Tokyo Gov. Shintaro Ishihara has presented to the Metropolitan Assembly a bill that would impose a temporary tax on all funds held by major banks operating in the metropolis. The proposed tax, the first of its kind in Japan, stirred mixed reactions nationwide. The Japanese Bankers Association issued a statement expressing strong opposition to the tax. The governor's abrupt proposal raised problems with the principles of taxation and with industrial policies.
I support Ishihara's proposal as a challenge to the snail-paced progress in the transfer of power from the central government to local governments and in basic tax reform. Ishihara demonstrated true political leadership in making the proposal.
Local governments carry out two-thirds of the nation's public-service activities, but have only one-third of the nation's total revenue sources. On the other hand, the central government implements only one-third of such activities while controlling two-thirds of the revenue sources. The central government's tax grants and subsidies make up for the difference. This mechanism distorts local autonomy because it arbitrarily transfers financial resources from urban to rural communities.