Action 69. Abolition of Prefectures and Establishment of Dōs – (3) Make Local Governments Independent! Allocate Financial Resources among Central, Dō, and Basic Municipal Governments at a Ratio of 1:4:5!

While the ratio of expenditure of national and local governments is currently 4:6, the ratio of tax revenue sources is 6:4. Under the current system, the revenue shortage of a local government is covered by the central government in the form of subsidies. This is why there is no incentive for local governments to reduce expenses. At the same time, without local governments having the freedom to increase tax revenues, their willingness to make appropriate investments will not increase. The drastic transfer of financial resources is therefore essential.
1. Upon the Transfer of Authorities, Duties, and Personnel, and After Clarifying the Philosophy of Taxation as “Central Government as Platform, Dō Government for Economy, and Basic Municipality for Living,” Transfer Financial Resources!
In the abolition of prefectures and establishment of dōs, it is proposed that the relationship between national and local governments be drastically transformed. The following sets out the basic policy for this proposal:
1) Enlarge the scale of subdivisions and transfer tax revenues in a bold manner.
2) Increase the freedom of dō and basic municipal governments in terms of their decision-making such that they can reduce expenses and make appropriate investments so as to generate a virtuous cycle of increasing tax revenues.
In the abolition of prefectures and establishment of dōs, the central government will be mainly engaged in the role of command center and duties related to foreign affairs and defense, which provide the nation with a foundation, and will be responsible for the prosperity of the public and private sectors. It will assume responsibility for providing a national platform. Dō governments are expected to engage in activities that help increase the population and promote the regional economy. Since they will provide pensions, healthcare, and long-term care, it will be necessary to transfer appropriate consumption tax revenues to cover them. They will also provide infrastructure, such as policing facilities and university education, for which the necessary financial resources should also be transferred. Basic municipalities will provide administrative services, mainly to ensure that people can enjoy fulfilling lives. To cover social welfare services, other than pensions and healthcare, they will need half of the consumption tax revenues raised. Since they will also be responsible for elementary to high school education, fire safety, and city planning, they will need 70% of individual income tax revenues to provide and improve these services.
Based on the basic policy above, financial resources to fulfill these responsibilities should be allocated as follows:
1) For the financial resources of the central government, 30% of corporate tax revenues and 30% of income tax revenues under the current system are basically allocated as fees required for providing a platform.
2) Core financial resources for a dō government should come from business-related taxes: 70% of corporate tax revenues and half of consumption tax revenues.
3) Core financial resources for a basic municipal government should come from personal taxes: half of consumption tax revenues and 70% of income tax revenues as well municipal tax revenues and various property tax revenues.
2. Abolish the Local Tax Allocation System and Take Decisive Measures to Make Dō and Basic Municipal Governments Financially Independent!
At present, due to the complex local tax allocation system, incentives are not effective in encouraging local governments to increase revenues and decrease expenses. This system should of course be abolished. In the abolition of prefectures and establishment of dōs, all tax revenues, except for part of income and corporate tax revenues, will be used as local financial resources. Dō and basic municipal governments will be allowed to adopt their own innovative measures to attract companies, increase their population, increase local consumption, increase revenues, and promote competition. To encourage them to do so, a self-supporting accounting system must be applied to secure their financial resources.
3. Pave the Way for Addressing Long-term Debt Issues of National and Local Governments at the Earliest Possible Time!
The long-term outstanding debts of the national and local governments amount to nearly 1,000 trillion yen. Under this situation, the fundamental transfer of sources of tax revenues from the national government to dō and basic municipal governments on the occasion of the abolition of prefectures and establishment of dōs could affect the ability of the national government to pay its debts. For as long as dō governments carry huge financial deficits, they will lose financial flexibility and it will be difficult for them to achieve autonomous and independent regional management. On the occasion of the abolition of prefectures and establishment of dōs, it will therefore be necessary to lay out a course for addressing these long-term debts.
It is hoped that Japan will be realized in a new administrative form by 2021, the 150th anniversary of the abolition of feudal domains and establishment of prefectures. Compared with this earlier restructuring achieved by the Meiji restoration government, the abolition of prefectures and establishment of dōs is much easier to accomplish. It is important that we, the public, who are responsible for Japan’s future, follow-up serious consideration of this issue with a move to action with an eye on the future 100 and 150 years hence.