Silviase/jgov_v1.4_full_ann huggingface dataset:
### 4. Local Allocation Tax

From the perspective of local autonomy, essentially it would 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 the necessary tax revenue. Therefore, the central government collects financial sources that should really be attributable to local tax revenue through national taxation and reallocates them as the local allocation tax to local governments where financial sources 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% 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 2002 was ¥19.5449 trillion, down 4.0% from the initial figure for 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 have been found in the ratio of general revenue resources to total revenue because of such factors as size of population.

Ratio of General Revenue Resources to Total Revenue for Municipalities

## Notes:

1. A “large city” refers to a city with a population of more than 100,000 persons according to the national census of 2000; a “small city” refers to a city with a population of less than 100,000.

2. A “large town or village” refers to a town or village with a population of more than 10,000; a “small town or village” refers to a town or village with a population of less than 10,000.
## Expenditure

## What is revenue being expended for?

### 1. Expenses by Function

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

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

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

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 public assistance, etc.

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

Composition of Expenditure by Function (FY 2002)

Unit: ¥ 100 million	948,394
Other expenses	69,971	7.4
Public debt payments	130,635	13.8
Education expenses	176,544	18.6
Civil engineering work expenses	176,720	18.6
Commerce and industry expenses	49,832	5.3
Agriculture, forestry and fishery expenses	51,552	5.4
Sanitation expenses	64,549	6.8
Welfare expenses	143,032	15.1
General administration expenses	85,559	9.0
Net total	Share (%)
Prefectures
Municipalities
In recent years, while there has been a decline in such items as general administration expenses, agriculture, forestry and fishery expenses, and civil engineering work expenses, public debt payments have been increasing.

Trends in Expenditures by Function (ordinary account net total)

Unit: Ratio with FY 1992 as 100.
## What are expenses for?

### 2. Expenses by Character

Classified by character, expenses can be divided into "obligatory expenses" (personnel expenses, maintenance and relief expenses and public debt payments), which are mandatory and difficult to cut down spontaneously; "investment expenses," including ordinary construction expenses, etc.; and "other expenses."

Expenditure by Character (FY 2002)
In recent years, while there has been a decline in such items as ordinary construction expenses and personnel expenses, public debt payments have been increasing.

Trends in Breakdown of Expenditures by Character (ordinary account net total)

Unit: Ratio with FY 1992 as 100.

Maintenance and relief expenses

Expenses which include child welfare expenses, public assistance expenses, etc., aimed at assisting the needy, children, the elderly, mentally and physically disabled, etc., as a part of the social security system.

Ordinary construction expenses

Expenses necessary for the construction of social capital, such as roads, bridges, parks, schools, etc.
# Flexibility of the Financial Structure

How can local finance respond to the demand toward local governments?

In addition to revenue sources allocated to obligatory expenses required every year, it is necessary for local governments to ensure revenue sources for measures to respond properly to social and economic trends and changes in the demand of the residents. The extent to which these revenue sources can be secured is called the flexibility of the financial structure.

### 1. Ordinary Balance Ratio

The ordinary balance ratio (the ratio of ordinary revenue allotted to expenses recurring every fiscal year to the total of ordinary revenue recurring every fiscal year, centered on local taxes and the local allocation tax, and tax-reduction supplementary bonds and extraordinary financial countermeasures bonds [see note]) has increased greatly because of such factors as a large decline in local tax revenue and a rise in public debt payments, and both the national average and the municipal average are all-time highs.

Note:

Tax-reduction supplementary bonds and extraordinary financial countermeasures bonds have been added since fiscal 2001.
### 2. Debt Service Payment Ratio Used for Permission to Issue Local Bonds

It is necessary to keep a close watch on trends in public debt payments at all times, since public debt payments, payments of principal and interest on the debts of local governments, are expenses especially lacking flexibility.

The debt service payment ratio used to restrict the issue of local bonds, which is an index that takes into consideration the local allocation tax calculated for debt payments and indicates the actual degree of debt payment burden, has been continuing to maintain a high level; the national average, for example, was the same as the record high figure of the previous fiscal year.

