstanding Local Government

Borrowing (Ordinary Account) ..... 21
1 Trends in Outstanding Local Government Borrowing ..... 21
2 Outstanding Borrowing of Local Finance ..... 22
Local Public Enterprises ..... 23
1 Ratio of Local Public Enterprises ..... 23
2 Number of Businesses Operated by Local Public Enterprises ..... 24
3 Scale of Financial Settlement ..... 24
4 Management Conditions ..... 25
Trends and Issues in Local Public Finance

1 Promotion of Decentralization Reform ..... 26
2 Promotion of Administrative Reform ..... 28
(1) Intensive Reform Plans ..... 28
(2) Further Promotion of Administrative Reform ..... 28
3 Promotion of Soundness of Local Public Finance ..... 31
(1) Law Relating to the Financial Soundness of Local Governments, etc ..... 31
(2) Promotion of Local Public Accounting Reform and Information Disclosure ..... 36
# The Role of Local Public Finance

Prefectures and municipalities (cities, towns, and villages) are principal actors in various administrative areas, including school education, welfare and public health, police and fire services, and the construction of such public works as roads and sewerage systems. They play a major role in national life.

This brochure will introduce the state of local public finance, which is an assemblage of the finances of individual local governments, with particular focus on the state of settlements for fiscal 2006 and efforts toward financial soundness of the local public entities centered on the ordinary account.

## [Classification of the Accounting of Local Governments Applied in the Settlement Account Statistics]

Although the accounts of local governments are divided into general accounts and special accounts, the account classification of each local government is not uniform. Therefore, we have adopted a uniform method in the settlement account statistics by classifying accounts as an ordinary account, which covers the general administrative sector, and other accounts (public business accounts). This enables us to clarify the financial condition of local governments as a whole and to make a statistical comparison among local governments.

## Accounts of Local Governments

Account of general administrative sector

## Ordinary account

## Other accounts (Public business accounts)

## Public enterprise account

Water supply business, Transport business, Electricity business, Gas business, Hospital, Sewerage business, Residential land development project Etc.

National health insurance account

Elderly medical care account

Nursing care insurance account

Etc.
¥511.8770 trillion

## [How large is local public finance compared with central government finance?]

Looking at the scale of local public finance to gross domestic expenditure, we see that the ratio of the local government sector is 11.2%, which is about three times larger than the ratio of the central government.

Gross Domestic Expenditure and Local Public Finance

Gross domestic expenditure (nominal)

Local government

Government sector ¥111.2618 trillion (21.7%)
# [In which fields are local expenditure ratios high?]

Local expenditure ratios are higher in the areas that have a close relationship with our daily lives, such as public health and sanitation, school education, social education, and police and fire services.

Shares of National and Local Governments in Main Expenditures by Function (final expenditure base)
# The State of Local Public Finance

# Overall Condition of FY 2006 Settlement

Drastic Cuts in Expenditures Under Severe Fiscal Circumstance (seventh consecutive year of reduction)

## 1 Expenditure

## Continuation of Cuts in Expenditures

The total expenditure declined for the seventh consecutive year to ¥89.2106 trillion.

While there were many factors that increased the expenditure such as the increase in the number of households receiving livelihood protection and the system changes concerning child allowance (raising of eligibility age), there were drastic cuts in expenditure such as employee salaries (reduction of 1.9% in comparison to the previous fiscal year), investment expenses (6.5% reduction), and so on.

## 2 Revenue Decline in Revenue

The total revenue declined for the seventh consecutive year to ¥91.5283 trillion.

While local tax revenue (4.9% increase in comparison to the previous fiscal year), local transfer tax revenue (101.7% increase), and so on increased, local allocation tax revenue (5.7% decrease), national treasury disbursements (11.5% decrease), and so on decreased.

## 3 Public Debt Payments / Outstanding Local Government Bonds

Still Remains at High Level

Public Debt Payments have fluctuated between ¥13 trillion and ¥14 trillion since fiscal year 2001. Outstanding Local Government Bonds have fluctuated between ¥130 trillion and ¥140 trillion since fiscal year 2001.

Both increased significantly, compared with 10 years ago (FY1996).

