The internal affairs ministry has introduced four indicators to gauge the financial health of local governments based on a law enacted in June to prevent bankruptcy of local governments. In view of financial problems at local governments, like the bankruptcy of the city of Yubari in Hokkaido, the new system is inevitable. Prefectural and municipal governments should realize that fiscal laxity will eventually hit the lives of residents hard through deterioration of public services.
The indicators will show the ratio of deficit to standard revenues, the deficit on a consolidated basis (including the financial conditions of third-sector entities and publicly run enterprises), the ratio of debt amounts to be repaid in the year to revenues, and the ratio of the total amount of outstanding debts to revenues on a consolidated basis.
If any of the four indicators fails to achieve the standard set by the ministry, the local government concerned must accept external auditing and work out a plan to restore health to its finance. Fifty to 100 local governments are expected to fall into this category if the formula is applied to fiscal 2006 figures.