Trends in the Debt Service Payment Ratio Used for Permission to Issue Local Bonds

## Debt service payment ratio used for permission to issue local bonds

The debt service payment ratio used for permission to issue local bonds is an index showing the ratio of local debt principal and interest repayment (excluding advanced redemption and the amount of general revenue resources calculated for this purpose that includes the local allocation tax) to the total of standard financial amount (excluding the amount of local allocation tax calculated for service payment) and possible issue of extraordinary financial countermeasures bonds. This index is one of the criteria to limit the issue of local bonds. In principle, the issue of local bonds relating to general unsubsidized projects, etc. is prohibited in the case of local governments with a ratio of 20% or over.
# Outstanding Local Government Borrowing (Ordinary Account)

## What is the state of debts in local public finance?

### 1. Trends in Outstanding Local Government Borrowing

Outstanding local government borrowing, the debts of local governments, amounted to approximately ¥134 trillion at the end of fiscal 2002. This figure has been increasing in recent years because of such factors as the need to supplement tax revenue as a result of the decrease in local tax revenue and tax cuts, the added public investment by economic-stimulus measures, and the issue of extraordinary financial countermeasures bonds. The figure is 1.4 times larger than total revenue and 2.5 times larger than general revenue resources, such as local taxes and local allocation tax.

## Trends in Outstanding Local Government Borrowing

Notes:

1. Outstanding local government borrowing excludes special fund public works bonds and special fund public investment bonds.

2. Economic-stimulus figures are estimates.
### 2. Outstanding Borrowing of Local Finance

In addition to the current outstanding local government bonds, there are the outstanding borrowing of local governments including the local burden of the borrowing of special account for local allocation tax, and public enterprise bonds borne by the ordinary account. These outstanding borrowings have been increasing sharply in recent years. The figure reached about ¥193 trillion at the end of fiscal 2002 and is expected to reach ¥204 trillion at the end of fiscal 2004.

Trends in Outstanding Borrowing That Should Be Shouldered by the Ordinary Account and Ratio of Outstanding Borrowing to Gross Domestic Product

1. Outstanding local government borrowing excludes special fund public works bonds and special fund public investment bonds.

2. Outstanding public enterprise bonds (borne by the ordinary account) are estimates based on settlement statistics.
# Local Public Enterprises

## What is the state of local public enterprises?

Local public enterprises are those that are managed directly by local governments for the purpose of social and public benefit. They provide social infrastructure and services indispensable for local residents and the development of the community, including water supply, sewerage, transport and hospitals.

### 1. Ratio of Local Public Enterprises

Local public enterprises play a major role in improving the standard of living of residents.

The graph shows the ratios of local public enterprises to whole business entities.
### 2. Number of Businesses Operated by Local Public Enterprises

The number of businesses is 12,613. By type of business, sewerage accounts for the largest ratio, followed in order by water supply, care services, and hospitals.

### 3. Scale of Financial Settlement

The total financial settlement scale is ¥20.6654 trillion. By type of business, sewerage accounts for the largest ratio, followed in order by hospitals, water supply, transport, and residential land development.
### 4. Management Conditions

Local public enterprises had a surplus of ¥7.9 billion. By type of business, while water supply, industrial water supply, electricity, and sewerage showed a surplus, transport and hospitals are continuing to register a deficit.

## Trends in Management Conditions of Local Public Enterprises
# Efforts Toward Sound Financial Conditions

## What efforts are being made toward sound local finance?

While local public finance is certainly in an extremely severe situation, the role of the local government, which is clarified as the comprehensive administrative entity of the region, is becoming increasingly important. For this reason, various efforts for administrative reform are being made with the aim of making administrative organizations simpler, more efficient and more responsible to new administrative issues.

### 1. Number of Public Employees

The number of local public employees has declined for nine consecutive years since 1995. The number of employees has fallen for eight consecutive years in the general administrative sector and 12 consecutive years in the special administrative sector and has also dropped for two consecutive years in the public enterprise sector.

The reason for these trends is that although the number of employees has increased in some sectors because of such factors as the expansion of welfare and medical care, as well as the enhancement of public-security and disaster-prevention measures, efforts have been made to restrain the increase of the total number of employees through the setting of numerical targets and a scrap-and-build policy.

Number of Local Public Employees
## Trends in the Number of Staff in Local Governments by Sector

April 1, 1994	General administrative sector
Excluding welfare
welfare
Special administrative sector
Education
Police and fire services
Public enterprises, etc.
All local governments
April 1, 2003	General administrative sector
Excluding welfare
welfare
Special administrative sector
Education
Police and fire services
Public enterprises, etc.
All local governments

### 2. Salary Level

When the salary level of local public employees is shown on the Laspeyres Index, the average for all local governments is 100.1.