## ■ Trends in Public Debt Payments

Trends in Outstanding Local Government Bonds

## 4 Flexibility of the Financial Structure

Ordinary Balance Ratio

Hovers at High Rate

The ordinary balance ratio indicating the flexibility of the financial structure is the same ratio as the previous year at 91.4%. A 6.6% increase, compared with 10 years ago (FY1996).
# Scale of Account Settlement

As a result of the fact that, on the revenue side, local allocation tax and national treasury disbursements declined and, on the expenditure side, personnel expenses and investment expenses including ordinary construction expenses and so on declined, both revenue and expenditure decreased for the seventh consecutive year. Excluding special causes involving the Large Earthquake Rehabilitation Fund, revenue and expenditure declined from the previous fiscal year by ¥509.3 billion and ¥589.8 billion, respectively.

## Scale of account settlement

Note: The lower column shows amounts excluding special causes involving the Large Earthquake Rehabilitation Fund.

## Revenue and Expenditure Settlement

Although the real single fiscal year balance showed a surplus for the second consecutive year, the amount of surplus as well as the single fiscal year balance declined.

Category	Settlement figure	No. of deficit organizations
FY 2006	FY 2005	FY 2006	FY 2005
Real single FY balance	¥ 423.9 billion	¥ 429.2 billion	750 (1,446)	923 (1,693)
Single FY balance	¥ 220.4 billion	¥ 237.0 billion	768 (1,445)	876 (1,644)
Real balance	¥ 1524.5 billion	¥ 1316.4 billion	25 (27)	26 (28)

## Notes:

2. The number of deficit organizations does not include partial administrative associations or wide-area local public bodies; the figures in parentheses are the number of organizations including partial administrative associations and wide-area local public bodies.

3. The organizations with a real balance deficit in the fiscal year 2006 include entities with a deficit resulting from discontinued settlement.
## Revenue Breakdown (FY 2006 settlement)

Municipalities Total ¥49,361.9 billion

### Prefectures Total ¥48,438.2 billion

## Revenue

[Where does the funds for local government activities come from?]

## 1 Revenue Breakdown

The revenue of local governments comes mainly from local taxes (about one-third), local allocation tax, national treasury disbursements, and local bonds, in that order.

Net total ¥91,528.3 billion

## General Revenue Resources

Revenue resources for which the use is not specified, like local taxes and the local allocation tax, are called general revenue resources. Here, the total of local taxes, local transfer tax, special local grants, the local allocation tax, and so on is treated as the general revenue resource. It is extremely important for local governments to ensure sufficient general revenue resources in order to handle various administrative needs properly.

Collected as a national tax and transferred to local governments. Includes local road transfer tax, etc.

cal grant A revenue source with the character of a substitute for local taxes, introduced to supplement a part of the decrease of local tax caused by a tax cut since FY 1999 and grants from the central government to local governments as a result of a revision of national treasury subsidies.

Local allocation tax An intrinsic revenue source shared by local governments in order to adjust imbalances in tax revenue among local governments and to guarantee revenue sources so that local governments in whatever region can provide a certain level of administrative services. Calculated as a certain ratio of five national taxes. (See page 11 for details.)

National treasury A general name for funds disbursed from the central government to local governments for specified uses.

Local bonds The debts of local governments for which fulfillment continues for more than one fiscal year.

## Notes:

1. The figures here are mainly for the ordinary account. (For the accounts of public enterprises, such as water supply and sewerage businesses, transportation businesses, and hospitals, see page 23.)

2. The figures for each item are rounded off under the given unit. Therefore, they do not necessarily add up exactly to the total.
## Revenue Trends

While the shares of local taxes and local transfer tax to total revenue increased, the shares of local allocation tax, national treasury disbursements and local bonds are on a downward trend.

## Nationwide

FY

1992

FY

1997

FY 2002

FY

2004

FY 2005

2006

Local transfer tax 2.1% (¥1.9 trillion)

Local taxes 37.8%

(¥34.6 trillion)

Local allocation tax 17.2% (¥15.7 trillion)

General revenue resources 57.0%

(¥52.1 trillion)

National treasury disbursements 14.1%

(¥12.9 trillion)

Local bonds 11.2%

(¥10.2 trillion)

Other revenue resources 17.7%

(¥16.2 trillion)

Net Total ¥91.4 trillion

1.1% (¥1.1 trillion)

36.2%

(¥36.2 trillion)

