White Paper on Local Public Finance, 2017

FY215 Settlement White Paper on Local Public Finance, 217 Illustrated

Contents The Role of Local Public Finance 1 FY215 Settlement Overview 5 Revenues 7 1. Revenue Breakdown 7 2. Revenues in Regular Portion and Great East Japan Earthquake Portion 8 3. Revenue Trends 9 4. Ratio of National Taxes and Local Taxes 1 5. Local Taxes (Composition, Trends, Index of Per Capita Tax Revenue) 1 6. Local Allocation Tax 13 Expenditures 14 1. Expenses Classified by Purpose 14 2. Expenditures in Regular Portion and Great East Japan Earthquake Portion (Expenses Classified by Purpose) 15 3. Breakdown of Expenses Classified by Purpose (Public Welfare Expenses, Educational Expenses, Civil Engineering Work Expenses) 16 4. Expenses Classified by Type 18 5. Expenditures in Regular Portion and Great East Japan Earthquake Portion (Expenses Classified by Type) 19 6. Breakdown of Expenses Classified by Type (Social Assistance Expenses, Personnel Expenses, Ordinary Construction Work Expenses, Subsidizing Expenses, Transfers to Other Accounts) 2 Flexibility of the Financial Structure 24 1. Ordinary Balance Ratio (Trends and Breakdown) 24 2. Real Debt Service Ratio and Debt Service Payment Ratio (Trends) 25 Future Financial Burden 26 1. Trends in Local Bonds and Debt Burden 26 2. Trends in Outstanding Borrowing Borne by the Ordinary Accounts 26 Local Public Enterprises 27 1. Presence of Local Public Enterprises 27 2. Number of Businesses Operated by Local Public Enterprises 28 3. Scale of Financial Settlement 28 4. Financial Status 29 Impact of Great East Japan Earthquake 3 1. Settlement of Disaster-Struck Organizations (Revenues, Expenditures (Classified by Purpose, Type)) 3 2. Financial Status of Businesses of Local Public Enterprises of Disaster-Struck Organizations 32 Promotion of the Soundness of Local Public Finance 33 1. Overview of the Act on Assurance of Sound Financial Status of Local Governments 33 2. Status of the Ratios for Measuring Financial Soundness and Financial Shortfall Ratio 34 1 Net totals of the revenues and expenditures are the ordinary net account totals of 3,71 organizations (47 prefectures, 1,718 municipalities, 23 special wards, 1,217 partial administrative associations and 113 widearea local public bodies). 2 Figures for each item that are less than the given unit are rounded off. Therefore, they do not necessarily add up exactly to the total. 3 In FY211, the revenues and expenditures of ordinary accounts were divided into the regular portion (Overall settlement figures less the Great East Japan Earthquake portion) and the Great East Japan Earthquake portion (Covering the revenues and expenditures related to recovery and reconstruction work and nationwide disaster prevention work).

The Role of Local Public Finance Prefectures and municipalities (cities, towns, and villages) are the central actors in various areas of public services, including school education, public welfare and health, police and fire services, and public works such as roads and sewage systems, thereby fulfilling a major role in the lives of the citizens of the nation. This brochure describes the status of local public finance (which comprises collectively the finances of individual local governments), the state of settlements for FY215, and the initiatives of local governments towards sound public finances (mainly the status of the ratios for measuring their financial soundness), with particular attention given to ordinary accounts (Public enterprises, such as water supply, transportation, and hospitals are described in the section on Local Public Enterprises). Classification of the Accounts of Local Governments Applied in the Settlement Account Statistics The accounts of local governments are divided into the general accounts and the special accounts, but classification of these accounts varies between local governments. Therefore, the accounts are classified in a standardized manner into ordinary accounts, which cover the general administrative sector, and other accounts (public business accounts). This makes it possible to clarify the financial condition of local governments as a whole and to make a statistical comparison between local governments. Local Government Accounts General administrative sector accounts Ordinary accounts School education Welfare Roads Fire service Etc. Public enterprise accounts Other accounts (Public business accounts) Water supply Transportation Electrical power Gas Hospitals Sewerage systems Residential land development Etc. National health insurance accounts Latter-stage elderly medical care accounts Nursing care insurance accounts Etc. 1 White Paper on Local Public Finance, 217

How large is local public finance? The ratio of expenditure by local governments in gross domestic product (nominal) is 11.%, about 2.7 times that of the central government. Gross Domestic Product (Expenditure, nominal) and Local Public Finance (FY215) (trillion yen) 45 4 Gross Domestic Product (expenditure, nominal) 532,191.4 billion (1%) 399,49.6 billion (75.%) 35 3 25 311,161.2 billion (58.5%) 2 132,767.9 billion (24.9%) 15 7,312.5 billion (1.4%) 1 45,55.7 billion (8.5%) 5 58,575.8 billion (11.%) 88,248.4 billion (16.6%) 21,824. billion (4.1%) 13.9 billion (.%) Public sector Private sector Net export of goods and services 5 Central government Social security funds Local governments Public corporations Corporate sector Household sector Net export Local Public Finance, 217 Illustrated 2

The Role of Local Public Finance How large is local government expenditure in total public expenditure? Looking at the breakdown of public expenditure classified by final expenditure entity, local government expenditure accounts for 42.8% of Government final consumption expenditure, and 49.4% of Public gross capital formation. As a final expenditure entity, local governments above the central government and play a major role for the national economy. Breakdown of public expenditures Public corporations 7,312.5 billion (5.5%) Public gross capital formation 7,312.5 billion (5.5%) Local governments 58,575.8 billion (44.1%) Government final consumption expenditure 45,372.5 billion (34.2%) Public gross capital formation 13,23.3 billion (9.9%) Public expenditures 132,767.9 billion (1.%) Central government 21,824. billion (16.4%) Government final consumption expenditure 15,642.7 billion (11.8%) Public gross capital formation 6,181.3 billion (4.7%) Social security funds 45,55.7 billion(33.9%) Government final consumption expenditure 45,11.2 billion (33.9%) Public gross capital formation 44.5 billion (.%) Government final consumption expenditure 16,26.4 billion Public gross capital formation 26,741.6 billion 14.8% 42.5% 42.8% 23.1%.2% 49.4% 27.3% 2 4 6 8 1 (%) Central government Social security funds Local governments Public corporations Trends in public expenditures 6,854.1 (1.3) 33,958.6 (6.5) 23,227. (4.4) 58,829.8 (11.2) 6,689.1 (1.3) 34,. (6.4) 22,88.2 (4.3) 57,44. (1.8) 7,54.1 (1.3) 35,257.8 (6.6) 22,688.3 (4.3) 56,67.7 (1.7) 6,972. (1.4) 36,9.9 (7.1) 22,667.9 (4.4) 54,777.4 (1.8) 7,76. (1.4) 37,489. (7.6) 23,168.8 (4.7) 55,432.7 (11.3) 6,541.5 (1.3) 38,914.2 (7.8) 21,368.5 (4.3) 55,931.6 (11.2) 6,321.2 (1.3) 4,355.5 (8.2) 21,232.4 (4.3) 56,53.6 (11.4) 6,679.3 (1.4) 41,436.6 (8.4) 2,883.7 (4.2) 55,776. (11.3) 6,777.2 (1.3) 42,467.3 (8.4) 22,798. (4.5) 56,739.3 (11.2) 7,16. (1.4) 43,587.9 (8.4) 22,455.5 (4.3) 58,392.3 (11.3) 7,312.5 (1.4) 45,55.7 (8.5) 21,824. (4.1) 58,575.8 (11.) Public corporations Social security funds Central government Local governments Public expenditures FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 122,869.6 billion (23.4) (47.9) 12,91.3 billion (22.8) (47.5) 121,67.9 billion (22.9) (46.6) 12,427.1 billion (23.6) (45.5) 123,166.6 billion (25.) (45.) 122,755.8 billion (24.6) (45.6) 123,962.7 billion (25.1) (45.2) 124,775.6 billion (25.2) (44.7) 128,781.9 billion (25.4) (44.1) 131,451.8 billion (25.4) (44.4) 132,767.9 billion (24.9%) (44.1%) Amount of public expenditures Percentage of public expenditures in gross domestic product (expenditure, nominal) Local share of public expenditures 3 White Paper on Local Public Finance, 217

In which areas is the share of local expenditures high? The below graph shows central and local governments expenditures by purpose as a share of net total expenditure, classified by final expenditure entity. The share of local governments expenditures is higher in areas that are deeply related to daily life, such as public welfare, sanitation, and school education. Share of Expenditures by Purpose of Central and Local Governments (final expenditure based) Local 58. % Central 42. % Sanitation 3.8% Public health centers, garbage disposal, etc. 99% % 1% % School education 8.9% Elementary and junior high schools, kindergartens, etc. 88% % 12% % Judicial, police, and fire service 4.% Social education, etc. 2.8% Community centers, libraries, museums, etc. 79% % 21% % 78% % 22% % Public welfare (excluding pension ) 21.8% Child welfare, elderly care and welfare, public assistance, etc. 7% % 3% % Land development 7.9% Urban planning, roads and bridges, public housing, etc. 75% % 25% % Land conservation 1.4% Commercial and industrial 5.% Disaster recovery, etc..6% Rivers and coasts 67% % 33% % 65% % 35% % 76% % 24% % Debt services 21.3% 36% % 64% % Agriculture, forestry and fishery 1.8% Housing, etc. 1.6% Onkyu pension.2% Pension (of public welfare ) 6.6% Defense 3.% 43% 57% % % 49% % 51% % 3% % 1% % 1% % 97% General administrative, etc. 7.8% Other 1.5% Family register, basic resident register, etc. 78% % 22% % 1% % Local Public Finance, 217 Illustrated 4

