A state panel on decentralization urged the central government Thursday to transfer more authority to local governments to secure their own tax revenues.

In its final report submitted to Prime Minister Junichiro Koizumi, the Committee for the Promotion of Decentralization said such a shift in tax authority is “indispensable” to achieve the structural reforms the government seeks.

The panel acknowledged the need to maintain, to some extent, the tax grant system under which the central government reallocates its tax revenues as subsidies to local governments. The system is necessary for its function of adjusting gaps in tax revenues among different municipalities, the report says.

The final report, which ended six years of panel discussions, however, stresses the importance of raising the proportion of regional tax revenues to overall revenues at regional governments, many of which depend heavily on national tax grants.

Thus, some income tax revenue sources should be switched to local resident taxes and some national consumption taxes to regional ones, the report says.

It remains to be seen, however, to what extent the panel’s proposals will be reflected in government policy.

A policy draft by the Council on Economic and Fiscal Policy only pledges a review of tax revenue source allocations between the central and local governments and fails to call for a shift in those sources amid opposition from the Finance Ministry.

The council is to finalize its guideline later this month.

While calling for shifting more tax revenue sources to local governments, the decentralization panel said overall tax revenues by the central and local governments should be kept unchanged so the public’s tax burden won’t rise.

The report thus calls for reducing the amount of national tax grants to local governments in tandem with an increase in local tax revenues.

Under the current system, national tax revenues account for roughly 60 percent of overall tax revenues, while the remaining 40 percent comes from local taxes.

In expenditures, however, local governments account for 60 percent and the central government 40 percent, thus creating a situation in which local governments heavily depend on national tax grants to carry out their policies and projects. Local governments have discretion over how taxes the central government allocates to them are spent.

The existing system is designed to fill income gaps between wealthy urban areas and provincial sectors facing revenue shortfalls. It was devised to ensure uniform administrative services are offered nationwide.

But the system has come under scrutiny because it encourages local governments to draw up irresponsible budgets because they expect money to come from the state instead of local taxpayers, who would be more alert to how their money is spent.

Ken Moroi, head of the panel and a counselor at Taiheiyo Cement Corp., said: “We’re not necessarily urging an immediate transfer of tax revenues to local governments. But local governments should seize this (proposed) reform as an opportunity to reduce their reliance on the state,” in their finances and “increase their authority and financial resources.”

Saitama Gov. Yoshihiko Tsuchiya, who chairs the National Governors’ Association, welcomed the report.

“I rate it highly in that it makes specific proposals to expand local taxes,” he said.

The Finance Ministry has said it opposes such a shift of tax collection authority.

Tax allocation is a major spending item for the central government, totaling some 16.82 trillion yen in the 82.65 trillion yen overall fiscal 2001 budget.

Gist of decentralization report

Following are the main points of the final report submitted Thursday by the Committee for the Promotion of Decentralization.

* More power should be given to local governments for collecting taxes.

* National tax grants to local governments should be reduced commensurately with rises in local tax revenues to maintain a “neutral” level of revenue.

* More income tax revenue should be raised from local residency taxes.

* National consumption taxes should become regional consumption taxes.

* The national tax grant system should be maintained but simplified.

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