February is the peak of Japanese winter resulting in high accumulation of snow. Many Australians, New Zealanders and of course, Japanese, enjoy skiing in Japan during this time but it also brings forth a difficult task of snow removal from roads and footpaths for Japanese local governments. It takes a big chunk out of local government budgets at the most inconvenient time as well since the Japanese financial year ends on March 31. Fortunately, the Japanese central government provides support to local governments for matters such as this through something called the local allocation tax.
Local governments should ideally be financed by their own funds, i.e. local taxes collected by themselves. However, in reality, fund sources are unevenly distributed depending on the region. A mechanism is therefore needed to adjust this uneven distribution and to ensure the availability of general fund sources (fund sources with their uses unidentified and which can be used for any kind of expenses) for organisations with low local tax revenues. The local allocation tax, a sort of mixture of GST revenue grants and Financial Assistance Grants, was established for this purpose. Also, a part of the local allocation tax is distributed in the latter of the financial year for that year’s disaster relief. This could range from large-scale disasters such as the 2011 Great East Japan Earthquake and more frequent, small-scale disasters such as heavy snow and typhoons.
Local allocation tax is set to ensure financial balance among regions with unspecified uses. The sources of local allocation taxes are certain parts of the national taxes; 33.1% of income tax and corporation tax, 50% of liquor tax, 22.1% of consumption tax and all special corporation tax for locals. In recent years, the amount of local allocation tax has been increased since the original funds were less than the necessary amount. In FY2016/17, the amount of local allocation tax is about 16.7 trillion yen (approx.200 billion AUD).
Katsunori Kamibo
Director