17.1%

(¥17.1 trillion)

54.4% (¥54.4 trillion)

14.3%

(¥14.3 trillion)

14.1%

(¥14.1 trillion)

17.2%

(¥17.1 trillion)

Net Total ¥99.9 trillion

Special local grants 0.9% (¥0.9 trillion)

34.4%

(¥33.4 trillion)

56.0% (¥54.5 trillion)

20.1%

(¥19.5 trillion)

13.5%

(¥13.1 trillion)

13.7%

(¥13.3 trillion)

16.8%

(¥16.3 trillion)

Net Total ¥97.2 trillion

0.7% (¥0.7 trillion)

1.1% (¥1.0 trillion)

34.4% (¥32.7 trillion)

55.3% (¥52.4 trillion)

19.0%

(¥18.1 trillion)

13.8%

(¥13.1 trillion)

14.5%

(¥13.8 trillion)

16.4%

(¥15.6 trillion)

Net Total ¥94.9 trillion

56.5% (¥52.8 trillion)

1.2% (¥1.1 trillion)

18.2%

(¥17.0 trillion)

13.2%

(¥12.4 trillion)

Net Total ¥93.4 trillion

13.2%

(¥12.4 trillion)

17.1%

(¥15.8 trillion)

37.4%

(¥34.8 trillion)

59.3% (¥55.1 trillion)

1.6% (¥1.5 trillion)

18.2% (¥17.0 trillion)

12.7% (¥11.8 trillion)

11.2% (¥10.4 trillion)

16.8% (¥15.6 trillion)

Net Total ¥92.9 trillion

4.1% (¥3.7 trillion)

39.9%

(¥36.5 trillion)

62.3%

(¥57.0 trillion)

0.9% (¥0.8 trillion)

17.5% (¥16.0 trillion)

Net Total ¥91.5 trillion

11.4% (¥10.4 trillion)

10.5% (¥9.6 trillion)

15.8% (¥14.5 trillion)
Local taxes consist of prefectural taxes and municipal taxes. (In the case of the special wards of Tokyo, the Tokyo Metropolitan Government collects some municipal taxes.)

## Composition of Revenue from Prefectural Taxes (FY 2006 settlement)

Total ¥16,324.3 billion

Composition of Revenue from Municipal Taxes (FY 2006 settlement)

Total ¥20,181.9 billion

The municipal tax revenue figure includes municipal taxes collected by Metropolitan Tokyo.
Revenue from prefectural taxes, in which the share of the two corporate taxes (corporate business tax and corporate prefectural resident's tax) is high, increased for the third consecutive year due to such factors as buoyant corporate earnings.

Furthermore, municipal tax revenue also rose for the third consecutive year due to such factors as an increase in municipal resident's tax.

Prefectural Tax Revenue Trend

FY1992 FY1997 FY2002 FY2003 FY2004 FY2005 FY2006

Figures in parentheses are the component ratios of the business tax and prefectural residents tax.

Municipal Tax Revenue Trend

Figures in parentheses are the component ratio of the municipal residents tax.

The municipal tax revenue figure includes municipal taxes collected by Metropolitan Tokyo.
In order for local governments to provide administrative services in response to local needs with responsibility and at their own discretion, it is necessary to expand and secure local taxes so as to build a local tax system in which the uneven distribution of tax sources is limited and the stability of tax revenue is ensured.

Index of Per Capita Revenue in Local Tax Revenue (with national average as 100; FY 2006)

Local taxes revenue total

Individual resident's tax

Local consumption tax (after settlement)

1. The local tax revenue total amounts do not include excess taxation, non-statutory ordinary taxes, or non-statutory special purpose taxes.

2. The revenue of the individual resident's tax is the total of the prefectural individual resident's tax (taxation on per capita basis and taxation on income basis) and the municipal individual resident's tax (taxation on per capita basis and taxation on income basis) and excludes excess taxation.

3. The revenue of the two corporate taxes is the total of the corporate prefectural resident's tax, the corporate municipal resident's tax and the corporate business tax and excludes excess taxation.

