Government

Tokyo's Financial System

Financial Structure of Local Governments in Japan

The administrative system of Japan has a three-tiered structure: the top tier is the national government, and below that are the two tiers of local governments—prefectures and municipalities.

With the exception of administrative functions such as foreign relations and national defense, most of the administrative functions are financed both by the national government and local governments. Many of the national policies and programs are carried out by local governments.

In fiscal 2023, net total expenditure by the national government and local governments amounted to 94.3094 trillion yen and 111.6231 trillion yen, respectively. The scale of expenditure by local governments reached approximately 1.2 times that of the national government; this figure shows how extensive a role local governments play in the public administration of Japan.

The total amount of tax collected in fiscal 2023 was 122.0081 trillion yen, of which national taxes accounted for 63.4% and local taxes, 36.6%. However, the ultimate allocation of this revenue was 45.4% to the national government and 54.6% to the local governments. This is because about 30% of the taxes collected as national tax are distributed to local governments through systems such as local allocation taxes, local transfer taxes, and special grants to local governments.

Structure of Local Public Finance in Japan (Unit: ¥100 million, FY2023)

Revenue

Looking at the breakdown of revenue for local governments (FY2023), local taxes made up the largest proportion at 38.2%, followed by national treasury disbursements (18.1%), local allocation tax (16.3%), and local bonds (7.4%). In more detail, the sources of revenue for local governments are as follows:

Local Taxes

These are collected by local governments, and are the key source of revenue to carry out policies that meet local needs.

Local Transfer Taxes

Local transfer taxes are national taxes of which a fixed proportion of revenue collected is transferred to the local governments. Local transfer tax is an umbrella term covering taxes such as the local gasoline, special tonnage, petroleum and gas, automobile weight, aircraft fuel, and special corporate transfer taxes.

Local Allocation Taxes

These taxes form the core of the local financial adjustment system of the nation. The system is designed to sustain general revenue sources and to correct fiscal imbalance among local governments, thereby ensuring that all local governments are able to provide an adequate level of services. This general revenue source consists of grants to local governments calculated by a fixed formula, which allocates a percentage of revenues collected nationally. The percentage of revenue allocated to local governments is 33.1% of income tax, 50% of liquor tax, 33.1% of corporation tax, 19.5% of consumption tax, and 100% of local corporation tax.

National Treasury Disbursements

These include allotments disbursed by the national government to local governments on the basis of the cost allotment classifications of the national government and local governments; mandatory cost sharing; consignment costs; and subsidies for the promotion of specific policies and support for public finances.

Local Bonds

This is revenue from bonds issued by local governments to defray the cost of constructing public facilities such as roads and schools. These are costs that should be spread over a number of years to have generations of residents benefitting from their construction share the burden equally.

Distribution of Taxes (Unit: ¥100 million)

Note: Total figures may not equal the sum of components due to rounding.

Expenditure

The breakdown of local finance expenditure by administrative category during fiscal 2023 shows social welfare accounting for 27.9%, followed by education at 15.8%, and civil engineering works at 11.0%, with social welfare and education combined amounting to about 40% of total expenditure. The main items of expenditure of local governments are as follows:

Social Welfare

This expenditure provides social welfare services, including the development and operation of welfare facilities for children, the elderly, and people with disabilities, and serves to implement programs to provide public assistance, among others.

Public Health and Sanitation

The purpose of this expenditure is to maintain and promote the health of residents and improve the living environment. Funds go to carry out various medical policies, public health and mental health programs, sewage treatment, refuse collection and disposal, and measures to control pollution.

Agriculture, Forestry, and Fisheries

The purpose of this expenditure is to promote agriculture, forestry, and fisheries, and to maintain a stable supply of food. Funds go to develop the production infrastructure, improve the industrial structure, take measures related to consumption and distribution, and develop and promote agricultural, forestry, and fisheries technologies.

Commerce and Industry

This expenditure is for the promotion of local commerce and industry, and to help companies update and streamline operations. Funds go to guide and develop small and medium-sized enterprises, to attract companies to local areas, and to carry out consumption and distribution measures, among others.

Civil Engineering Works

This expenditure is for development of the local living environment and urban infrastructure. Funds go to construct, develop, and maintain public facilities such as roads, rivers, housing, and parks.

Education

Education is one of the basic administrative areas of local governments. Expenditure is made toward furthering education and culture through schools and social education programs.

Debt Services

This expenditure is for the redemption of capital and interest from the issue of local bonds.

Tokyo’s Finances

Revenue

Metropolitan taxes accounted for the largest portion of the settled account for metropolitan revenue in fiscal 2023 at 71.3%. In light of the fact that local taxes accounted for just 38.2% of the total combined revenue of all local governments in fiscal 2023, the large share held by local taxes in Tokyo’s revenues is a feature of metropolitan finances.

The metropolitan government levies 16 of the local taxes listed in the Local Tax System chart below. The largest proportion of total metropolitan tax revenue in fiscal 2023 came from the two corporate taxes of Corporate Business Tax and Corporate Inhabitant Tax (26.2%). This is followed by the Fixed Assets Tax and the City Planning Tax (19.3%).

