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Not only the central government but also the nation’s local governments face financial difficulties. According to the former’s local finance plan, the local governments’ total revenue for fiscal 2011 will be ¥82.520 trillion, up 0.5 percent from fiscal 2010 or the first increase in three years.

They will receive from the central government grants amounting to ¥17.373 trillion, up 2.8 percent from fiscal 2010, an increase for four consecutive years. Some portions of revenues from corporate and other national taxes are used to provide the grants. But because the tax revenues are not enough, the central government has to use surpluses from special account budgets.

The local governments have to rely on bond issuance to secure enough revenues. In fiscal 2011, they will be allowed to issue bonds worth ¥6.159 trillion, with the repayment to be made in later years from the grants from the central governments. Bond issuance is 20.1 percent less than in fiscal 2010. Still the outstanding debt of the local governments will reach ¥200 trillion at the end of fiscal 2011.

Of the central government’s subsidies to the local governments mainly for use in public works projects, ¥512 billion will have no strings attached. But the local governments will not have much freedom in using the money because it is to cover public works projects that have already started.

Local governments are dissatisfied with the fact that they have to shoulder part of the funds for the child allowance. Although they want more daycare facilities for children, they cannot use the money for the child allowance to build such facilities. It is important for the central government to increase funds the local governments can use at their own discretion to meet the needs of local residents.

If they have more such funds and also if regulations on facilities imposed by the central government are loosened, they may refrain from using the money for large public works projects they used to carry out with subsidies from the central governments. Instead, they may use the money to improve facilities and services directly for the benefit of residents.

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