4. Calculations are made from the basic residents' register population as of March 31, 2007.
## 4 Local Allocation Tax

From the perspective of local autonomy, it would essentially be the ideal for each local government to ensure the revenue sources necessary for administrative activities through local taxes collected from their residents. However, there are regional imbalances in tax revenue, and many local governments are unable to acquire necessary tax revenue. Therefore, the central government collects financial resources that should fundamentally be attributable to local tax revenue through national taxation and reallocates them as the local allocation tax to local governments where financial resources are insufficient.

## 1 Determination of total amount of local allocation tax

The total amount of the local allocation tax is determined on the basis of certain ratios for national taxes (32% for income tax and liquor tax, 35.8% [34.0% from fiscal 2007] for corporate tax, 29.5% for consumption tax, and 25% for tobacco tax) as well as estimates of standard revenue and expenditure of local public finance as a whole. The total amount of local allocation tax in fiscal 2006 was ¥15.9954 trillion, down 5.7% from the previous fiscal year.

## 2 Method of calculation of regular local allocation tax for each local government

The regular local allocation tax for each local government is calculated by the following mechanism:

## Notes:
## 3 Function of the local allocation tax

The function of the local allocation tax is to adjust imbalances in revenue among local governments in order to guarantee revenue so that local governments can provide standard administrative services and basic social infrastructure to their residents in whatever region.

Accordingly, as a result of the revenue adjustment mechanism through the local allocation tax, few differences in such factors as size of population have been found in the ratio of general revenue resources to total revenue.

A “midsize city” refers to a city with a population of more than 100,000 persons among cities excluding large cities, core cities, and special cities, and a “small city” refers to a city with a population of less than 100,000.
## Expenditure

## [What is revenue being expended for?]

## 1 Expenses by Function

When expenses are classified by function, we see that a lot of revenue is expended for such items as education expenses, public welfare expenses, and civil engineering work expenses. In prefectures it is mainly expended for education expenses, debt servicing, and civil engineering work expenses, in that order. In municipalities it is primarily expended for public welfare expenses, civil engineering work expenses, and debt servicing, in that order.

Education expenses : Expenses for school education, social education, etc.

Public welfare expenses : Expenses for the construction and operation of welfare facilities for children, the elderly, the mentally and physically disabled, etc. and for the implementation of livelihood protection, etc.

Civil engineering work expenses : Expenses for the construction and improvement of public facilities, such as roads, housing and parks.

Public debt payment : Expenses for the payment of principal, interest, etc. on debts.

## Composition of Expenditure by Function (FY 2006 settlement)

Net total

¥89,210.6 billion

Prefectures

¥47,535.9 billion

Municipalities

¥47,946.5 billion

Category | Value
Education expenses | 16472.4 (Unit:¥1 billion)
Public welfare expenses | 16258.5
Civil engineering work expenses | 13853.4
Public debt payments | 13283.2
General administration expenses | 8617.7
Sanitation expenses | 5510.2
Commerce and industry expenses | 4750.5
Agriculture, forestry and fishery expenses | 3753.1
Other expenses | 6711.6
Share | 18.5%
Total | **16,472.4**

Share
11,331.2 (Unit:¥1 billion)	23.8%
4,863.1	10.2
6,875.4	14.5
6,900.8	14.5
3,017.3	6.3
1,404.7	3.0
3,171.8	6.7
2,851.9	6.0
7,119.7	15.0

Share (Unit: $1 billion)	5,213.2
13,014.4	27.1
7,213.1	15.0
6,469.3	13.5
6,133.3	12.8
4,230.3	8.8
1,626.9	3.4
1,382.4	2.9
2,663.6	5.6
## Breakdown of Educational Expenses by Purpose

Net total ¥16,472.4 billion

## Elementary school

Junior high school

## Educational general affairs

5,028.3
(Unit:¥1 billion)

Senior high school

Social education

Health and physical education

Other

2,840.8

2,521.2

2,427.6

1,208.6

$$ 1,200.9 $$

## Breakdown of Civil Engineering Work Expenses by Purpose

Urban planning

Roads and bridges

Rivers and coast

Housing

Harbors

Other

Net total ¥13,853.4 billion

Prefectures ¥6,875.4 billion

Municipalities

¥7,213.1 billion

## Breakdown of Public Welfare Expenses by Purpose

Child welfare

Social welfare

Elderly welfare

Livelihood protection

Disaster relief

Net total ¥16,258.5 billion

Prefectures ¥4,863.1 billion

Municipalities ¥13,014.4 billion