# Trends and Issues in Local Public Finance

## Decentralization

The government promotes decentralization to allow residents of individual regions to take responsibility to determine the issues of those regions. Specifically, the Decentralization Strategy Council takes the lead in conducting discussions directed toward review and revision of the obligations and limitations and expansion of the power to establish ordinances, transfer of authority to municipalities, reform of local agencies of the national government, and conversion of “conditional national treasury disbursements” to bulk grants, etc.

## Revision of obligations and limitations

Because laws and regulations contain a large number of obligations and limitations that restrict the implementation of office work and the methods for such work by the national government regarding the governmental affairs of local public entities, the government is working to review and revise those obligations and limitations, expand the power to establish ordinances, and reform the mechanism for implementation of public administration under the discretion and responsibility of local public entities themselves.

In addition, from the standpoint of increasing the independence and autonomy of local public entities, the government engages in activities to prepare and maintain the required laws, etc., such as removing the requirement for deliberation, as a rule, when organizations with favorable financial status issue private fund bonds.

## Transfer of authority to municipalities

The government reviews and revises the distribution of office work between prefectures and municipalities, based on the “principle of subsidiarity,” and works to prepare and maintain the required laws, etc., that enable the municipalities that are the closest to the residents to handle the maximum amount possible of a wide range of office work related to public administration.

## 3 Reform of local agencies of the national government

The government is moving ahead with reforms of the local agencies of the national government that will make it possible to delegate the maximum amount possible of public administration that is close to the residents to local municipalities, and to enable local municipalities to independently and more comprehensively conduct public administration in the region.

## Conversion of “conditional national treasury disbursements” to bulk grants

“Conditional national treasury disbursements” from the national government to local regions will be gradually discontinued, and beginning with the FY2011 budget, bulk grants that can essentially be used freely by the local governments will be established.

## Ensuring enhanced local tax revenue sources

In addition to reviewing and revising the allocation of tax revenue sources between the national and local governments from the standpoint of expanding financial resources that can be used freely by local governments, efforts are underway to create a local tax system that provides stable tax revenue and has little imbalance of tax sources.

In addition, reforms are under way to expand the “independent judgment” and “executive responsibility” of local public entities and broaden their tax autonomy, thereby enabling local public entities to utilize their ingenuity in the aspect of taxes as well.

## Revision of the allocation tax system

As part of efforts to simplify the method of calculating local allocation tax and make that method more transparent, it was decided that the 6% ratio of total allocation tax consisting of special allocation tax will be gradually decreased, with that portion being transitioned to ordinary allocation tax.

Meanwhile, exceptions have been established that make it possible to determine and allocate the amounts of special allocation tax on a case-by-case basis, in addition to the regular determination and allocations in December and March, when large-scale disasters that present the danger of significant impact on the financial administration of local public entities occur.

In addition, it was decided to implement further reductions in supplements for operating costs, from the standpoint of aiming for the independent and autonomous financial administration of local public entities.