FY215 Settlement Overview Revenues 11,917.5 billion (down 166. billion,.2% year on year) Regular portion: 97,511. billion (up 2.6 billion,.% year on year) Great East Japan Earthquake portion: 4,46.5 billion (down 186.6 billion, 4.1% year on year) The increase of revenues in the regular portion resulted from an increase in local taxes. The decrease in revenues in the Great East Japan Earthquake portion resulted from a decrease in National treasury disbursements, etc. Expenditures 98,45.2 billion (down 117.6 billion,.1% year on year) Regular portion: 94,57.8 billion (up 59.6 billion,.1% year on year) Great East Japan Earthquake portion: 3,833.4 billion (down 177.2 billion, 4.4% year on year) The increase of expenditures in the regular portion resulted from an increase in Social assistance, and subsidies, etc. The decrease in expenditures in the Great East Japan Earthquake portion resulted from a decrease in reserves, etc. Revenue and Expenditure Settlement The real balance showed a surplus of 1,962.4 billion. Category Settlement Period No. of local governments with a deficit FY215 FY214 FY215 FY214 Real balance 1,962.4 billion 1,838.3 billion 2 Single year balance 125.2 billion 119.8 billion 1,133 1,65 Real single year balance 51.8 billion 231.9 billion 1,55 1,52 Notes : Real balance refers to the amount calculated by subtracting the revenue resources that should be carried over to the next fiscal year from the income expenditure balance. Single year balance refers to the amount calculated by subtracting the real balance of the previous fiscal year from the real balance of the relevant fiscal year. Real single year balance refers to the amount calculated by adding reserves and advanced redemption of local loans for the public finance adjustment fund to the single year balance and subtracting public finance adjustment fund reversals. 5 White Paper on Local Public Finance, 217

Trend in Scale of Account Settlement Both revenues and expenditures of the regular portion have increased for three consecutive years. (trillion yen) 15 1 95 9 92.9 9.7 5. 95. 1.1 97. 4.5 92.5 6. 93.8 99.8 96.4 5.3 91.1 4.9 96.2 11.1 97.4 4.2 4.6 12.1 98.5 Earthquake portion 4.4 4. 97.5 97.5 11.9 trillion 98.4trillion 93.2 94.5 94.6 Earthquake portion 3.8 85 FY25 FY211 FY212 FY213 FY214 FY215 Revenues (Regular portion) Expenditures (Regular portion) Revenues (Earthquake portion) Expenditures (Earthquake portion) Major Financial Indices Ordinary balance ratio declined.4 percentage points year on year, to 91.7%. Real debt service ratio declined.5 percentage points, to 9.9%. Category FY215 FY214 Change Ordinary balance ratio 91.7% 92.1%.4 Real debt service ratio 9.9% 1.4%.5 Outstanding Borrowing Borne by Ordinary Accounts Outstanding borrowing, which includes outstanding local government borrowing as well as borrowing from the special accounts for Local allocation tax and Outstanding public enterprise bonds (borne by ordinary accounts), amounted to 199,84.9 billion (down 1,456.5 billion,.7% year on year). Category FY215 FY214 Change amount Change rate Outstanding local government bonds 145,514.3 billion 145,999.6 billion 485.3 billion.3% Outstanding local government bonds (excluding Bonds for the extraordinary financial measures) Outstanding borrowing from the special accounts for Local allocation tax Outstanding public enterprise bonds (borne by ordinary accounts) 94,847.6 billion 97,496.6 billion 2,649. billion 2.7% 32,817.3 billion 33,117.3 billion 3. billion.9% 2,753.3 billion 21,424.5 billion 671.2 billion 3.1% Total 199,84.9 billion 2,541.4 billion 1,456.5 billion.7% Note : Outstanding public enterprise bonds (borne by ordinary accounts) are the Public enterprise bonds to be redeemed by public corporations from funds in the Ordinary accounts (amount based on surveys on local public finance). Local Public Finance, 217 Illustrated 6

Revenues What are the revenue sources for local governments activities? Revenue Breakdown The revenue of local governments consists mainly of Local taxes, Local allocation tax, National treasury disbursements, and Local bonds, in order of share size. Among them, revenue resources which can be spent for any purpose, such as Local taxes and Local allocation tax, are called General revenue resources. It is important for local governments to ensure sufficient General revenue resources in order to handle various administrative needs properly. In FY215, General revenue resources accounted for 58.2%. Composition of Revenues (FY215 settlement) Other revenue resources 16,66. billion (16.3%) General revenue resources 59,287.3 billion (58.2%) Local bonds 1,688. billion (1.5%) Bonds for the extraordinary financial measures 4,433.7 billion (4.4%) National treasury disbursements 15,282.2 billion (15.%) Net total 11,917.5 billion Local taxes 39,98.6 billion (38.4%) Local transfer tax 2,679.2 billion (2.6%) Special local grants 118.9 billion (.1%) Local allocation tax 17,39.6 billion (17.1%) Other revenue resources 8,927.3 billion (17.2%) General revenue resources 31,294.9 billion (6.1%) Other revenue resources 9,574.4 billion (16.3%) General revenue resources 31,39.5 billion (52.9%) Local bonds 5,528.1 billion (1.6%) Bonds for the extraordinary financial measures 2,592.3 billion (5.%) National treasury disbursements 6,299.6 billion (12.1%) Prefectures total 52,49.9 billion Local taxes 2,142.6 billion (38.7%) Local transfer tax 2,257.8 billion (4.3%) Special local grants 47.5 billion (.1%) Local allocation tax 8,845.7 billion (17.%) Other general revenue resources 1.2 billion (.%) Prefectural disbursements 3,945.2 billion (6.7%) Local bonds 5,187.1 billion (8.8%) Bonds for the extraordinary financial measures 1,841.4 billion (3.1%) National treasury disbursements 8,982.5 billion (15.3%) Municipalities total 58,728.7 billion Local taxes 18,956. billion (32.3%) Local transfer tax 421.4 billion (.7%) Special local grants 71.3 billion (.1%) Local allocation tax 8,544.9 billion (14.5%) Other general revenue resources 3,45.9 billion (5.3%) Local transfer tax Special local grants Local allocation tax National treasury disbursements Local bonds Bonds for the extraordinary financial measures : Collected as a national tax and transferred to local governments. Includes Local gasoline transfer tax, etc. : Special local grants in FY215 include special grants for covering decreases in local tax revenues issued to cover decreases in revenues of local governments in association with the implementation of special tax deductions for housing loans in the individual inhabitant tax. : An intrinsic revenue source of local governments in order to adjust imbalances in tax revenue among local governments and to guarantee revenue sources so that all the local governments across the country can provide a consistent level of public services. (See page.13, 6. Local Allocation Tax. ) : A collective term for the national obligatory share, commissioning, incentives for specific policies, or financial assistance, disbursed from the central government to local governments. : The debts of local governments to be repaid over a period of time in excess of one fiscal year for which redemption continues for more than one fiscal year. : Local bonds issued as an exception to Article 5 of the Local Finance Law to address shortages of General revenue resources of local governments. Proceeds from these bonds can be used for other than investment. Note : National treasury disbursements includes special grants to measures for traffic safety and grants to cities, towns and villages where national institutions are located. 7 White Paper on Local Public Finance, 217

Revenues in Regular Portion and Great East Japan Earthquake Portion Net Total Other revenue resources 14,668.7 billion (15.1%) Local bonds 1,41. billion (1.7%) National treasury disbursements 13,889.5 billion (14.2%) Of this amount, ordinary construction were 1,384.2 billion (1.4%) Of this amount, recovery and reconstruction were 139.4 billion (.1%) General revenue resources 58,551.8 billion (6.%) Regular portion 97,511. billion Other revenue resources 1,991.3 billion (45.2%) Great East Japan Earthquake portion 4,46.5 billion General revenue resources 735.5 billion (16.7%) Of this amount, earthquake disaster reconstruction allocation tax was 588.9 billion (13.4%) National treasury disbursements 1,392.7 billion (31.6%) Of this amount, ordinary construction were 19.9 billion (4.3%) Of this amount, recovery and reconstruction were 335.3 billion (7.6%) Of this amount, grants to measures for earthquake disaster reconstruction were 35.5 billion (6.9%) Local bonds 287. billion (6.5%) Prefectures Other revenue resources 7,689.9 billion (15.6%) Local bonds 5,47.4 billion (11.1%) National treasury disbursements 5,419. billion (1.9%) Of this amount, ordinary construction were 944.2 billion (1.9%) Of this amount, recovery and reconstruction were 98.7 billion (.2%) General revenue resources 3,888.8 billion (62.4%) Regular portion 49,468.1 billion Other revenue resources 1,237.4 billion (48.%) Great East Japan Earthquake portion 2,581.8 billion General revenue resources 46.1 billion (15.7%) Of this amount, earthquake disaster reconstruction allocation tax was 316.3 billion (12.2%) National treasury disbursements 88.7 billion (34.1%) Of this amount, ordinary construction were 51.8 billion (2.%) Of this amount, recovery and reconstruction were 272.9 billion (1.6%) Of this amount, grants to measures for earthquake disaster reconstruction were 38.1 billion (1.5%) Local bonds 57.6 billion (2.2%) Municipalities Other revenue resources 8,751. billion (15.5%) Local bonds 4,957.1 billion (8.8%) Prefectural disbursements 3,55.4 billion (6.3%) National treasury disbursements 8,47.5 billion (15.%) Of this amount, ordinary construction were 44. billion (.8%) Of this amount, recovery and reconstruction were 4.7 billion (.1%) General revenue resources 3,71.1 billion (54.4%) Regular portion 56,439.1 billion Other revenue resources 823.2 billion (36.%) Great East Japan Earthquake portion 2,289.5 billion General revenue resources 329.4 billion (14.4%) Of this amount, earthquake disaster reconstruction allocation tax was 272.7 billion (11.9%) National treasury disbursements 512. billion (22.4%) Of this amount, ordinary construction were 139.2 billion (6.1%) Of this amount, recovery and reconstruction were 62.4 billion (2.7%) Of this amount, grants to measures for earthquake disaster reconstruction were 267.4 billion (11.7%) Prefectural disbursements 394.8 billion (17.2%) Local bonds 23.1 billion (1.%) Local Public Finance, 217 Illustrated 8

