The central government broke off talks Friday with local government representatives on ways to decentralize fiscal authority, brushing off local-level opposition to proposed cuts in welfare subsidies.
Prime Minister Junichiro Koizumi said the government will wrap up the issue at its own discretion, but will take into account all opinions presented so far.
The end of the talks does not mean the government has abandoned the proposal, Chief Cabinet Secretary Shinzo Abe said at a news conference.
The talks were part of the prime minister's initiative to cut 3 trillion yen in central government subsidies to local governments over three years through fiscal 2006 in exchange for transferring some taxation authority to them.
The government hopes to reach a decision by the end of this month on specific ways to cut the remaining 600 billion yen worth of grants in the fiscal 2006 budget.
The proposal to cut ballooning welfare subsidies is one of the most contentious items being negotiated under the fiscal reform drive.
Under the current system, the central government bears the cost of three-quarters of welfare payments and municipalities cover the rest. Municipal governments under the law are responsible for administrative work on welfare.