IV. JAPAN

(Relations between the Two Houses) requires a special procedure – a reconciliation process by means of a Conference Committee of both Houses to reach an agreement on the budget. A Conference Committee is comprised of selected members from both Houses. If the Conference Committee cannot come to an agreement, or if the HC does not make a final resolution within 30 days after the receipt of the budget by the HR, the conclusion made by the HR prevails over that of the HC. This procedure facilitates budget deliberations by both Houses and does not unduly delay the passage of the draft budget in the Diet.

3.2. Role and responsibilities of sub-national governments

The Constitution as amended provides the basic principles for the operation of local government. First, the organisation and operations of local governments should be enacted in accordance with the principle of local autonomy (Art. 92). Second, members of the legislature and the head of the executive should be elected by direct public elections (Art. 93). Third, local authorities have the right to manage their property, affairs and administration and to enact their own regulations within the law (Art. 94), which delegates much of its power to a number of laws concerning local government.

One of the main laws is the Local Autonomy Act 1947 (LAA), as amended, which establishes a two-tier structure of prefectures and municipalities (47 prefectures including the metropolis of Tokyo and 3 100 municipalities, as of April 2004), and specifies the structure, composition and powers of elected councils and their executive bodies. The LAA also defines the status of local authorities, including their relationship with central government as well as other local authorities, and has legal provisions for their financial affairs and other important administrative matters.

Despite the fact that local authorities are authorised to levy and collect taxes (the Local Tax Law 1950, as amended), the basic pattern of managing service delivery remains centralised, and most local governments’ revenues depend on the central government’s assistance. Locally-raised revenues account for 35-40% of total local revenues. The Local Finance Act 1948 (LFA) as amended also authorises local authorities to issue bonds to finance capital expenditures and the expenses of public enterprises (Art. 5). Prefectures, however, must obtain approval from the Ministry of Public Management, Home Affairs, Posts and Telecommunications, and municipalities require approval from the prefecture prior to issuing bonds.5 Besides these, local authorities also receive direct grants from central government, as well as revenues from various shared taxes (Box 3). National Treasury disbursements are grants whose use is predetermined by central government under the LFA. The legal basis of tax-sharing arrangements is provided by various transfer tax acts including the Local Road Transfer Tax Act 1955, as amended.

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Box 3. Japan: Grants from central government to local governments

●Earmarked grants. National Treasury disbursements is the name for funds disbursed from the central government to local governments for specified uses. There are three types of national treasury disbursements: 1) National Treasury obligatory shares, which are payable for undertakings that are carried out under the joint responsibility of the central and local government, 2) National Treasury grants in aid, which are distributed as subsidies for local undertakings, 3) National Treasury payments for tasks that are the responsibility of the central government, but are entrusted to local authorities for convenience and efficiency.

●Shared taxes, largely for equalisation. On the basis of the Local Allocation Transfer Act, certain taxes are shared, aimed at adjusting imbalances in local government’s revenue raising capacities, ensuring that local governments can provide a standard level of administrative services and making basic public investments for people. The total amount is linked to certain percentages of national tax revenues: 32% of income tax, corporate tax, and liquor tax; 24% of consumption taxes; and 25% of tobacco excise taxes.

●Shared taxes, for specific purposes. The local transfer taxes are the basis for the transfer of the proceeds of part of certain national taxes to local governments for specific purposes. A major example is the local road tax on fuels such as petrol, which is collected by the central government and subsequently transferred to prefectures and municipalities as the local road transfer tax.

The Local Allocation Transfer Act 1950, as amended, requires local authorities’ budget estimates of income and expenditure to be approved by Cabinet, submitted to the Diet for information and published (Council of Local Authorities for International Relations, 2002). The programme shows whether the local authority revenues will be sufficient to provide a given level of service as well as meet legal obligations. The process involves totalling all local authority income and expenditure; if revenue is insufficient, the central government is required to support local governments, by amending the local tax system, increasing the local allocation transfer, issuing bonds, or other assistance.