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The national government is set to cut its subsidies to local governments by at least 3.6 trillion yen a year by fiscal 2006 as part of its reforms of tax and fiscal systems, Finance Minister Masajuro Shiokawa said Tuesday.

But the Cabinet has yet to decide how much tax revenue the central government will cede to prefectures and municipalities to make up for the subsidy cuts, Cabinet members told reporters.

Discussions on numerical targets will continue Wednesday in a meeting of the Council on Economic and Fiscal Policy, they said.

For fiscal 2003, the national government has allocated roughly 17 trillion yen in subsidies to local governments.

“As a first step, we are mainly going to review subsidies in 11 categories,” Shiokawa told a regularly scheduled news conference. The targeted categories include subsidies for compulsory education, and the total amount to be reviewed will be worth 3.6 trillion yen, Shiokawa said.

But at a Cabinet meeting, ministers failed to agree on targets for tax collection authority to be transferred.

Shiokawa has proposed that the national government give municipalities the power to collect taxes equivalent to 70 percent of the subsidy cuts. As for the remaining 30 percent, he has called for spending cuts by municipalities through administrative reforms.

Asked if the ministers agreed on a numerical target, Shiokawa said: “We will decide tomorrow.”

“We haven’t reached an agreement,” said public management minister Toranosuke Katayama, who wants to secure much higher subsidies for local governments. His ministry is in charge of local government administration.

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