Revenues Revenue Trends The ratio of general revenue resources turned downward in FY211, but have been rising since FY214. Net Total 1.8 trillion (2.%) 1.5 trillion (1.6%) 2.9 trillion (3.1%) FY25 34.8 trillion (37.4%) 55.1 trillion (59.3%) 17. trillion (18.2%) 11.9 trillion (12.8%) 1.4 trillion (11.2%) 15.5 trillion (16.7%) 92.9 trillion [ 58. trillion (62.4%)] 2.2 trillion (2.2%).4 trillion (.4%) 5.9 trillion(5.9%) FY211 34.2 trillion (34.1%) 55.5 trillion(55.4%) 18.8 trillion (18.7%) 16. trillion (16.%) 11.8 trillion (11.8%) 16.8 trillion (16.8%) 1.1 trillion [ 61.3 trillion (61.3%)] 2.3 trillion (2.3%).1 trillion (.1%) 5.9 trillion (5.9%) FY212 34.5 trillion (34.5%) 55.1 trillion (55.2%) 18.3 trillion (18.3%) 15.5 trillion (15.6%) 12.3 trillion (12.4%) 16.9 trillion (16.8%) 99.8 trillion [ 61.1 trillion(61.2%)] 2.6 trillion (2.5%).1 trillion (.1%) 6. trillion (6.%) FY213 35.4 trillion (35.%) 55.7 trillion (55.%) 17.6 trillion (17.4%) 16.5 trillion (16.3%) 12.3 trillion (12.2%) 16.6 trillion (16.5%) 11.1 trillion [ 61.7 trillion (61.%)] 2.9 trillion (2.9%).1 trillion (.1%) 5.5 trillion (5.4%) FY214 36.8 trillion (36.%) 57.3 trillion (56.1%) 17.4 trillion (17.1%) 15.5 trillion (15.2%) 11.5 trillion (11.3%) 17.8 trillion (17.4%) 12.1 trillion [ 62.7 trillion (61.5%)] 2.7 trillion (2.6%).1 trillion (.1%) 4.4 trillion (4.4%) FY215 39.1 trillion (38.4%) 59.3 trillion (58.2%) 17.4 trillion (17.1%) 15.3 trillion (15.%) 1.7 trillion (1.5%) 16.7 trillion (16.3%) 11.9 trillion [ 63.7 trillion (62.5%)] 1 trillion yen General revenue resources Local taxes Local transfer tax Special local grants Local allocation tax National treasury disbursements Local bond Bonds for the extraordinary financial measures Other revenue resources [ ] shows general revenue resources + bonds for the extraordinary financial measures. Note : National treasury disbursements includes special grants to measures for traffic safety and grants to cities, towns and villages where national institutions are located. 9 White Paper on Local Public Finance, 217

Ratio of National Taxes and Local Taxes The total of taxes collected as national and local taxes amounted to 99,68. billion. Of this amount, national and local taxes accounted for 6.5% and 39.5% respectively. Local taxes 39,98.6 billion (39.5%) Prefectural taxes 18,22.2 billion (18.2%) Total amount of taxes 99,68. billion National taxes 59,969.4 billion (6.5%) Municipal taxes 21,76.3 billion (21.3%) Local Taxes Local taxes consist of prefectural taxes and municipal taxes. Note : Municipal taxes collected by the Tokyo Metropolitan Government are included in municipal tax revenue figures, but not included in prefectural tax revenue figures. Composition of Revenue from Prefectural Taxes (FY215 settlement) Automobile acquisition tax 137.3 billion (.8%) Prefectural tobacco tax 153. billion (.8%) Real estate acquisition tax 376.8 billion (2.1%) Light oil delivery tax 924.5 billion (5.1%) Automobile tax 1,542.8 billion (8.6%) Local consumption tax 4,974.2 billion (27.6%) Total 18,22.2 billion Other taxes 99.7 billion (.6%) Prefectural inhabitant tax 6,11.5 billion (33.9%) On interest paid 95.4 billion (.5%) Individual 5,171.7 billion (28.7%) Corporate 843.5 billion (4.7%) Enterprise tax 3,73.4 billion (2.5%) Corporate 3,59.5 billion (19.5%) Individual 193.9 billion (1.1%) Composition of Revenue from Municipal Taxes (FY215 settlement) Other taxes 592.8 billion (2.8%) Municipal tobacco tax 936.1 billion (4.4%) City planning tax 1,244.4 billion (5.9%) Fixed asset tax 8,755. billion (41.5%) Total 21,76.3 billion Municipal inhabitant tax 9,548. billion (45.3%) Individual 7,223.7 billion (34.3%) Corporate 2,324.3 billion (11.%) Local Public Finance, 217 Illustrated 1

Revenues Prefectural tax revenues had been on a downward trend since FY28, but have increased for four consecutive years since they turned upward in FY212. Trends in Prefectural Tax Revenues (trillion yen) 2 18 16 14 12 1 8 6 4 2 15.2 1.1 1.8 2.6 4.7 1. 2.4 FY25..5.3.5.2 4.9.2 3.6 14.8.1 15.7.9 13.8 14.1.1.1.9 1.6.9.9.2.2.2 1.6 1.6 1.6.2.3.3.4.3.3 3.1 2.6 2.6 2.6.2.2.2 3. 2.2 2.4 2.4 2.5 2.7 2.9.8.8.8 1..1.1.1 5.4 5.6 5.9 4.5 4.7 5. 5.1 FY211 FY212 FY213 FY214..1.2.4.2 3.2.1 6.2 18. trillion.9 1.5 5. 3.5.8 5.2 FY215.1.1.2.4.2 3.7.1 6.1 Prefectural inhabitant tax Individual On interest paid Corporate Enterprise tax Corporate Individual Local consumption tax Real estate acquisition tax Prefectural tobacco tax Automobile tax Automobile acquisition tax Light oil delivery tax Other taxes Municipal tax revenues remained at almost the same level for the past five years. Trends in Municipal Tax Revenues (trillion yen) 22 2 18 19.6.5 1.2.8 2.4.5 1.3.9 2.3.5 1.2.9 2.6.5 1.2 1. 21.1.5 1.2 1. 21.1 trillion.7 1.2.9 16 14 12 1 8 6 4 2 8.9 2.5 5.7 9. 8.6 8.7 8.8 8.8 2. 2.1 2.2 2.4 2.3 8.2 8.7 9.1 9.2 9.6 6.7 6.9 7. 7.1 7.2 9.5 FY25 FY211 FY212 FY213 FY214 FY215 Municipal inhabitant tax Individual Corporate Fixed asset tax Municipal tobacco tax City planning tax Other taxes Note : Municipal tax revenue figures include municipal taxes collected by the Tokyo Metropolitan Government. 11 White Paper on Local Public Finance, 217

