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The Cabinet of former Prime Minister Yasuo Fukuda in May decided to free up road-related tax revenues from fiscal 2009 for use in such fields as education and social welfare. At the same time, it decided that care should be taken so that road construction is not hampered and that local governments do not feel a financial pinch. It was also decided to review current surcharges on some road-related taxes when tax reform is discussed in the future.

But Prime Minister Taro Aso’s statements on how to use revenues from road-related taxes have been confusing, causing conflicts over how they should be interpreted. Mr. Aso need to clarify how the money should be distributed in another statement and put an end to the confusion.

As part of the ¥26.9 trillion economic stimulus package, Mr. Aso first proposed that more than ¥1.3 trillion — a combination of ¥700 billion in grants for local road construction and ¥600 billion in subsidies, both from road-related tax revenues — be given to local governments and that ¥1 trillion be treated as “grants in aid” that local governments could use freely. But confusion followed when Mr. Aso, facing protests from “road-tribe” lawmakers, said he would not stick to the grants-in-aid proposal.

Adding to this confusion, the infrastructure and transport ministry and road-tribe lawmakers view the ¥1 trillion as including the ¥700 billion in grants for local road construction. The internal affairs ministry as well as prefectural governors and other local government heads, however, think the ¥1 trillion should not include the ¥700 billion, meaning that ¥1.7 trillion should be given to local governments.

If Mr. Aso is serious about strengthening local governments’ finances and buoying the economy, he should heed requests from local government and assembly heads that local governments be given ¥1 trillion from ordinary tax revenues in addition to the portion of road-related tax revenues normally distributed to them.

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