Appendix 4 The FY 1998 Local Public Finance Program
The Objectives of the FY 1998 Local Public Finance Program
In FY '98, under the present economic situation, the deficit caused by the special one-year tax cuts in income tax and local inhabitants tax will be supplemented. In line with the Special Law for Promoting Financial Structural Reform (Law No. 109,1997),local general expenditure should be held in check through drastic reductions and rationalization, and local income should be secured through the promotion of a fairer distribution of the local tax burden and the assurance of the necessary amount of local allocation tax. A Local Public Finance Program is planned as follows, in order to secure sound management of local public finance under the continuing large deficit.
1. With regard to local taxation, special tax cuts in the local residents tax will be implemented for one year. The corporation tax rate will be lowered and local residents tax rate on capital gains from transfer of land will be revised. The special measures of tax exemption on land holdings in specified cities in the three metropolitan areas will be abolished. Self-taxing powers of local authorities should be revised, from the viewpoint of decentralization. The period of special measures for automobile acquisition tax rates and light oil receipt tax rates will be extended, and special measures such as tax exemptions will be revised.
2. In order to maintain sound management of local public finance, the \759,680 million decrease in revenue due to the special cuts in income tax and residents tax, will be supplemented as follows.
(1) The \624 billion decrease in tax revenue due to the cut in residents tax will be supplemented by the issue of local bonds (tax-cut covering bonds, under Article 5 of the Local Finance Law).
(2) The \135,680 million decrease in local allocation tax revenue due to the special income tax cuts, will be supplemented by loans from the Trust Funds Bureau Funds in the special local allocation tax and concession tax account.
3. In view of the deficit in local finance, and under the Special Law for Promoting Financial Structural Reform, the following measures will be implemented in order to maintain sound management of local public finance.
(1) Repayment for the loans from the special account for local allocation tax during the intensive reform period (FY '98 to FY 2000) of the financial structural reform will be extended beyond FY 2001. As a rule, the part of the deficit corresponding to the local allocation tax will be supplemented equally by national and local government.