In order for local governments to provide public services in response to local needs on their own responsibility and at their own discretion, it is necessary to build a less imbalanced and stable local tax system. Comparing local tax revenue amounts, with the national average set at 1, Tokyo, the highest, was approximately 2.5 times the amount for Okinawa Prefecture, which was the lowest. Index of Per Capita Revenue in Local Tax Revenue (with national average as 1) FY215 settlement amount Local taxes total Individual inhabitant tax Two corporate taxes Local consumption tax (post settlement) Fixed asset tax 38.3trillion 12.trillion 6.trillion 5.trillion 8.7trillion Max/Min 2.5 Max/Min 2.6 Max/Min 6.2 Max/Min 1.6 Max/Min 2.4 Hokkaido Aomori Iwate Miyagi Akita Yamagata Fukushima Ibaraki Tochigi Gunma Saitama Chiba 83.6 71.2 77. 92.5 7.4 75.9 89.5 91.6 98.1 95.3 88.8 92.9 79.3 63.9 69.3 86.6 62.3 7.8 79.2 9.3 9.1 86.9 15.6 11.7 62.9 53.1 64.8 95.4 54.2 57.4 94.6 81.9 94.8 98.6 6. 66.8 15.3 96.7 96.4 98.6 12.1 96.9 98.3 88.3 11.7 99.9 82.7 83.5 76.3 73.8 75.3 82.8 69.7 74.7 83.6 94.6 1.1 97.3 88.4 91.8 Tokyo 165.9 162. 251.4 13.4 158.9 Kanagawa 15.4 128.6 81.8 89.5 14.7 Niigata Toyama Ishikawa Fukui Yamanashi Nagano Gifu Shizuoka Aichi Mie Shiga Kyoto Osaka Hyogo Nara Wakayama Tottori Shimane Okayama Hiroshima Yamaguchi Tokushima Kagawa Ehime Kochi Fukuoka Saga Nagasaki Kumamoto Oita Miyazaki Kagoshima Okinawa National average 88. 93.6 95.6 98.9 94. 88.2 89.4 13.2 118.6 94.6 92.3 94.4 14.4 93.9 75.7 77.1 72.9 75.9 89.7 94.5 85.3 82.5 88. 79.5 72. 88. 76.8 7.1 73.6 78.8 72. 71.6 67.1 1. 76.8 89.5 89.6 86.3 84.2 83.3 87.3 98.5 114.9 93.4 93.2 94.4 95. 99.4 92.2 74.1 69.3 72.6 84. 92.8 81.2 75.7 83.4 71.8 7.3 84.8 7. 68.8 69.5 7.7 64.5 65.2 61.3 1. 81.7 85.7 92.6 15.1 19.5 77.5 74.6 96.2 142.2 83. 85.3 82.6 118.8 72.3 4.5 53.3 56.9 67.5 76.5 88.3 74.2 75.5 91.2 71.9 55.3 78.8 62.2 51.6 55.7 61.7 53. 5.8 52.6 1. 98.3 12.1 16.4 13.8 12.6 14.3 96.4 14.5 14.5 88.2 87.9 15.2 15.7 89.2 83.1 9.2 99.8 97.2 95.7 11.8 93.6 95.9 14.6 95.8 99.7 1.5 98. 97.7 99.5 96.7 1.3 97.5 81.9 1. 96.4 96.8 92.6 19.6 94.9 9.3 92. 18.5 116.7 11.2 98.5 95.6 15.4 99.3 71.4 81.8 73.6 78. 93.9 93.7 9.1 88. 84.7 91.1 71.8 87.2 79. 67.3 73.6 84.7 74.5 75.8 81. 1. 5 1 15 2 5 1 15 2 5 1 15 2 25 3 5 1 15 2 5 1 15 2 Notes : 1. Max/Min indicates the value obtained by dividing the maximum value of per-capita tax revenue for each prefecture by the minimum value. 2. Local tax revenue amounts exclude overassessment and discretionary taxes, etc. 3. Individual inhabitant tax revenue is the total of the prefectural individual inhabitant tax (on a per-capita basis and on an income basis) and the municipal individual inhabitant tax (on a per-capita basis and on an income basis), and excludes overassessment. 4. Revenue from the two corporate taxes is the total of the corporate prefectural inhabitant tax, the corporate municipal inhabitant tax, and the corporate business tax (excluding local corporation special transfer tax) and excludes overassessment, etc. 5. Fixed asset tax revenues include prefectural amounts, and exclude overassessment. 6. Calculations were made in accordance with the basic resident register population as of January 1, 216. Local Public Finance, 217 Illustrated 12

Revenues Local Allocation Tax From the perspective of local autonomy, it would be the ideal for each local government to ensure the revenue sources necessary for their activities through Local tax revenue collected from their residents. However, there are regional imbalances in tax sources, and many local governments are unable to acquire the necessary tax revenue. Accordingly, the central government collects revenue resources that would essentially be attributable to Local tax revenue and reallocates them as Local allocation tax to local governments that have weaker financial capabilities. 1.Determining the total amount of Local allocation tax The total amount of the Local allocation tax is determined in accordance with estimates of standard revenue and expenditures in local public finance as a whole, based on a fixed percentage for national taxes (in FY215 33.1% for Income tax and Corporate tax, 5% for Liquor tax, 22.3% for Consumption tax, and the total amount of Local corporate tax). The total amount of the Local allocation tax in FY215 was 17,39.6 billion, down.2% year on year. 2.How regular Local allocation taxes are calculated for each local government The Regular local allocation tax for each local government is calculated through the following mechanism. Standard financial requirements Standard financial revenues Regular allocation tax amount Unit cost Measurement unit (national census population, etc.) Correction coefficient (gradated correction, etc.) Standard local tax revenue Calculation rate(75%) + Local transfer tax, etc. Standard financial requirements - Standard financial revenues Notes : 1. Standard financial requirements are figured out based on the rational and appropriate service standards for each local government. For this reason, the local share of the services, such as compulsory education, benefits for livelihood protection, and public works which are subject to national obligatory share, is mandatorily included. Beginning in FY21, part of the Standard financial requirements is being transferred to special local bonds (bond for temporary substitution for local allocation tax) as an exception to Article 5 of the Local Finance Law. 2. Normal local tax revenue does not include Non-act-based tax or over-taxation that sets tax rates above the standard tax rate stipulated in the Local Tax Act. 3.Function of the Local allocation tax The function of the Local allocation tax is to adjust imbalances in revenue resources between local governments and to ensure their financial capacity to provide standard public services and basic infrastructure to residents across the country. The adjustment of revenue resources through Local allocation tax makes the ratios of General revenue resources to the total revenues between local governments practically flat regardless of the size of population. (%) 6 4 2 Ratio of Total Revenue for Municipalities Composed of General Revenue Resources 55.3 12.1 6.1 36.8 Midsize cities.2 55.3 24.6 5.1 25.4 Small cities 56.6 27.1.1.1 5.1 24.3 Towns and villages (population of 1, or more) 55.8 39.8 3.3 12.7. Towns and villages (population of Less than 1,) Local taxes Local transfer tax, etc. Special local grants Local allocation tax Note : A Midsize city refers to a city with a population of 1, or more excluding Government-ordinance-designated cities, Core cities, and Special cities at the time of the effective date, and a Small city refers to a city with a population of less than 1,. 13 White Paper on Local Public Finance, 217

Expenditures What are spent on? Expenses Classified by Purpose Classifying the by purpose demonstrates that much of public money is appropriated for Public welfare, Education, and Debt service. In prefectures, Education, Public welfare, and Debt service have the highest shares in that order. In municipalities, Public welfare, General administrative, and Civil engineering work account for the largest amounts in that order. Composition of Expenditure Classified by Purpose (FY215 settlement) Other 7,73.2 billion (7.1%) Agriculture, forestry and fishery 3,218.2 billion (3.3%) Commerce and industry 5,516.1 billion (5.6%) Sanitation 6,31.8 billion (6.4%) General administrative 9,68.8 billion (9.8%) Civil engineering work 11,77.2 billion (11.9%) Net total 98,45.2 billion Public welfare 25,254.8 billion (25.7%) Educational 16,795.5 billion (17.1%) Debt service 12,929.6 billion (13.1%) Other 8,375.2 billion (16.6%) Other 2,888.9 billion (5.1%) Agriculture, forestry and fishery 2,277. billion (4.5%) Commerce and industry 3,648.4 billion (7.2%) Prefectures total 5,731.2 billion Public welfare 8,74.3 billion (15.9%) Educational 11,22.1 billion (21.7%) Agriculture, forestry and fishery 1,47.9 billion (2.5%) Commerce and industry 1,929.6 billion (3.4%) Sanitation 4,692.3 billion (8.3%) Municipalities total 56,535.1 billion Public welfare 2,266.9 billion (35.8%) Sanitation 1,772.2 billion (3.5%) General administrative 3,117.7 billion (6.1%) Debt service 7,211.9 billion (14.2%) Civil engineering work 5,232.4 billion (1.3%) General administrative 7,54.8 billion (12.5%) Civil engineering work 6,663. billion (11.8%) Educational 5,871.8 billion (1.4%) Debt service 5,759.9 billion (1.2%) General administrative : Expenses for general administration, financial management, accounting administration, etc. Public welfare : Expenses for the construction and operation of welfare facilities for children, the elderly, the mentally and physically disabled, etc., and for the implementation of public assistance, etc. Educational : Expenses for school education, social education, etc. Civil engineering work : Expenses for the construction and maintenance of public facilities, such as roads, rivers, housing, and parks. Debt service : Expenses for the payment of principal, interest, etc., on debts. Local Public Finance, 217 Illustrated 14

Expenditures Expenditures in Regular Portion and Great East Japan Earthquake Portion (Expenses Classified by Purpose) Net total Other 6,214.9 billion (6.6%) Disaster recovery 262.3 billion (.3%) Agriculture, forestry and fishery 2,977.4 billion (3.1%) Sanitation 6,169.6 billion (6.5%) Commerce and industry 5,168.7 billion (5.5%) General administrative 9,31. billion (9.5%) Public welfare 24,641.1 billion (26.1%) Of this amount, disaster relief were 2.3 billion (.%) Regular portion 94,57.8 billion Educational 16,437.4 billion (17.4%) Debt service 12,98.7 billion (13.6%) Civil engineering work 1,759.7 billion (11.4%) Other 128.6 billion (3.5%) Disaster recovery 467.3 billion (12.2%) Agriculture, forestry and fishery 24.8 billion (6.3%) Sanitation 132.2 billion (3.3%) Commerce and industry 347.4 billion (9.1%) General administrative 577.8 billion (15.1%) Great East Japan Earthquake portion 3,834.4 billion Public welfare 613.7 billion (16.%) Of this amount, disaster relief were 59.3 billion (15.4%) Educational 358.2 billion (9.3%) Debt service 2.9 billion (.5%) Civil engineering work 947.5 billion (24.7%) Prefectures Other 7,89.8 billion (16.2%) Disaster recovery 159.4 billion (.3%) Agriculture, forestry and fishery 2,13.2 billion (4.4%) Sanitation 1,668.2 billion (3.4%) Commerce and industry 3,319.9 billion (6.8%) General administrative 2,914.1 billion (6.%) Regular portion 48,484.8 billion Public welfare 7,447.9 billion (15.4%) Of this amount, disaster relief were 7.6 billion (.%) Educational 1,973.9 billion (22.6%) Debt service 7,26.1 billion (14.9%) Civil engineering work 4,855.3 billion (1.%) Other 84.7 billion (3.8%) Disaster recovery 321.2 billion (14.3%) Agriculture, forestry and fishery 146.8 billion (6.5%) Sanitation 14. billion (4.6%) Commerce and industry 328.5 billion (14.6%) General administrative 23.7 billion (9.1%) Great East Japan Earthquake portion 2,246.5 billion Public welfare 626.4 billion (27.9%) Of this amount, disaster relief were 65.3 billion (26.9%) Educational 48.2 billion (2.1%) Debt service 5.9 billion (.3%) Civil engineering work 377.1 billion (16.8%) Municipalities Other 2,549. billion (4.8%) Disaster recovery 129.8 billion (.2%) Agriculture, forestry and fishery 1,286.2 billion (2.4%) Sanitation 4,643. billion (8.5%) Commerce and industry 1,97. billion (3.5%) General administrative 6,671.1 billion (12.2%) Public welfare 19,938. billion (36.6%) Of this amount, disaster relief were 7.1 billion (.%) Regular portion 54,495.4 billion Educational 5,552.9 billion (1.2%) Debt service 5,744. billion (1.5%) Civil engineering work 6,74.4 billion (11.1%) Other 59.8 billion (2.9%) Disaster recovery 15.3 billion (7.4%) Agriculture, forestry and fishery 121.7 billion (6.%) Sanitation 49.4 billion (2.4%) Commerce and industry 22.5 billion (1.1%) General administrative 383.6 billion (18.8%) Great East Japan Earthquake portion 2,39.7 billion Public welfare 329. billion (16.1%) Of this amount, disaster relief were 316.4 billion (15.5%) Educational 318.9 billion (15.6%) Debt service 15.9 billion (.8%) Civil engineering work 588.6 billion (28.9%) 15 White Paper on Local Public Finance, 217

