OVERVIEW OF TOKYO

TOKYO'S FINANCIAL SYSTEM

Tokyo's Finances

Revenue

Metropolitan taxes provided for 67.9% of total metropolitan revenue in fiscal 2010. In light of the fact that local taxes accounted for just 35.8% of the total combined revenue of all local governments in fiscal 2009, the significantly large share held by local taxes in Tokyo’s revenues is a major feature of metropolitan finances.

The metropolitan government levies 16 of the local taxes listed in the Local Tax System chart. The largest proportion of total metropolitan tax revenue comes from the Fixed Assets Tax and the City Planning Tax (approximately 31.7%). This is followed by the two corporate taxes of Corporate Enterprise Tax and Corporate Inhabitant Tax (approximately 29.7%).

There are several items taxed directly by the metropolitan government in the 23 special wards, which in other prefectures are not levied by the prefectural authority but rather come under municipal taxes. This is because Tokyo provides services such as fire fighting and sewerage in the ward area, which would generally be carried out by the municipality. The government thus levies these taxes to allocate funds to pay for these operations, with 55% of tax revenue obtained from three taxes — Municipal Inhabitant Tax on Corporations, the Fixed Assets Tax, and the Special Land Ownership Tax — allocated to each of the wards to provide them with their own financial resources.

National treasury disbursements hold a smaller share in overall metropolitan revenue than in that of other local governments. National treasury disbursements accounted for 17.1% of total local government finances, while it accounted for only 7.3% of metropolitan finances.

Metropolitan bonds constitute an important financial resource to develop infrastructure and for urban renewal. To avoid a future increase of financial burdens, the metropolitan government is endeavoring to refrain from any undue reliance upon the flotation of metropolitan bonds, and to contain them to an appropriate degree.

Details of Tokyo Metropolitan Government Revenue

Details and Trends of Tokyo Metropolitan Government Revenue

Comparison of Revenue Breakdown

Tokyo Metropolitan Government: FY 2010 Settlement of Accounts All Local Governments: FY2009 Settlement of Accounts

Local Tax System

Note 1: indicates metropolitan tax Note 2: (Of municipal taxes) those marked with an asterisk are metropolitan taxes in the 23 special wards. Municipal inhabitant tax applying to corporations is imposed as metropolitan tax in the 23 special wards. ● indicates that the tax is not levied in Tokyo Metropolis. Note 3: Accommodation Tax, which is a unique tax levied by the TMG, is a discretionary special-purpose tax. Note 4: Special Land Ownership Tax has been suspended since fiscal 2003.

Breakdown of Estimated Metropolitan Tax Revenue for FY2010 (composition ratio)

Note1: Figures shown have been rounded off. The total amount of the estimated tax revenue may not agree with the sum of the individual taxes. Note2: This pie graph is calculated based on the general account.

Metropolitan Tax Revenue Trends (1993–2010)

*The figures for fiscal 2010 are estimated tax revenues.

Expenditure

The expenditure of the metropolitan government has significant differences from the expenditure of other local authorities. First, the government is responsible not only for the administration at a prefectural level but also for part of the administration in the ward area, which elsewhere would be carried out at the municipal level.

Another important difference is the special ward financial adjustment allocations, an expenditure item found only in Tokyo. The special ward financial adjustment system aims to have financial resources related to the metropolitan administration fairly distributed between the metropolitan government and the 23 special wards, as well as to correct the imbalances between the 23 special wards in their fiscal strengths and ensure that they can provide an adequate level of public services.

When expenditure is viewed by type, personnel expenses constitute approximately 25% of total expenditure; the majority of this is the staff salaries of the police and fire departments, schools and other personnel directly concerned with the lives of Tokyo’s residents. Ordinary construction costs exceed 10% of total expenditure. These are the costs to build social infrastructure such as roads and bridges, and facilities including schools and social welfare facilities. In addition, subsidies and other expenditures, which include allocations to the special wards for financial adjustments and subsidies for facility operation costs, also hold a large weight.

Introduction of a New Public Accounting System

Adding to the existing cash-basis accounting system, which corresponds to the budget system, in FY2006 the Tokyo Metropolitan Government (TMG) established double-entry bookkeeping and accrual-basis accounting standards that take into consideration characteristics particular to public administration. This was a first in Japan. Based on this financial accounting system unique to the metropolitan government, financial statements prepared in accordance with corporate accounting practices are released in the TMG Annual Financial Statements and other mediums.

(1) Balance Sheet (FY2010)

(2) Statement of Operating Costs (FY2010)

Challenges Facing Metropolitan Finances

The economy slumped significantly following the global economic crisis of 2008. With metropolitan tax revenue falling by approximately 1 trillion yen year-on-year in the FY2009 settlement of accounts and further decreasing in the FY2010 accounts, the metropolitan government is facing a difficult financial situation.

Although it seems unlikely that there will be any significant improvement in tax revenues in the near future, the TMG must not only steadily implement measures that have been advanced to date, but take bold actions as well to address new challenges made evident by the Great East Japan Earthquake such as the enhancement of disaster management capabilities.This makes it necessary to maintain the sound footing of public finances that support such efforts.

As such, along with continuing efforts to eliminate waste, the TMG will strive to raise its self-reform capabilities by, among other ways, enhancing its methods for project evaluation, which includes the further application of cost analysis based on the new accounting system perspectives, and thoroughly implementing efforts to improve the efficiency and effectiveness of each individual measure.

On this foundation, the TMG will continue its efforts to solve the many ongoing challenges facing the metropolis. With a firm eye on future financial burdens, bonds and funds will be systematically utilized while maintaining future fiscal response capabilities.

Details of Tokyo Metropolitan Government Expenditure (by Purpose)

Details of Tokyo Metropolitan Government Expenditure (by Type)

Details and Trends of Tokyo Metropolitan Government Expenditure

Expenditure Breakdown Comparison

Tokyo Metropolitan Government: FY 2010 Settlement of Accounts All Local Governments: FY2009 Settlement of Accounts