In his opening shot at fiscal 2004 budget reform, Prime Minister Junichiro Koizumi is calling for a substantial cut in government subsidies -- those strings-attached payments that have been roundly criticized for depriving local governments of fiscal freedom. Last week he told a meeting of Cabinet ministers that such payments will be slashed by 1 trillion yen in fiscal 2004.
At the same time, the prime minister made it clear that the proposed cuts will be matched more or less by the central government's transfer of authority to collect taxes. The idea, of course, is to make local governments financially more independent by replacing subsidies with discretionary tax revenues.
Subsidy reform was one of Mr. Koizumi's campaign promises in the Nov. 9 general election. He has pledged to trim such payments by 4 trillion yen over three years beginning in fiscal 2004. To deliver on that pledge, he will have to cut at least 1 trillion yen in the first year. He says this will be accomplished, as it should be, by shifting a portion of the income and consumption taxes.