Decentralisation in Japan

First centralization process in Japan began in Hakuhō period around 7th century.[1] Ritsuryō law system was introduced during this time which modeled from the system of the Emperor of China. In Medieval Japan, three Feudal Japan governments ruled by Shoguns. The last shogunate, Tokugawa shogunate, created the Daimyo system which granted feudal lords to rule the territories. The pressure of foreign traders made Tokugawa gave the power back to Emperor Meiji in 1867.[2]

Meiji Restoration in 1871 made feudal lords turned into a governor over local territories in which became Prefectures of Japan. The Government of Meiji Japan then dismissed all feudal lords to become peerage and appointed new direct-reported governors.[3] In 1873, the new tax law enacted, the local governments were allowed adjust the local tax rate, until 1896, the company tax was transfer to the central government.[4] Itagaki Taisuke led civil moments to create a system of people participation, the Constitution of Japan and the National Diet, in 1889.[3]

In 1919, Japan enacted the first City Planning Law of 1919 and the Urban Area Buildings Law of 1919, both highly centralized, established Japan's modern city planning system. City planning was first applied to regional cities and some municipalities, followed the Tokyo Urban Area Improvement Ordinance under the authority of the Home Ministry. By 1930, the City Planning Law had been applied in 97 cities. A decentralization of city planning started around the Pacific War, from 1930 to 1945, because of military production and other industries became more dispersed, to increase production and reduce vulnerability to bombing. It was the beginning of the comprehensive prefecture and municipality plans. Master plans were designed by local governments, characterized as one of decentralization, in terms of both military industries and city planning.[5]

A reform of local system began in 1929 that the local governments were able to enact ordinances.[6] In 1940, Japan established local distribution tax schemes (chiho-bunyozei) consisting of the refund tax (kanpu-zei) and the allocation tax (haihu-zei). Jinno argues that these are the centralized local tax system, to help a stability of the local governments.[7]

After the World War II ended in 1946, the new Constitution of Japan introduced a directly guaranteed of local governments by Articles 92 to 95 in the Chapter 8. In 1947, the Local Autonomy Act (LAA) was enacted as the fundamental law of local autonomy for unclear principles, firstly, "Local public entities shall have the right to manage their property, affairs and administration and to enact their own regulations within law", secondly, "the right to enact their own regulations within law", thirdly, "the right to enact their own regulations within law." The criticism was it was a dispute which task is in the central government and the local governments.[8] The central government power had a lot more power over local governments.[9]

In 1949, the Shoup Mission recommended that local revenue sources should be strengthened and the subsidy from the central government should be abolished or rationalized.[10] Shoup mentioned that local planning or city planning as an example of administrative services could be fully delegated to local governments.[5] Japanese government then established a Committee to Study Local Administration (Chihô gyôsei Chôsaiin kaigi), called the Kanbe Committee, published "Recommendations on the Reallocation of Administrative Services" (gyôseijimu no saihaibun ni kansuru kankoku) in December 1950. It stated that "City planning and city planning projects shall be the responsibility of municipalities. Laws shall be changed to give municipalities autonomous power to decide and implement matters related to city planning", asserted that the 1919 City Planning Law hindered the autonomy of local entities, but the Government ignored the committee.[11]

The New City Planning Law of 1968 (shin toshi keikaku hô) and the creation of the first National Land Agency (Kokudochô) in 1974 showed an unintentional attempt to decentralize.[12] The City Planning Law in local communities specified public hearings, explanatory meetings, displays of the draft plan, and a system whereby written opinions from the public could be submitted.[13] Eventhought many attempts to improve local communities were issued but the tax raised in Japan still went to the central government by 68% and local governments by 32%.[14] There was a slowly improvement on decentralisation, but postwar Japan was still struggle to increase autonomy level of local communities.[15]

The Local Autonomy Act was also revised in 1969 that required local governments to produce a forward-looking Basic Plan (kihon keikaku) for their long-term economic and social development, to cover a duration of around 25 years. It has to be approved by the elected local council as part of a comprehensive planning that tied to the local fiscal decision.[16]

The Japan's 1970s energy crisis caused an economic slowdown. The Cabinet discussed streamlining the government entities and functions, one of methods was a decentralization. In 1979, the Local Government System Research Council was established as an advisory of the Prime Minister's Office.[17]

Late 1980s, the bubble economy of Japan made a larger disparity between Tokyo and other prefectures. Early 1990s, the social debate supported a decentralisation process. The supporters believed a centralized system cannot meet different demands from different local communities. Some local leaders were stressed by excessive intervention by the central government. The media criticized wasteful spending of national subsidies as it took much effort to apply for a very small subsidies.[18]

In 1981, the Zenkō Suzuki cabinet created the Ad Hoc Commission on Administrative Reform (CAR, Rinji Gyosei Chosakai) to recommend a decentralized reform plan. CAR submitted the final report to the Yasuhiro Nakasone cabinet under the slogan, "Financial reconstruction without tax increases.” Academics read as an early sign of a decentralization. In 1983, the Council for the Promotion of Administrative Reform (CPAR, Gyousei Kaiakaku Suishin Shingikai) was established to replace the CAR to monitor and promote administrative reform.[19]

The local public finance program (LPFP) stated that, based on the Local Allocation Tax Law, the cabinet has to submit official revenue and expenditure estimates for all local governments to the Diet.[42] Part of the program is the Local Allocation Tax Grant (LATG), an unconditional grant provide to every local governments by fixed calculation. Two main goals are to equalize disparities in fiscal sources and to guarantee a public goods and services. The law requires local governments to provide public goods and services at least to meet the legal obligation.