In order to steadily promote fiscal reconstruction, local governments have set about adopting their own salary-reduction measures, including the salaries of general staff. In fiscal 2002, 1,177 local governments implemented a total reduction of ¥100.7 billion.

Trends in the Laspeyres Index (Trends in the Average for All Local Governments)

## Laspeyres Index

The Laspeyres Index is used to compare price levels, wage levels and so on. Here it is used to show the salary level of local public employees when the salary level of national public employees is taken as 100.
1. Fixed liabilities

(1) Local government bonds 59,649,702

(2) Contract authorization

[1] Purchase of property, etc. 0

[2] Guarantee of obligation or loss compensation 0

(3) Retirement allowance reserve 6,443,975

Total 66,093,677

### 3. Administrative Transparency

Amid the increasing severity of local public finance, various efforts are being made to fulfill accountability. In recent years, there has also been an increase in the number of local governments formulating balance sheets in order to grasp the state of their assets and liabilities in a comprehensive manner as a means of publicizing and analyzing their financial conditions.

## Example of Balance Sheet (City A)

## FY 2002 Ordinary Account Balance Sheet

(As of March 31, 2003; unit: ¥1,000)

## Debit

## (Assets)

1. Tangible fixed assets
(1) General administration expenses	11,366,427
(2) Welfare expenses	2,990,437
(3) Sanitation expenses	4,830,845
(4) Labor expenses	388,678
(5) Agriculture, forestry and fishery expenses	5,156,505
(6) Commerce and industry expenses	2,285,653
(7) Civil engineering work expenses	54,474,162
(8) Fire service expenses	558,078
(9) Education expenses	51,639,744
(10) Others	274,113
Total 133,964,642
(of which, land	44,913,825)
Total	133,964,642

## Credit

2. Liquid liabilities
(1) Scheduled redemption in next fiscal year	4,401,630
(2) Appropriation mode in advance	0
Total	4,401,630

Total liabilities 70,495,307

## (Liabilities)

2. Investment, etc.
(1) Investment and equity funds	4,353,805
(2) Loan	255,080
(3) Funds
[1] Special purpose funds	6,764,488
[2] Land development funds	2,045,417
[3] Fixed-in investment	4,000
Total 8,813,905
Total	13,422,790

3. Liquid assets
(1) Cash, deposits
[1] Adjustment fund for finance	1,941,007
[2] Sinking funds	1,726,829
[3] Cash in yearly account	1,166,651
Total	4,834,487
(2) Receivables
[1] Local taxes	2,072,424
[2] Others	723,825
Total	2,796,249
Total	7,630,736

Total assets 155,018,168

(1) Matters relating to the purchase of property, etc.

Information relating to contract authorization

(2) Matters relating to guarantee of obligation and loss compensation

(3) Matters relating to compensation for paid interest, etc.

## (Net assets)

1. National treasury disbursements

19,305,858

2. Prefectural disbursements

5,655,927

3. General revenue sources, etc.

59,561,076

Total net assets 84,522,861

Total of liabilities and net assets

155,018,168
# Issues of Local Finance

### 1. Establishing the Administrative and Financial Base for Further Decentralization

## 1 Strengthening the Financial Base of Local Governments

At a time when local government finance is suffering from a severe shortage of resources, in order to promote further decentralization, it is necessary to make efforts toward the realization of structural reform to increase the degree of freedom of local governments in terms of both income and expenditure and to encourage local independence under the principle of “entrusting to local governments what local governments can do.”

## Realization of an income structure based mainly on local taxes

Gap between expenditure scale and tax revenue of local governments

Expenditure state : local = 2 : 3

Tax revenue state : local = 3 : 2

Reduce the gap as much as possible

Revision of involvement of the central government through national treasury subsidies, legislation, etc.

Further clarification of correspondence between benefit and burden of administrative services

Promotion of administrative reform and fiscal structure reform in the national and local governments

## Reference

Distribution of Financial Resources Between the National and Local Governments (FY 2002)
## Three-Pronged Reform

In order to promote structural reform toward local independence, it is necessary to mutually connect financial resources, including national treasury subsidies, the local allocation tax, and the transfer of financial resources, and to study them in a uniform manner.