Breakdown of Expenses Classified by Purpose While Civil engineering work and Agriculture, forestry and fishery were on a downward trend, Public welfare Significantly rose. Trends in Expenditures Classified by Purpose (Net total) (%) 18 16 161 14 12 1 8 119 11 11 11 93 81 81 6 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 Public welfare General administrative Education Commerce and industry Debt service Sanitation Civil engineering work Agriculture, forestry and fishery * Indices use FY25 as base year of 1 Trends in Breakdown of Public Welfare Expenses by Purpose (trillion yen) 3 25 2 15 1 5 15.7 2.8 4.7 4. 4.2. 16.3 2.9 4.9 4.1 4.4. 17. 2.9 5.1 4.3 4.8. 17.8 2.9 5.3 4.8 4.8. 19.8 3.3 5.5 5.7 5.3. FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 21.3 3.6 7.1 5.5 5.1. 23.2 1. 3.8 7.4 5.7 5.3 23.2.7 3.9 7.3 5.7 5.6 23.5 1. 4. 7.2 5.7 5.6 24.5.6 4. 7.7 5.9 6.2 25.3 trillion.6 4. 7.9 6.1 6.6 FY215 Social welfare Elderly welfare Child welfare Public assistance Disaster relief Local Public Finance, 217 Illustrated 16

Expenditures Breakdown of Public Welfare Expenses by Purpose Net total Prefectures Municipalities 25,254.8 billion 8,74.3 billion 2,266.9 billion 61.6 billion (2.4%) 4,28.3 billion (16.%) 613. billion (7.6%) 255.3 billion (3.2%) 323.5 billion (1.6%) 3,813.9 billion (18.8%) 1,584.7 billion (19.6%) 7,885. billion (31.2%) 7,291.1 billion (36.%) 6,139.3 billion (24.3%) 3,13.1 billion (38.4%) 3,626.1 billion (17.9%) Disaster relief Public assistance Child welfare 6,591.6 billion (26.1%) 2,518.2 billion (31.2%) 5,212.4 billion (25.7%) Elderly welfare Social welfare Breakdown of Educational Expenses by Purpose Net total Prefectures Municipalities 16,795.5 billion 11,22.1 billion 5,871.8 billion 1,333.3 billion (8.%) 2,97.7 billion (17.3%) 1,374. billion (8.2%) 1,249.8 billion (7.4%) 2,284.8 billion (13.6%) 2,829. billion (16.8%) 1,11.9 billion (9.2%) 2,113.4 billion (19.2%) 156. billion (1.4%) 189.3 billion (1.7%) 2,139.8 billion (19.4%) 2,26.9 billion (18.4%) 326.5 billion (5.6%) 839.8 billion (14.3%) 1,232.4 billion (21.%) 1,73.6 billion (18.3%) 155. billion (2.6%) 86.7 billion (13.7%) Other Educational general affairs Health and physical education Social education Senior high school 4,816.9 billion (28.7%) 3,384.8 billion (3.7%) 1,437.8 billion (24.5%) Junior high school Elementary school Breakdown of Civil Engineering Work Expenses by Purpose Net total Prefectures Municipalities 11,77.2 billion 5,232.4 billion 6,663. billion 655.3 billion (5.5%) 1,285.5 billion (11.%) 282.6 billion (5.4%) 518.2 billion (9.9%) 391.2 billion (5.8%) 799.6 billion (12.%) 892.7 billion (17.1%) 4,174.3 billion (35.7%) 267.5 billion (5.1%) 436.7 billion (3.7%) 1,261.9 billion (1.8%) 3,893.5 billion (33.3%) 1,16.3 billion (21.1%) 2,165.1 billion (41.4%) 3,341.2 billion(5.1%) 191. billion (2.9%) 17.5 billion (2.6%) 1,769.5 billion (26.6%) Other Housing Urban planning Harbors Rivers and coasts Road and bridges 17 White Paper on Local Public Finance, 217

What are used for? Expenses Classified by Type Expenses are also classified, according to their economic nature, into Mandatory (consisting of Personnel, Social assistance, and Debt service), the payment of which is mandatory and the amount of which is difficult to reduce at the discretion of individual local governments, Investment including Ordinary construction work, and Other, (such as Goods, Subsidizing, Reserves, Transfers to other accounts). Composition of Expenditures Classified by Type (FY215 settlement) Transfers to other accounts 5,612.2 billion (5.7%) Other 6,126.6 billion (6.2%) National health insurance accounts 1,43. billion (1.5%) Elderly nursing care insurance accounts 1,468.1 billion (1.5%) Latter-stage elderly healthcare accounts 1,492.8 billion (1.5%) Reserves 3,769.2 billion (3.8%) Subsidizing 9,867.2 billion (1.%) Goods 9,315.3 billion (9.5%) Investment 14,913.4 billion (15.2%) Ordinary construction work 14,183.8 billion (14.4%) Net total 98,45.2 billion Non-subsidized public works 6,259.6 billion (6.4%) Subsidized public works 7,27. billion (7.3%) Mandatory 48,81.3 billion (49.6%) Personnel 22,565.5 billion (22.9%) Social assistance 13,334.3 billion (13.6%) Debt service 12,91.4 billion (13.1%) Transfers to other accounts 155. billion (.3%) Other 3,93.3 billion (7.8%) Transfers to other accounts 5,457.2 billion (9.7%) Other 2,225.7 billion (3.8%) Reserves 1,816.9 billion (3.6%) Subsidizing 13,954.1 billion (27.5%) Mandatory 21,933.1 billion (43.2%) Personnel 13,688. billion (27.%) Reserves 1,952.3 billion (3.5%) Subsidizing 4,47.8 billion (7.2%) Mandatory 26,91.4 billion (47.6%) Personnel 8,877.6 billion (15.7%) Prefectures total 5,731.2 billion Municipalities total 56,535.1 billion Goods 1,681.9 billion (3.3%) Investment 7,259.9 billion (14.3%) Ordinary construction work 6,779.4 billion (13.4%) Social assistance 1,55.2 billion (2.1%) Debt service 7,19. billion (14.2%) Goods 7,633.4 billion (13.5%) Investment 8,38.3 billion (14.7%) Ordinary construction work 8,28.3 billion (14.2%) Social assistance 12,279.2 billion (21.7%) Debt service 5,753.6 billion (1.2%) Non-subsidized public works 2,415.6 billion (4.8%) Subsidized public works 3,714.1 billion (7.3%) Non-subsidized public works 4,92.4 billion (7.2%) Subsidized public works 3,764.5 billion (6.7%) Local Public Finance, 217 Illustrated 18

