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The Finance Ministry plans to cut subsidies to local governments by 1 trillion yen in the budget for fiscal 2004, ministry officials said Monday.

Tax allocation grants from the national government to local governments account for 20 percent of Japan’s annual general-account budget. These subsidies stood at 17.4 trillion yen in the fiscal 2003 budget, which totaled 81.79 trillion yen.

In their fiscal 2004 budget requests, the local governments have asked for a combined allocation of 19.49 trillion yen.

But the ministry plans to limit the amount to the mid-16 trillion yen level, the officials said.

To effect the 1 trillion yen cut, the ministry wants local governments to reduce their civil servant numbers and hold down their wage levels, they said.

It also wants local governments to outsource garbage collection services and the provision of publicly funded school lunches to private firms, the officials said.

Subsidies have two aims — to narrow the gaps in tax revenues among various local governments and to cover local governments’ budget shortfalls.

The ministry believes this mechanism has hampered local government spending discipline.

It also believes subsidies diminish local governments’ awareness of their need to limit outlays and of their need to secure their own tax revenues.

The ministry ultimately plans to abolish this mechanism, they said.

This tough stance is expected to draw flak both from the local governments themselves and from the Public Management, Home Affairs and Posts and Telecommunications Ministry, which acts as a chief liaison between the national and local governments.

“The number of central government servants is following a downward trend, whereas that of local public servants is on the rise,” a Finance Ministry official said.

According to the officials, the average wage level of local government civil servants is higher than that of employees at private companies.

The ministry believes local governments should raise their own funds to finance public works projects, instead of depending on annual handouts.

It added that, at the very least, the scale of this coverage needs to be limited.

Some political analysts claim the ministry wants to cut these subsidies because it needs to limit the size of the overall general-account budget.

The tally of budget requests for the fiscal 2004 budget came to 86.45 trillion yen, up 5.7 percent from the initial budget for fiscal 2003.

The ministry plans to limit the size of the budget draft for fiscal 2004 to below that of the initial fiscal 2003 budget.

As it is difficult to cut back on national pension benefits or welfare allowances for the underprivileged, the ministry is targeting local government subsidies, the analysts said.

But local governments have balked at suggestions of a tighter budgetary policy.

They say the subsidies have been rising for years because the national government compelled them to spend more on public works projects in line with national policies aimed at reinvigorating the struggling economy.

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