Prime Minister Junichiro Koizumi’s initiative to give local governments more fiscal autonomy — part of his structural reform agenda — is meeting stiff resistance from the central bureaucracy. The plan calls for seven ministries to cut a total of 630 billion yen in subsidies provided by the state. The response has been tantamount to rejection: Five ministries have agreed to cut only 28.9 billion yen, and two others (land and transport, and education and science) have offered practically no concessions.
Bureaucrats are prone to conformity. Usually, a ministry in a prominent position sets the pace for other ministries involved. This time around, the pacesetter has been the Ministry of Health, Welfare and Labor, which has offered a small subsidy cut of 10.9 billion yen — a far cry from the 504 billion yen requested by the Prime Minister’s Office.
On the other hand, the health ministry has made a proposal of its own to local governments: to reduce more than 900 billion yen in subsidies, including cuts in the central government’s share of welfare payments to needy people. The arithmetic involved here — one that would likely benefit the health ministry — needs a little explaining.
The government wants to transfer tax-collecting authority worth 3 trillion yen to the local governments and cut the same amount of subsidies to offset the revenue loss. However, agreement has yet to be reached on 600 billion yen in subsidies. If the ministry cuts subsidies by more than 900 billion yen, that will create a considerable surplus in its budget. Other ministries appear interested in this calculation.
Cutting the central government’s share of welfare payments is problematic, however. National associations of local government heads, including the association of prefectural governors, are dead set against the proposal, saying that Tokyo is trying to “pass the buck” to local governments. There are good reasons to oppose it.
Laws and regulations set detailed payment standards for “livelihood protection.” Therefore, the local government groups say, curtailing the state subsidies “will not increase local autonomy and goes against the spirit of decentralization.” They also say, correctly, that the aging of the population is adding to these payments.
Chief Cabinet Secretary Shinzo Abe is right to demand that the ministries involved review their responses. Indeed, they should make more positive replies, rather than engage in a number-juggling exercise that would increase neither the fiscal freedom nor the discretionary authority of local governments.
The minister of health, welfare and labor, Mr. Jiro Kawasaki, appears in favor of cutting welfare subsidies. He should reconsider, given the strong opposition by local administrators. He should slash other subsidies (totaling 475 billion yen), including operating expenses for medical institutions and maintenance expenses for social welfare institutions. If the ministry falls short of the requested sum of 504 billion yen, then it can look to the list of proposed cuts prepared by the local government groups.
Livelihood protection, a constitutionally guaranteed social safety net for those in dire poverty, is primarily the responsibility of the state. That’s why such assistance is provided uniformly throughout the nation, with city, town and village halls acting as proxies for the central government. However, a health-ministry plan presented to a joint council on livelihood protection makes one wonder whether the central government is forsaking its responsibility.
The plan would reduce from three-fourths to one-half the rate at which the central government subsidizes livelihood and medical assistance. The subsidy rate for child allowances would be cut by the same margin. Of the livelihood payments, housing assistance would be provided entirely by local governments, and prefectural governments would have the authority to set payment standards for livelihood and housing assistance. That could disintegrate the social-welfare system.
Now the health ministry is facing growing protests from local governments. Fourteen large cities have stopped sending statistical reports on welfare recipients to the central government. The association of mayors in Kyushu and the Saga prefectural governments decided last month not to send these reports, as did Tokyo and three neighboring prefectures. Other districts are likely to follow suit.
Last year, the health ministry shaved subsidies related to health insurance, imposing an extra burden on the local governments. Its latest number-juggling proposal to slash welfare subsidies also rubs them the wrong way. At stake is the political leadership of Cabinet ministers in charge of structural reform. Of course, the buck stops at Mr. Koizumi’s desk.
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