Expenditures Expenditures in Regular Portion and Great East Japan Earthquake Portion (Expenses Classified by Type) Net total Other 11,46.7 billion (12.1%) Reserves 2,966.5 billion (3.1%) Subsidizing 9,713.2 billion (1.3%) Goods 8,918.7 billion (9.4%) Regular portion 94,57.8 billion Mandatory 48,738. billion (51.5%) Personnel 22,528.3 billion (23.8%) Social assistance 13,329.2 billion (14.1%) Debt service 12,88.5 billion (13.6%) Investment 12,827.7 billion (13.6%) Ordinary construction work 12,565.5 billion (13.3%) Disaster recovery project 262.2 billion (.3%) Other 332.2 billion (8.8%) Reserves 82.7 billion (2.9%) Subsidizing 153.9 billion (4.%) Goods 396.6 billion (1.3%) Great East Japan Earthquake portion 3,834.4 billion Mandatory 63.3 billion (1.6%) Personnel 37.2 billion (1.%) Social assistance 5.1 billion (.1%) Debt service 2.9 billion (.5%) Investment 2,85.7 billion (54.4%) Ordinary construction work 1,618.3 billion (42.2%) Disaster recovery project 467.3 billion (12.2%) Prefectures Other 3,81.1 billion (7.9%) Reserves 1,359.8 billion (2.8%) Subsidizing 13,447.8 billion (27.7%) Goods 1,619.1 billion (3.3%) Regular portion 48,484.8 billion Mandatory 21,9.4 billion (45.2%) Personnel 13,667.6 billion (28.2%) Social assistance 1,53.7 billion (2.2%) Debt service 7,184.1 billion (14.8%) Investment 6,342.6 billion (13.1%) Ordinary construction work 6,183.3 billion (12.8%) Disaster recovery project 159.3 billion (.3%) Other 275.1 billion (12.4%) Reserves 457.1 billion (2.3%) Great East Japan Earthquake portion 2,246.5 billion Mandatory 27.7 billion (1.2%) Personnel 2.4 billion (.9%) Social assistance 1.4 billion (.1%) Debt service 5.9 billion (.3%) Investment 917.4 billion (4.8%) Ordinary construction work 596.1 billion (26.5%) Subsidizing Disaster recovery project 321.2 billion (14.3%) 56.4 billion (22.5%) Goods 62.8 billion (2.8%) Municipalities Other 7,625.1 billion (14.1%) Reserves 1,66.7 billion (2.9%) Subsidizing 3,987.7 billion (7.3%) Goods 7,299.6 billion (13.4%) Regular portion 54,495.4 billion Mandatory 26,873.9 billion (49.3%) Personnel 8,86.7 billion (16.3%) Social assistance 12,275.5 billion (22.5%) Debt service 5,737.7 billion (1.5%) Investment 7,12.4 billion (13.%) Ordinary construction work 6,972.5 billion (12.8%) Disaster recovery project 129.8 billion (.2%) Other 57.9 billion (2.9%) Reserves 345.6 billion (16.9%) Subsidizing 6.1 billion (2.9%) Goods 333.8 billion (16.4%) Great East Japan Earthquake portion 2,39.7 billion Mandatory 36.4 billion (1.8%) Personnel 16.8 billion (.8%) Social assistance 3.7 billion (.2%) Debt service 15.9 billion (.8%) Investment 1,25.9 billion (59.1%) Ordinary construction work 1,55.8 billion (45.7%) Disaster recovery project 15.1 billion (7.4%) 19 White Paper on Local Public Finance, 217

Breakdown of Expenses Classified by Type Social assistance, Subsidizing, Transfers to other accounts, and Goods have been rising. Trends in Expenditures Classified by Type (Net total) (%) 18 174 16 14 12 136 122 12 1 8 94 93 89 6 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 Personnel Social assistance Debt service Investment Goods Subsidizing Transfers to other accounts FY214 FY215 *Indices use FY25 as base year of 1 Trends in Breakdown of Social Assistance Expenses by Purpose (trillion yen) 14 13.3 trillion 12.9.7 12. 12. 12.2.6 12 11.2.8.7.6 1 8 6 4 2 7.7 7.8.6.4 2.6 2.7 8.2.5 2.7 2.8 3. 3.2 8.5.5 2.7 3.3 3.3.3.3.2.2.2.2.2.2 1.4 1.4 1.6 1.8 2. 2.1 2.3 2.5 9.1.5 3.1.5 3.4 5. 3.5 3.6 5.2 5. FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 Social welfare Elderly welfare Child welfare Public assistance Other 3.7 5..2 2.7 3.7 5.3.2 3.1 FY214 3.7 5.6.2 3.1 FY215 Local Public Finance, 217 Illustrated 2

Expenditures Personal for FY215 increased year on year due mainly to the measures taken by each local government in accordance with the national government s measures to reduce salary payments to national public servants. Trends in Personnel Expenses (billion yen) 27, 26, 25, 24, 23, 25,264.3 25,135.3 25,256.3 24,65.2 23,975.6 23,536.2 23,448.5 23,17.6 22,177.9 22,524.3 22,565.5 16, 15, 14, 15,8.6 15,11.3 15,86.9 14,729.7 14,286.2 14,11.1 14,82.8 13,893.6 13,355.5 13,646.2 13,688. 11, 1, 9, 1,255.7 1,124. 1,169.4 9,875.5 9,689.5 9,426.1 9,365.7 9,124. 8,822.4 8,878.2 8,877.6 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 Net total Prefectures Municipalities Breakdown of Personnel Expenses by Item (%) 1 8 6 Net total 22,565.5 billion 1,293.5 billion 5.8% 3,327.3 billion 14.7% 2,74.6 billion 9.2% 5,333.9 billion 23.6% 9.7 billion.% Prefectures 13,688. billion 2,52.8 billion 15.% 1,28.5 billion 8.8% 3,352.2 billion 24.5% 396.9 billion 2.9% 1.1 billion.% Municipalities 8,877.6 billion 896.8 billion 1.% 1,274.5 billion 14.4% 866.1 billion 9.8% 1,981.7 billion 22.3% 8.6 billion.1% 4 2 15,87.1 billion 7.3% 1,526.5 billion 46.6% 1,29.8 billion 73.3% 5,84.2 billion 65.8% 6,676.6 billion 48.8% 3,849.9 billion 43.4% Employee salaries Base salaries Other allowances Temporary employee salaries Retirement allowances Local public servant, mutual-aid associations, etc. Other 21 White Paper on Local Public Finance, 217

Ordinary construction work decreased year on year due mainly to a decrease in Subsidized public works. In addition, Civil Engineering Work Expenses account for the largest ratio in the breakdown of Ordinary construction work by purpose. Trends in Breakdown of Ordinary Construction Work Expenses Classified by Type (Net total) (trillion yen) 18 16 14 12 15.1 1.3 14.3 1.3 13.5 1.3 13. 1.2 14.4 1.3 13.3.8 12.5 12.4.8.9 14.2.8 14.8.7 14.2 trillion.7 1 8 7.7 7.2 6.8 6.4 7.2 6.9 5.7 5.4 5.6 6.3 6.3 6 4 2 6.2 5.8 5.5 5.4 5.9 5.6 6.1 6.1 7.8 7.7 7.2 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 Subsidized public works Non-subsidized public works Obligatory share of public works directly carried out by the national government Breakdown of Ordinary Construction Work Expenses by Purpose (%) 1 8 Net total 14,183.8 billion 991.6 billion (7.%) 2,29.6 billion (15.6%) Prefectures 6,779.4 billion 391.6 billion (5.7%) 425.9 billion (6.3%) Municipalities 8,28.3 billion 626.1 billion (7.7%) 1,84.3 billion (22.5%) 6 7,83.2 billion (49.9%) 3,93.3 billion (58.%) 3,281.6 billion (4.9%) 4 2 1,521. billion (1.7%) 864.1 billion (6.1%) 626. billion (4.4%) 888.3 billion (6.3%) 1,238. billion (18.3%) 237.7 billion (3.5%) 229.6 billion (3.4%) 326.3 billion (4.8%) 54.2 billion (6.3%) 677.6 billion (8.4%) 48.1 billion (6.%) 654.4 billion (8.2%) General administrative Public welfare Sanitation Agriculture, forestry and fishery Civil engineering work Education Other Local Public Finance, 217 Illustrated 22

Expenditures Trends in Breakdown of Subsidizing Expenses by Purpose (trillion yen) 11 9 7 5 3 1 7.2 7.4 7.5.4.3.3 1.1 1.1 1.2.9.8.8.4.4.5.3.3.3 1..9 1. 2.1 2.5 2.7 1..9.8 1. FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 General administrative Commerce and industry 8.1.3 1.2.8.5.3 1. 3. 1.7.3 1.2.9.8.3 1.1 3.3 2.8 9.4.3 1.4.9.5.4 1.1 3.3 1.4 Public welfare Civil engineering work 8.9.3 1.4 1..6.3 1.1 3.5 3.6.7.8 Sanitation Education 9.2.3 1.4 1..6.4 1.1 9.5.3 1.4 1..6.5 1.1 3.6 1. 9.3.5 1.5.9.5.4 1.1 3.7.7 9.9 trillion.4 1.6.9.7.5 1.1 3.9.8 FY215 Agriculture, forestry and fishery Other Trends in Breakdown of Transfers to Other Accounts (trillion yen) 6 5 4.6 4.6 4.6..1.1 4 1. 1. 1. 4.8.1 5.1 5.2 4.9 5..1... 1.1 1.1 1.2 1.2 1.3 5.1.1 1.3 5.4. 1.4 5.6 trillion.1 1.5 3.8.8.9 1.1 1.2 1.3 1.3 1.4 1.4 1.5 1.5.1.. 2 1.2 1.2 1.2 1.1 1.1 1.2 1.2 1.2 1.2 1.3 1.4 1 1.5 1.5 1.4 1.4 1.4 1.3 1.3 1.2 1.2 1.2 1.2 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 Local public enterprise accounts (Enterprise to which the Local Public Enterprise Law is not applied) National health insurance accounts Elderly health care accounts Latter-stage elderly healthcare accounts Elderly nursing care insurance accounts Fund 23 White Paper on Local Public Finance, 217

