The government and ruling parties finalized measures Wednesday that will cut 654 billion yen in subsidies to local governments and transfer 610 billion yen worth of tax authority to them in fiscal 2006.
The steps are key to reaching Prime Minister Junichiro Koizumi's goal to decentralize fiscal authority by fiscal 2006.
Local governments are expected to accept the package officially Thursday.
Along with steps already taken, the government will achieve Koizumi's target of cutting 4 trillion yen in grants to local governments and transferring 3 trillion yen worth of tax authority to them in a three-year plan, which started in fiscal 2004.
Wednesday's package includes cuts in state child allowance payments for single parents to one-third of the total from three-quarters and allowances for two-parent homes to one-third from two-thirds.
The local governments had demanded they be allowed to tax the construction and running of fire stations, public schools, welfare facilities and recycling plants. They will be allowed to collect half the taxes and the state will collect the other half.
The measure is a compromise, as the Finance Ministry's position has been that it cannot not transfer all public-facility taxation to local governments because the structures are financed by government bonds.
Another contentious item has been education.
The package fixes an 850 billion yen cut in subsidies to public school payrolls and recommends making the decreases through lowering state payments on all compulsory education -- to grade nine -- to one-third of the total costs from one-half.