Ratio of local public revenue was still one-third of Japan public revenue in 2006, but local governments receive two-thirds of Japan public revenue. It has been financial problem in local government since 1990s.[45] Compared with other high-income countries, Japan local government taxes is exceptionally low, instead, grants from the central government is exceptionally high.[46]

In 2002, local revenue accounts of local taxes, 36%, LATG, 20%, central government disburstments (financial transfers from ministries), 14%, borrowing, 14%, miscellaneous, 13%, and other charges or fees, 3%. Between 1990 and 1995, local taxes, biggest part of local revenue, were ranging between 35 and 37 percent. Because local taxes are from personal and company taxes, which are fluctuating, depending on an economy. In contrast with local bond, it increased every years from 8% to 17%, 1990 to 1995. The LATG also increased as well.[47]

Bond issues by local governments were 70% of local public debt in 2002. 15% of the debt is from local public enterprise, which running on deficits. The Debt-to-GDP ratio of local governments had increased from 15% in 1991 to more than 40% in 2004, represented the equivalent of the gross national income of France.[48]

Due to difficulty of fiscal, many local governments tried to decrease an expense. In 2000, The Tokyo Metropolitan Government reduced the salaries of employees by 4% over two years. In 2002, Tottori prefecture reduced the salaries and bonuses of 11,500 staff members by 5% over three years. In 2006, Osaka Prefecture laded off 3,000 employees, reduced spending on construction projects by 10%. Other way to cove with the difficulty is to add new type of taxes. In 2000, Yokohama city added taxes on betting such as horse racing, pachinko parlors. Tokyo's Minato-ku added tax on cicarette vending machine. Yamanashi prefecture added tax on road. Suginami-ku add 5 yen fee to every plastic bag in supermarket.[49]

Autonomy power to add tax by local governments is still problematic. In 2000, the attempt of the bank tax by Tokyo's governor, Ishihara Shintaro, failed, because the judicial ruling stopped this effort, after twenty-one banks brought the matter to court.[50] Schebath suggests a reforming of tax system that local financial autonomy should be increased. Jinno also suggests that consumption tax and residential tax should be in local government revenue to guarantee stable financial resources.[51]

Japan has a two-tier system of local government, 47 prefectures and 1,718 municipalities in 2018, including cities, towns, and villages. There is around 60% of the Japan government expenditure is used on local territories.[52]

Municipalities and prefectures account for approximately 30% and 28% of the overall government budget. The municipal budget comes from intergovernmental transfers, 31%, of which LAGT, 15%, and National Treasury Disbursements, 15%. The remaining 69% of municipal revenue comes from taxation, 34%, bonds, 10%, and other independent resources, 25%. Local taxes consist of income tax, 43%, property tax in municipalities, 44%. Municipal income tax rates are nearly uniform throughout the nation, because local governments cannot determine tax rates, but property tax rates can be adjusted within a limited range, fixed by the central government. Raising bond funds are also limited by the central government.[53]

Since the decentralisation law enacted from 1999 to year 2014, local councils had played a weak role in legislative performance. It is unusual that local councils play an active role as a legislative body, only 9.6% rejected legislation proposed by mayors in 2013, the percentage submitted revisions to mayors was only 18.6% in 2013. Only 11.0% of local councils submitted a bylaw proposal in the same year, instead, most of them depend on the strong role of mayors as a lawmaker and are considered as a rubber stamp for the administrative body.[54]

Based on the basis of a 2006 survey of 408 recently merged municipalities, 60% of these municipal respondents felt that a recent merger on their part had some influence on the image of the municipality, with most indicating a positive effect.[55]

Ichiro Aoki of the Policy Research Institute Ministry of Finance Japan, criticised the Local Allocation Tax Grant (LATG) which guarantees the ideal income of the local governments that LATG is unsustainable and lack of transparency of a decision-making process. Other points are lack of tax collection in local level, difficulty of prefecture tasks that overlapping with the central government.[57]

Niimura sees that the reform since 1993 to 2006 had been a failure, both financial management and autonomy level. It was not start from "bottom-up", but "top-down", Second, it was pressured because the need to reduce the fiscal trouble from the economic slowdown, third, the dependent character of local governments has remains after the reform. Niimura suggests that local governments should encourage people to participate and collaborate between local governments and local people.[58]

Ikuta concluded that, while there are cases of successful mergers embrace the common characteristics of the region as a whole, there are as well many merged municipalities that struggled with the new shared regional image and identity. The Great Heisei Amalgamations also undertook by misunderstanding of regional brands, medium- and long-term regional competitiveness for achieving the local identity. It needed to be handled with a framework of post-merger period.[59]

Naito and Oki pointed out that current local tax system is not appropriate since Japan is the only country where the local allocation of tax revenues sources is heavily skewed of corporate income taxes which are very volatile revenue source. Naito and Oki suggest that the central governments should adopt federal countries' tax system, to increase the weight of personal income taxes and consumption taxes in local taxes, and reduce the weight of corporate income taxes in local taxes. The method of calculation should gain more opportunities for local governments to participate, or decrease the complex adjustment. They also suggest to limit the allocation taxes, not to surpass the rate of nominal GDP growth.[60]

Shirai concluded growing problems in Japanese local public finance in 4 parts, firstly, current cash-based accounting shows unrealistic financial position of local governments, secondly, LATG for low-income local governments is inefficient and rigid process, thirdly, administrative works related to social security, for example, should be transferred fully to the central government, to generally perform income-redistribution policy more efficiently,[61] fourthly, local ratings and premiums of bond are neither market based nor reflect the soundness of the fiscal position.[62]

• Minister of State for Decentralization Reform
• Administrative divisions of Japan
• Japanese land law