Ordinary tax subsidies allocated to local governments for fiscal 2004 dropped 6.5 percent from the previous year to 15.87 trillion yen, down for the fourth year in a row, according to a report submitted Tuesday to the Cabinet.

The report presented by Taro Aso, minister of public management, home affairs, posts and telecommunications, also shows that a cap on deficit-covering local bond issues to make up for the subsidies shortfall fell 28.7 percent to 4.19 trillion yen.

As a result, total budget allocations to local governments, including the deficit-covering bonds, for the current fiscal year dropped 12 percent to 21.08 trillion yen, according to the report.

This marks the biggest decline on record.

Ministry officials attributed the reduction to an 8.4 percent cut in investment-related outlays, such as for building infrastructure, under an overall local government budget program.

Of the 15.87 trillion yen, tax allocations to 46 of the 47 prefectural governments fell 7.1 percent to 9.12 trillion yen and allocations to city, town and village governments dipped 5.7 percent to 6.76 trillion yen, the report says.

As part of national and local fiscal reforms, the central government halted contributions to the operating costs for nurseries run by municipal governments and replaced them with tax subsidies, the officials said.

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