OVERVIEW OF TOKYO

TOKYO'S FINANCIAL SYSTEM

The administrative system of Japan has a three-tiered structure: the top tier is the national government, and below that the two tiers of local public entities-first the prefectures, and below them the municipalities.

With the exception of administrative functions related to diplomacy and national defense, the majority of administrative functions are financed jointly by disbursements from the national government and local public entities. A major portion of the work carried out as national policy is performed through the services of the local public entities.

In fiscal 2001, net total expenditure by the national government and local public entities amounted to 57.407 trillion yen and 95.897 trillion yen, respectively. The scale of expenditure by local public entities reached approximately 1.5 times that of the national government; this figure shows how extensive a role the local public entities play in the administration of Japan.

The total amount of tax collected in fiscal 2001 was 85.5172 trillion yen, of which national taxes accounted for 58.4% and local taxes 41.6%. However, the ultimate allocation of this revenue was 17.6% to the national government and 82.4% to the local public entities. This is because nearly 70% of the taxes collected as national tax is redistributed to local governments through systems such as the local allocation tax, local transfer tax and national treasury disbursements.

Structure of Local Finance in Japan (Unit: 100 millions)

Revenue

Revenue for local public entities from local tax, which is their exclusive resource, accounted for 35.5% of their total revenue in fiscal 2001. The revenue granted to local public entities by the national government consisted of local transfer tax (0.6% of the total revenue), local allocation tax (20.3% of the total revenue) and national treasury disbursements (14.5% of the total revenue). Revenue from the sale of local bonds accounted for 11.8%.

In more detail, the sources of revenue for local public entities are as follows:

Local Taxes
These are collected by local public entities, and use of this revenue is unrestricted. It is the basic revenue used to carry out local policies to comply with residents' wishes.

Local Transfer Taxes
This is the generic name applied to local roads, petroleum and gas, special tonnage, automobile weight, and aircraft fuel taxes. These constitute transfers to local public entities, as a fixed proportion of the relevant national taxes. With the exception of the special tonnage transfer tax, their uses as revenue are comprehensive but predetermined (such as for roads and airports and their surrounding areas).

Local Allocation Taxes
These taxes form the core of the local financial adjustment system. The system is designed to sustain revenue sources necessary to redress fiscal imbalance among the local public entities, and thereby ensure that all such local entities are able to carry out their administration at a certain uniform level. This general revenue source consists of grants to local public entities on the basis of a fixed calculation formula, which allocates a percentage of revenues collected nationally. The percentage of revenue allocated to the local entities is 35.8% of corporation tax (32% before fiscal 2000), 32% of income tax, 32% of liquor tax, 29.5% of consumption tax and 25% of tobacco tax.

National Treasury Disbursements
These refer to allotments disbursed by the national government to local public entities on the basis of the cost allotment classifications of the national government and local public entities; consignment costs; and subsidies for the promotion of specific policies and support for public finances, etc.

Local Bonds
This is revenue from the sale of local bonds issued by local public entities to defray the cost of constructing public facilities such as roads and schools. These costs should be equally shared over a long period.

Distribution of Taxes (Unit: 100 millions)

* N.B. National Treasury Disbursements include special grants for traffic safety measures and subsidies provided to a city, town or village where government-provided facilities are located.

Expenditure

The breakdown by administrative categories of expenditure of local revenue during fiscal 2001 shows public engineering works accounting for 19.1%, followed by education (18.5%), social welfare (14.4%), and general services (9.2%). Public engineering works and education combined amounted to almost 40%.

The main items of expenditure of local public entities are as follows :

Social Welfare
This expenditure is to improve social welfare services. Funds go to develop and operate welfare facilities for children, the elderly, and citizens with physical or mental disabilities, and to carry out policies designed to protect the wellbeing of citizens.

Health and Sanitation
The purpose of this expenditure is to maintain and promote the health of residents and improve the living environment. Funds go to carry out various medical policies, public health and mental health policies, to collect and treat raw sewage and trash, and to carry out measures to combat pollution.

Agriculture, Forestry and Fisheries
The purpose of this expenditure is to promote agriculture, forestry and fisheries and to maintain a stable supply of foods. Funds go to develop the production infrastructure, improve the industrial structure, take measures related to consumption and distribution, and develop and promote agricultural, forestry and fisheries technologies.

Commerce and Industry
This expenditure is to promote commerce and industry in the regions, and to update and rationalize their management. Funds go to guide and develop small and medium-sized enterprises, to attract companies to the regions and to carry out consumption and distribution measures.

Public Engineering Works
This expenditure is to develop infrastructure in the regions. Funds go to construct and develop public facilities such as roads, rivers, houses and urban parks, and to maintain facilities.

Education
Education is one of the basic administrative areas of local public entities. Expenditure is made towards furthering education and culture through schools and social education.

Debt Service
This expenditure is made for the redemption of capital and interest from the issue of local bonds.