Prime Minister Junichiro Koizumi’s latest proposal on cutting subsidies to local governments has met fierce opposition from within his ruling Liberal Democratic Party — an indication that both he and the legislation face a rough road ahead.

And if that wasn’t enough, a dispute within his Cabinet flared up again Friday, pitting Finance Minister Masajuro Shiokawa against home affairs minister Toranosuke Katayama over the amount of power local authorities should be granted over taxes.

All this comes on the heels of Koizumi’s announcement Wednesday of a controversial plan to cut subsidies to local authorities by about 4 trillion yen by 2006.

In return, local governments would be allowed to collect taxes equivalent to between 80 percent and 100 percent of the total revenue they lose through the subsidy cuts. The measures are part of the government’s efforts to promote decentralization and reduce public debt.

The row within the LDP forced the government Friday to cancel the release of Koizumi’s economic policy package for 2003, scheduled for Monday. The package was to include the subsidy cuts.

“We will take some time to coordinate with the ruling parties,” economic and fiscal policy minister Heizo Takenaka told reporters.

Koizumi said he intends to stick to his plan to announce the package by the end of this month, adding, “It wouldn’t hurt to have thorough discussions (on the issue).”

But experts say that if opposition within the LDP mounts, the government may not be able to carry out its plan to cut back on subsidies.

“Because Koizumi’s proposals do not state which subsidies will be cut and by how much, bureaucrats and politicians who want to protect their own vested interests by providing subsidies will inevitably wrangle over the 2004 budget,” said Kenji Yumoto, chief senior economist at the Japan Research Institute Ltd.

The Cabinet spat centers on how the wording of Koizumi’s reform plan should be interpreted.

Koizumi has stated that local governments will be allowed to collect taxes equivalent to 80 percent of what they lose through the planned cut in subsidies. But he has also said they will be able to collect taxes worth 100 percent of the lost subsidies when the outlays are for required public services commissioned by the central government, on the condition they also make efforts to cut wasteful spending.

Shiokawa reiterated Friday his interpretation of the proposals, saying the power to raise sufficient taxes to make up for the subsidy cuts will be transferred to local governments after they cut their spending by 20 percent.

The Finance Ministry is reluctant to cede its power to collect taxes because it is responsible for the nation’s entire finances.

“From the viewpoint of the public, a cut by about 20 percent is quite natural,” Shiokawa told a regular news conference. “I think (LDP) members will understand that point, too.”

In response, Katayama said cutting costs by 20 percent across the board is “not flexible at all and very bureaucratic.”

Katayama’s ministry deals with the administration of local governments.

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