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Prime Minister Junichiro Koizumi’s initiative to give local governments more fiscal freedom is meeting stiff resistance from within his own administration. He wants to achieve his goal by cutting state subsidies. To make up for subsidy cuts, the central government needs to shift more of its tax-collecting authority to local governments. The bureaucracy in Tokyo, however, is trying — with the backing of politicians — to keep control over these strings-attached payments.

In a recent meeting with prefectural governors, Education Minister Nariaki Nakayama rejected their request for a large reduction in education subsidies. He offered no alternative. Health Minister Hidehisa Otsuji also angered the governors with a proposal that would increase social-welfare spending by local governments while maintaining the ministry’s jurisdiction.

In his policy speech to the Diet last Tuesday, Mr. Koizumi said the government would “respond sincerely” to the gubernatorial request for a 3 yen.2-trillion subsidy cut. The negative responses by the education and health ministers, however, fly in the face of that positive statement. “They (the ministers) were speaking for the bureaucracy,” said Gifu Gov. Taku Kajiwara, who heads the National Association of Prefectural Governors.

If no substantial progress is made on this issue, Mr. Koizumi’s leadership will be called into question, and the reformist image of his new Cabinet — which was reorganized just last month — will be further tarnished. The prime minister rightly says that the central government should “let local governments do what they can.” Cutting state subsidies — thus providing more freedom in local-government finances — is a first step in this direction. Decentralization is a global trend, yet these payments make up a quarter of the government’s spending budget. Japan is probably the only industrialized nation that is spending such an enormous amount on such subsidies.

France, for example, is far ahead in this area. Like Japan, it is known for a long history of centralized administration, but subsidies now account for only about 3 percent of total state payments to local governments. This is because, in 1979, subsidies were consolidated as “grants” — transfer payments that are similar to those in Japan where portions of the national tax revenue are allocated to local governments.

It is worth noting that, in March 2003, France amended its constitution to carry out bold local-government reforms. By contrast, Japan maintains 2,000 kinds of subsidies totaling more than 20 trillion yen. At a recent joint seminar on decentralization here, a French delegate reportedly asked, with a hint of cynicism, how Tokyo can manage such an unwieldy system of subsidies.

Subsidies carry a great deal of power. That may be why bureaucrats want to keep their grip on them. Cuts in these payments would reduce their authority to influence decisions by local governments, allowing more leeway for change. Bureaucratic reluctance to cede authority also seems to reflect a deep mistrust of local administrations — a feeling that locals cannot possibly do things right without “proper guidance” from the central government.

The proposed 3.2 trillion yen cut in subsidies includes about 1.3 trillion yen related to education spending, including 850 billion yen in salaries to teachers working in public schools. The health ministry is being asked to cut about 940 billion yen in operating expenses for day-care centers and institutions for children with disabilities.

Education minister Nakayama has rejected the request for cuts matter-of-factly, saying that compulsory education is “the responsibility of the state.” Also opposed to the cuts are Liberal Democratic Party legislators with close ties to the ministry, including former Prime Minister Yoshiro Mori, who says he will “fight it out” to defend education subsidies.

The health ministry, meanwhile, is proposing to cut subsidy rates for welfare payments and child allowances, and is seeking to reduce government contributions to the national health insurance fund. Absent offsetting revenues, these cuts would increase the financial burden on prefectural governments. Here again, a bureaucracy wary of local welfare measures is trying to defend its turf.

Overcoming bureaucratic resistance and mistrust may be an arduous and time-consuming task, but time is running out for the Koizumi administration, which is committed to drawing up a reform blueprint by mid-November. Failure to meet the deadline will only encourage the resistance.

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