Flexibility of the Financial Structure How financially capable are local governments to respond to local demands? It is necessary that local governments have financial resources for not only the Mandatory but also for the for projects to properly address challenges caused by changes in the social economy and administrative needs so that they can adequately meet the needs of their residents. The extent to which the resources for such purposes are secured is called the flexibility of the financial structure. Ordinary Balance Ratio The FY215 Ordinary balance ratio declined.4 percentage points year-on-year to 91.7%, staying above 9% for the twelfth consecutive year. Ordinary balance ratio = General revenue resources allotted to personnel, Social assistance, Debt service, etc. Ordinary general revenue resources, etc. (Local tax + Regular local allocation tax, etc.) + Special exception portion of loans for covering decreases in Local tax revenues + Bonds for temporary substitution of local allocation tax 1 The Ordinary balance ratio is the proportion of General revenue resources allotted to Ordinary such as Personnel, Social assistance, Debt service and other annually disbursed with regularity to a total amount of Ordinary general revenue resources primarily consisting of Local tax and Regular local allocation tax, Special exception portion of loans for covering decreases in Local tax revenues and Bonds for temporary substitution of Local allocation tax. Trends in the Ordinary Balance Ratio (%) 1 9 92.6 92.6 91.4 91.4 9.2 9.3 95.9 94.7 93.9 93.4 92.8 93.8 92. 91.8 91.8 9.5 91.9 89.2 94.9 94.6 93. 92.7 92.6 91.6 9.3 9.7 9.2 93. 93.4 92.1 91.7 91.3 9. 8 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 Total Prefectures Municipalities FY215 * Special wards and partial administrative associations, etc., are not included in total and municipalities. Breakdown of the Ordinary Balance Ratio (Total) (%) 1 9 91.4 91.4 93.4 92.8 93.8 9.5 92.6 92.7 91.6 92.1 91.7 8 7 28.6 29. 3.5 3.9 31.8 3.7 31.7 32.6 32.8 33.2 33.8 6 5 4 3 21.5 4.8 21.4 5. 21.5 5.2 21.5 5.3 21.5 5.7 2.7 6.2 21.1 2.9 21.1 6.4 6.6 6.6 2.8 6.8 2.1 6.9 2 1 36.5 36. 36.2 35.1 34.8 32.9 33.4 32.6 31.1 31.3 3.9 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 Personnel Social assistance Debt service Other FY215 Local Public Finance, 217 Illustrated 24

Real Debt Service Ratio and Debt Service Payment Ratio Close attention should be paid to the trend of the Debt service, which is the expense required to repay the principal and interest of the debts of local governments and has an especially negative impact on financial flexibility. The Real debt service ratio and the Debt service payment ratio are indices that measure the extent of the burden of the Debt service. Trends in the Real Debt Service Ratio (%) 15 14 13 12 11 1 9 8 13.5 12.8 12.3 13.5 12.8 13. 12.3 12.1 12. 11.8 11.2 1.5 13.9 11.8 9.9 13.7 11.3 9.2 13.5 1.9 8.6 13.1 1.4 8. 12.7 9.9 7.4 7 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 Net total Prefectures Municipalities *Real debt service ratio : The real debt service ratio is an index of the size of the redemption amount of debts (local bonds) and similar expenditure, and represents the cash-flow level. Trends in the Debt Service Payment Ratio (%) 2 19 18 17 16 15 19.3 19.2 17.4 19.4 19.3 17.5 19.1 18.6 17.7 19.3 19.2 17.6 18.8 18.6 17. 18.9 18.4 16.5 19.4 18.6 18.6 16.4 19.7 16.2 19.9 18.5 15.7 19.5 18.2 15.3 18.7 17.7 14 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 14.7 FY215 Net total Prefectures Municipalities *Debt service payment ratio : The Debt service payment ratio indicates the ratio of general revenue resources allocated for debt service (amount of repayment of the principal and interest on local bonds) in the total amount of General revenue resources. This index is used to measure the flexibility of the financial structure by assessing the degree to which Debt service restricts the freedom of use of General revenue resources. 25 White Paper on Local Public Finance, 217

Future Financial Burden What is the status of debt in local public finance? Trends in Local Bonds and Debt Burden Real future financial burden by Local bonds and Debt burden amounted to 137,62.2 billion at the end of FY215, down.7% year on year. (trillion yen) 18 15 12.2 12.3 11.8 12.5 12.2 12.3 13. 13.4 14.5 15.1 15.4 12 139.3 137.8 136. 134.6 134.8 136.5 136.7 137.1 138.1 138.5 137.6 9 124.4 121.1 118.4 115.8 114.4 11.7 17.2 14.1 11. 97.5 94.8 6 3 15.7 17.9 19.7 21.6 25.4 13. 13.6 13.9 15.3 17.2 31.4 17.9 36.1 19.6 4.6 21. 45. 22.4 48.5 22.6 5.7 23.3 3 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 Reserves on hand Debt burden Bonds for the extraordinary financial measures Outstanding local government bonds + Debt burden - Reserves on hand Outstanding local government bonds (excluding Bonds for the extraordinary financial measures) Notes : 1. Outstanding local government bonds excludes special fund public investment bonds. 2. Debt burden is the amount scheduled to be expended in the following fiscal years. Trends in Outstanding Borrowing Borne by the Ordinary Accounts Outstanding local public finance borrowing, which includes borrowing in the special account for Local allocation tax and Transfer tax for addressing revenue resource shortages, as well as the redemption of Public enterprise bonds borne by the Ordinary accounts, remains at a high level, amounting to 199 trillion at the end of FY215. (trillion yen) 25 2 21.4 27.8 2.2 27.5 198.6 26.8 197.1 26.1 198.7 25.3 199.8 24.1 2.4 23.6 21. 22.9 21.4 22.1 2.5 21.4 199.1 2.8 15 33.6 33.6 33.6 33.6 33.6 33.6 33.5 33.4 33.3 33.1 32.8 1 124.4 121.1 118.4 115.8 114.4 11.7 17.2 14.1 11. 97.5 94.8 5 15.7 FY25 17.9 19.7 21.6 25.4 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 31.4 36.1 4.6 45. 48.5 FY214 5.7 FY215 Bonds for the extraordinary financial measures Outstanding borrowing from special account for local allocation tax and transfer tax grants Outstanding local government bonds (excluding Bonds for the extraordinary financial measures) Outstanding public enterprise bonds (in ordinary accounts) Notes : 1. Outstanding local government bonds excludes special fund public investment bonds. 2. Outstanding public enterprise bonds (borne by ordinary accounts) are the Public enterprise bonds to be redeemed by public corporations from funds in the Ordinary accounts (amount based on surveys on local public finance). Local Public Finance, 217 Illustrated 26

Local Public Enterprises What is the status of local public enterprises? Presence of Local Public Enterprises Local public enterprises play a major role in improving the standard of living of residents. Current water-supply population Sewage disposal population No. of passengers per year No. of passengers per year No. of hospital beds Out of 125.4 million Out of 114.74 million Out of 24,3 million Out of 4,6 million Out of 1,566, 124.46 million (99.5%) 13.6 million (9.3%) 3,35 million (13.6%) 939 million (2.6%) 185, (11.8%) (%) 1 9 2 1 Water-supply business (including small-scale water supply business) Sewerage business Transportation business (railways) Transportation business (buses) Hospitals Notes : 1. The graph shows the ratio of local public enterprises when the total number of business entities nationwide is set at 1. 2. Figures for the total number of enterprises nationwide have been compiled from statistical materials of related organizations. Figures for local public enterprises have been compiled from figures for the total number of enterprises and settlements for the same fiscal year. 27 White Paper on Local Public Finance, 217

Number of Businesses Operated by Local Public Enterprises 8,614 businesses are operated by local public enterprises. By type of business, sewerage accounts for the largest ratio, followed, in order, by water supply, hospitals, care services, and residential development. Other 1,251 (14.6%) Residential development 435 (5.%) Care services 572 (6.6%) Hospitals 636 (7.4%) No. of businesses 8,614 Sewerage business 3,639 (42.2%) Water supply business 2,81 (24.2%) Water supply business 1,344 (15.6%) Small-scale water supply business 737 (8.6%) (End of FY215) Scale of Financial Settlement The scale of total financial settlement is 17,88.2 billion. By type of business, sewerage accounts for the largest ratio, followed, in order, by hospitals, total water supply, transportation, and residential development. Other 1,19.5 billion (6.5%) Residential development 74.6 billion (4.3%) Transportation 1,84.8 billion (6.3%) Water supply business (including small-scale water supply) 3,991.7 billion (23.4%) Scale of financial settlement 17,88.2 billion Sewerage business 5,52.8 billion (32.3%) Hospitals 4,64.8 billion (27.2%) (End of FY215) Local Public Finance, 217 Illustrated 28

Local Public Enterprises Financial Status Local public enterprises had a surplus of 731.6 billion. By type of business, water supply, electricity, gas and sewages showed a surplus. Trends in the Financial Status of Local Public Enterprises (billion yen) 8 7 731.6 6 5 424.6 523.1 58.1 4 3 276.7 2 1 4 5 FY25 525.2 FY211 FY212 FY213 FY214 FY215 Total balance (billion yen) 1, 8 6 4 2 Surplus Deficit 2 4 Total surplus 51.2 Other 151.2 Sewage business 8.5 Electricity 9.3 Industrial-use water 23.9 Water supply 245.3 (Including small-scale water supply) Transportation 64. Gas 2.2 Hospitals 147.6 Other 19.7 Total deficit 233.5 Total surplus 431.9 Other 42.1 Sewage business 124. Electricity 6.6 Transportation 26.3 Industrial-use water 22.8 Water supply 21.1 (Including small-scale water supply) Hospitals 1.1 Gas 1.5 Other 4.7 Total deficit 7.3 Total surplus 526.8 Other 72.1 Sewage business 126.4 Gas 5.2 Hospital 4.2 Electricity 8.8 Transportation 5.6 Industrial-use water 22.3 Water supply 237.2 (Including small-scale water supply) Other 3.7 Total deficit 3.7 Total surplus 554.4 Other 39.9 Sewage business 14.5 Gas 2. Electricity 15.8 Transportation 77. Industrial-use water 27.4 Water supply 251.8 (Including small-scale water supply) Hospitals 42.9 Other 3.4 Total deficit 46.3 Total surplus 421.3 Other 18.4 Sewage business 197.9 Gas 6.6 Electricity 17. Water supply 181.4 (Including small-scale water supply) Industrial-use water 25.4 Transportation 112.6 Hospitals 485.2 Total surplus 83.6 Other 38.8 Sewage business 229. Gas 5.6 Electricity 26.9 Transportation 111.7 Industrial-use water 28.2 Water supply 363.4 (Including small-scale water supply) Hospitals 7.3 Other 1.7 Total deficit 72. 6 8 Other 323.3 1, FY25 Total deficit 946.5 FY211 FY212 FY213 FY214 FY215 29 White Paper on Local Public Finance, 217

