Finance Minister Sadakazu Tanigaki and home affairs chief Taro Aso agreed Wednesday to set a target of transferring 3 trillion yen in tax revenue sources from the national government to local governments between April 2005 and 2007.
The target will be specified in a government economic blueprint to be approved at a Cabinet meeting Friday.
Tanigaki and Aso, minister of public management, home affairs, posts and telecommunications, told reporters they reached the agreement during talks at the prime minister's office.
The agreement was reached after Prime Minister Junichiro Koizumi asked a meeting of the government's Council on Economic and Fiscal Policy last week to spell out in the blueprint that 3 trillion yen in tax sources be transferred by fiscal 2006.
The transfer is part of a three-part reform aimed at making local governments more fiscally independent, a key policy in Koizumi's structural reform agenda.
However, Tanigaki and Aso had been at odds over the tax transfer issue. Tanigaki argued the national government should not give local governments greater tax revenue sources unless it crafts ways to abolish subsidies to local governments while they boost efforts to cut spending.
Aso argued the national government should first transfer tax revenue sources to local authorities because promotion of the three-part reform requires trust in the national government by local authorities.
Koizumi has vowed to carry out a 4 trillion yen tax reform, including an already announced 1 trillion yen cut in subsidies to local governments.