There are several taxes levied 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. These special measures are taken to cover the expenses of services provided by Tokyo, such as fire fighting and sewerage in the ward area, which are generally carried out by the municipality. Then, 55.1% of the combined total of revenues from municipal inhabitant tax on corporations, fixed assets tax, and special land possession tax, and the corporate business tax grant and special grant for fixed assets tax reduction compensation, is allocated to each of the wards to provide them with their own financial resources.

National treasury disbursements account for a small share of Tokyo’s total revenue compared to that of other local governments. In fiscal 2023, this category accounted for 18.1% of total local government finances but only 7.4% of metropolitan finances.

Metropolitan bonds constitute an important financial resource for infrastructure development and 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 within an appropriate level.

Details of Tokyo Metropolitan Government Revenue

Details and Trends of Tokyo Metropolitan Government Revenue

Comparison of Revenue Breakdown

Tokyo Metropolitan Government: FY2023 Settlement of Accounts
All Local Governments: FY2023 Settlement of Accounts

Local Tax System (As of April 1, 2025)

Breakdown of Metropolitan Tax Revenue for FY2024 (composition ratio)

Note: Figures shown have been rounded off. The total amount of the estimated tax revenue may not agree with the sum of the individual taxes.

Metropolitan Tax Revenue Trends (2003–2024)

Expenditure

The expenditure of the metropolitan government has significant differences from the expenditure of other local authorities. First, Tokyo is responsible not only for administration at a prefectural level but also for a portion of the administrative services in the special-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 constituted approximately 20% of total expenditure in fiscal 2023; the majority of this was 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 accounted for about 10% of total expenditure. These were the costs to build social infrastructure such as roads and bridges, and facilities including schools and social welfare facilities. Subsidies and other expenditures, which include allocations to the special wards for financial adjustments and subsidies for facility operation costs, also made up a large proportion.

Introduction of a New Public Accounting System

In addition to the existing cash-basis accounting system, which corresponds to the budget system, in FY2006 the Tokyo Metropolitan Government (TMG) introduced double-entry bookkeeping and accrual-basis accounting standards that take into consideration the specific characteristics of public administration. This was a first for 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 media.

Balance Sheet
(FY2023)

Statement of Operating Costs
(FY2023)

Note: Due to rounding of figures in the above tables, the totals may not correspond with the sum of the separate figures.

Challenges Facing Metropolitan Finances

While Japan’s economy is expected to continue its gradual recovery as employment and income conditions improve, upcoming economic developments, including inflation, uncertainty in overseas economic trends and policy direction, and fluctuations in financial and capital markets, must continue to be closely monitored.

In addition, since corporate-related taxes account for a significant share of metropolitan tax revenues—the mainstay of Tokyo’s revenues—the fiscal structure is inherently vulnerable to economic fluctuations, making accurate projections of the metropolitan government’s fiscal outlook difficult.

Meanwhile, the international situation is changing at an accelerated speed, and the immediate environment is acutely feeling structural challenges such as population decline, an aging society with fewer children, and preparation for natural disasters. As the environment surrounding the metropolitan government grows ever more severe, initiatives must be taken to protect the capital and to forge a future Tokyo brimming with hope.

Of particular importance for Tokyo’s sustainable growth is the provision of support to people, the source of the city’s dynamism. It is essential to further strengthen “children first” measures to support children and young people who hold Tokyo’s future in their hands, and to also realize a society where those who wish to marry and have children can do so with confidence. At the same time, Tokyo must become a city where each individual shines and everyone can fulfill their dreams and hopes for the future; this can be achieved through the preparation of an environment where women, older adults, and all others can continue to lead active lives in their own way.

It is also crucial to strengthen global competitiveness so that Tokyo can drive the world’s transformation and growth. In addition to fostering startups and supporting the growth of companies, it is imperative to build an environment befitting an international financial city, and to also promote digital transformation (DX) in policy to solve societal challenges in order to improve government services for the enhanced convenience of residents. This includes the active utilization of the Tokyo App. Among other policies that must be steadily advanced are sustainable urban development that achieves a harmony between nature and urban functionality, as well as revitalization of the Tama area and the Tokyo islands.

Moreover, along with building the city’s resilience to disasters resulting from increasingly intense and frequent storms and an impending large-scale earthquake, it is important to safeguard the lives and livelihoods of Tokyo residents against all risks including those threatening public safety. And as prolonged inflation is making life increasingly difficult for residents, multi-tiered support must be implemented quickly and steadily while considering socioeconomic conditions and other circumstances. In response to the climate crisis, it is also essential for Tokyo to lead the world in energy conservation and decarbonization through its advanced technologies including the social application of renewable energy and the spread of green hydrogen.

In consideration of the above circumstances, the Tokyo Metropolitan Government will further accelerate the promotion of measures to realize the new vision for Tokyo and the structural reform of the metropolitan government based on the Tokyo 2050 Strategy and Shin Tosei X: Strategy for the Structural Reform of TMG to Upgrade QOS 2.0. Alongside such efforts, by strengthening initiatives using creativity and ingenuity to curb wasteful spending, Tokyo will maintain a resilient and sustainable fiscal foundation.

Details of Tokyo Metropolitan Government Expenditure (by Purpose)