[April 2025] The Local Government Financial Plan in Japan

In Japan, since the financial year begins in April, each local government finalises its annual budget in March. While this budgeting period is important, what is even more critical for local governments is the Local Government Financial Plan (LGFP), which provides the foundation for their financial outlook. Let me explain why.

Each year, the Cabinet prepares the LGFP, which forecasts total revenues and expenditures. This plan accounts for all sources of local government revenue—including local taxes, the total local allocation tax, as well as local bonds—in accordance with Article 7 of the Local Allocation Tax Law. The Cabinet is required to submit this plan to Parliament and make this information public.

Ideally, local governments should be able to cover their own expenditures through their own local tax revenues. However, many local governments have weak financial resources. The role of this plan is to guarantee local financial resources so that local governments can fulfil their responsibilities to their residents, regardless of annual disparities in tax revenues caused by the changes in population density and economic or industrial trends.

As such, local governments pay close attention to the LGFP every year, as it ensures that a sufficient amount of general financial resources is secured.