## Reference

(Compiled from the Basic Policy on Economic and Fiscal Management and Structural Reform, 2003 and other materials.)

## Three-Pronged Reform

On the basis of the ideas of “from public to private” and “from the center to the regions”:

● Local governments shall decide policies with their own creativity and responsibility.

● Local governments shall increase the revenue resources that they can freely use.

● Local governments shall become self-reliant.

The following three-pronged reforms shall be promoted during the period of “reform and outlook” (until fiscal 2006):

## Reform of national treasury subsidies

On the basis of the Policy for the Reorganization and Rationalization of National Treasury Subsidies, Etc., reforms shall be carried out to abolish or reduce subsidies to the amount of about ¥4 trillion.

● In principle, national treasury subsidies shall be abolished or reduced.

● National treasury subsidies shall be limited to fields in which the state really does have an obligation to should a burden.

● Reform of priority items (11 items)

Revision of tax source distribution, including the transfer of tax resources

Transfer of tax resources in the case of projects for which national treasury subsidies are abolished but which need to be continued mainly by local governments

● The transfer of tax resources shall take place with particular focus on core taxes.

● The transfer shall cover the whole amount in the case of obligatory projects and around 80% in the case of other projects.

## Allocation tax reform

Review of the whole revenue resource guarantee function of the allocation tax and reduction

● Extensive review of expenditures in local public finance plans and restraint on the total amount of allocation tax of its scale

● Review of calculation method(gradual supplement, project expense supplement, etc.)

● Considerable increase in the population ratio of local governments not receiving the allocation tax
## Local Taxes

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.

Reference

Index of Per Capita Revenue from the Local Tax Revenue Total and the Individual Resident's Tax

(with national average as 100; FY 2002)

## Notes:

The tax revenue from the individual resident's tax is the total of the individual prefectural resident's tax and the individual municipal resident's tax.
## Reference

Index of Per Capita Revenue from Two Corporate Taxes and the Local Consumption Tax (After Settlement)

(with national average as 100; FY 2002)

## Notes:

The tax revenue from 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.
## Local Allocation Tax

The local allocation tax fulfills an extremely important role in view of the fact that there are differences in economic strength and financial strength among the regions and that in Japan, with regard to a large part of domestic administrative affairs, local governments are required through legislation, etc. to ensure a certain administrative level in the regions.

## Reference

State of Financial Resource Guarantees (Micro) through the Local Allocation Tax (Prefectural Examples) FY 2002 settlement

General Revenue Resources, Etc.

Breakdown of general revenue resources, etc.

earmarked for specific-purpose expenditures (total of ¥526.5 billion)
## Reference

State of Financial Resource Guarantees (Micro) through the Local Allocation Tax (Municipal Examples) FY 2002 settlement

General Revenue Resources, Etc.
## 2 Promotion of Municipal Mergers

In order to promote autonomous municipal mergers by March 2005, which is the expiration date of the Special Municipal Merger Law (Law No. 6, 1965), it is necessary to strengthen further efforts toward merger.

## What are the advantages of

## I mprovement in the convenience of residents

If a merger is implemented, it becomes possible for residents to use public facilities and services beyond the borders of the former municipalities, making life becomes even more convenient.

## Ex

The new municipality was able to review the elementary school zones of the former municipalities and make them better suited to the realities of residents' lives. (Tsukuba City in Ibaraki Prefecture, 1987 merger; Nishitokyo City in Tokyo, 2001 merger)

## Diversification and upgrading of administrative services

Through the establishment of specialized organizations and staff, which had been difficult to implement before, it becomes possible to provide more specialized and high-level administrative services.

## Ex

After the merger, it became possible to newly appoint social welfare officers, physiotherapists, urban planning and construction engineers, etc. (Tsukuba City in Ibaraki Prefecture, 1987 merger)

## Wide-area community development

It becomes possible to implement more effective community development from a wide-area perspective, including the construction of roads and public facilities, land use, and zoning that takes advantage of local characteristics.

## Ex

After the merger, it became possible to implement unified land use from a broad perspective in terms of housing estates, land readjustment projects, industrial estate construction, etc. (Mito City in Ibaraki Prefecture, 1992 merger)