Impact of Great East Japan Earthquake Settlement of Disaster-Struck Organizations 1.Specified Disaster-Struck Prefectures In FY215, the total revenues of the nine specified disaster-struck prefectures amounted to 1,848.3 billion, decreasing by 267.1 billion year on year, or 2.4% (.7% national increase). Total expenditures of the entities amounted to 1,348. billion, decreasing by 229.2 billion year on year, or 2.2% (1.% national increase). * Specified disaster-struck prefectures : Prefectures stipulated in Article 2, Paragraph 2 of the Act on Special Public Finance Support and Assistance to Deal with the Great East Japan Earthquake (Act No. 4 of 211). These prefectures are Aomori, Iwate, Miyagi, Fukushima, Ibaraki, Tochigi, Chiba, Niigata, and Nagano prefectures. Revenues FY214 2,597.6 billion (23.4%) 2,.4 billion (18.%) 1,87.7 billion (16.8%) 4,646.8 billion (41.8%) 11,115.5 billion 264.8 billion (2.4%) FY215 2,952.2 billion (27.2%) 2,1. billion (18.5%) 1,817.3 billion (16.8%) 4,68.8 billion (37.5%) 1,848.3 billion 37.3 billion (2.8%) Local taxes Local allocation tax Earthquake disaster reconstruction allocation tax National treasury disbursements Other Expenditures Classified by Purpose 511.8 billion (4.8%) FY214 91.4 billion (8.6%) 1,687.3 billion (16.%) 373.3 billion (3.5%) 7,272.6 billion (68.7%) 1,577.2 billion 669. billion (6.5%) 333.6 billion (3.2%) FY215 1,833.1 billion (17.7%) 424. billion (4.1%) 7,62.3 billion (68.2%) 1,348. billion 66.5 billion (5.9%) 359.6 billion (3.5%) General administrative Public welfare Disaster relief Sanitation Disaster recovery Other Expenditures Classified by Type FY214 4,216. billion (39.9%) 1,866. billion (17.6%) 4,495.2 billion (42.5%) 1,577.2 billion 1,532.4 billion (14.5%) 333.6 billion (3.2%) 766.1 billion (7.2%) FY215 3,923.2 billion (37.9%) 1,857.5 billion (18.%) 4,567.3 billion (44.1%) 1,348. billion 1,497.9 billion (14.5%) 359.6 billion (3.5%) 671.6 billion (6.5%) Mandatory Investment Ordinary construction work Disaster recovery project Other Reserves Local Public Finance, 217 Illustrated 3

Impact of Great East Japan Earthquake 2.Specified Disaster-Struck Municipalities In FY215, the total revenues of the 227 municipalities designated as specified disaster-struck municipalities amounted to 8,296.1 billion, decreasing by 92.5 billion year on year, or 1.1% (1.% national increase). Total expenditures of the entities amounted to 7,744.5 billion, decreasing by 11.9 billion year on year, or 1.4% (.9% national increase). * Specified disaster-struck municipalities : Municipalities designated in Appended Table 1 and those designated in Appended Tables 2 and 3 that are other than specified disaster-struck local public bodies of the Japanese government ordinance (No. 127, 211) concerning Article 2, Paragraphs 2 and 3 of the Act on Special Public Finance Support and Assistance to Deal with the Great East Japan Earthquake. (A total of 227 organizations in 11 prefectures, including, 33 organizations within Iwate Prefecture, 35 organizations within Miyagi prefecture, and 59 organizations within Fukushima prefecture.) Revenues FY214 2,245.3 billion (26.8%) 1,255. billion (15.%) 1,523.7 billion (18.2%) 3,364.6 billion (4.%) 8,388.6 billion 239.8 billion (2.9%) FY215 2,245.8 billion (27.1%) 1,285.3 billion (15.5%) 1,241. billion (15.%) 3,524. billion (42.4%) 8,296.1 billion 272.5 billion (3.3%) Local tax Local allocation tax Earthquake disaster reconstruction allocation tax National treasury disbursements Other Expenditures Classified by Purpose 551.1 billion (7.%) 157.9 billion (2.%) FY214 1,384.7 billion (17.6%) 2,291.9 billion (29.2%) 3,469.7 billion (44.2%) 7,855.3 billion 342.6 billion (4.4%) 16.5 billion (2.1%) FY215 1,177. billion (15.2%) 2,325.4 billion (3.%) 3,526.6 billion (45.5%) 7,744.5 billion 319.6 billion (4.1%) 555. billion (7.2%) General administrative Public welfare Disaster relief Sanitation Disaster recovery Other Expenditures Classified by Type FY214 2,767.7 billion (35.2%) 1,69.3 billion (2.5%) 3,478.3 billion (44.3%) 7,855.3 billion 1,453.4 billion (18.5%) 155.9 billion (2.%) 795. billion (1.1%) FY215 2,796.1 billion (36.1%) 1,651.3 billion (21.3%) 3,297.1 billion (42.6%) 7,744.5 billion 1,491.1 billion (19.3%) 16.3 billion (2.1%) 53.4 billion (6.8%) Mandatory Investment Ordinary construction work Disaster recovery project Other Reserves 31 White Paper on Local Public Finance, 217

Financial Status of Businesses of Local Public Enterprises of Disaster-Struck Organizations Total revenues and expenditures of local enterprises of disaster-struck organizations amounted to a surplus of 13.1 billion, an increase of 162.3 billion year on year, or 274.3%. There were 847 businesses with surpluses, or 91.2% of all businesses, while 82 businesses had deficits, or 8.8%. * Local enterprises of disaster-struck organizations : Nine prefectures stipulated in Article 2, Paragraph 2 of the Act on Special Public Finance Support and Assistance to Deal with the Great East Japan Earthquake, and 178 municipalities stipulated in Appended Table 1 of the Japanese government ordinance concerning Article 2, Paragraphs 2 and 3 of the Act on Special Public Finance Support and Assistance to Deal with the Great East Japan Earthquake (including some labor unions joined by the above bodies). Financial Status of Businesses of Local Enterprises of Disaster-Struck Organizations (billion yen) 15 125 1 75 5 25 25 5 75 1 125 15 Net amount 59.2 billion 826 9.6 billion 17 149.8 billion FY214 Net amount 13.1 billion 847 131.2 billion 82 28.1 billion FY215 Surplus Deficit No. of businesses with surpluses No. of businesses with deficits Settlements by Businesses of Local Enterprises of Disaster-Struck Organizations (billion yen) 15 1 5 5 1 2.8 billion 1.8 billion 1.8 billion 2.7 billion 8.8 billion Net amount 59.2 billion 19.5 billion 34.7 billion 64.7 billion 66.6 billion Surplus 72.1 billion Deficit 131.3 billion 7.8 billion 3.7 billion 6.4 billion 1.5 billion 7.5 billion.1 billion Net amount 13.1 billion 26.2 billion 5.1 billion Surplus 13.2 billion Deficit.1 billion 15 FY214 FY215 Total water supply (including small-scale water supply) Industrial-use water Transportation Electricity Gas Hospitals Sewage business Other Local Public Finance, 217 Illustrated 32

Promotion of the Soundness of Local Public Finance Overview of the Act on Assurance of Sound Financial Status of Local Governments A number of drawbacks were pointed out with the conventional system of financial reconstruction of local governments, including the lack of a legal obligation to disclose comprehensible financial information and of rules for early warning. In response, the Act on Assurance of Sound Financial Status of Local Governments was enacted and has been in force since April 29. The act establishes new indexes and requires local governments to disclose them thoroughly, aiming to quickly achieve financial soundness or rebuild. Outline of the Act on Assurance of Sound Financial Status of Local Governments Sound stage Establishment of indexes and thorough disclosure Flow indexes: Real deficit ratio, Consolidated real deficit ratio, Real debt service ratio Stock indexes: Future burden ratio =indexes by real liabilities, including public enterprises, third-sector enterprises, etc. Subject to auditor inspection, reported to the council and publicly announced Early financial soundness restoring stage Restoring financial soundness through their own efforts Formulation of financial soundness plan (approval by the council), mandatory requests for external auditing Report on progress of implementation to the council and public announcement every fiscal year If the early achievement of financial soundness is deemed to be significantly difficult, the Minister for Internal Affairs and Communications or the prefectural governor makes necessary recommendations Financial soundness of public enterprise Financial rebuilding stage Solid rebuilding through involvement of the central government, etc. Formulation of financial rebuilding plan (approval by the council), mandatory requests for external auditing Agreement on the financial rebuilding plan can be sought through consultation with the Minister for Internal Affairs and Communications If financial management is deemed not to conform with the plan, the Minister for Internal Affairs and Communications makes necessary recommendations, such as budget changes Sound finance Financial deterioration Early financial soundness restoring standard Financial rebuilding standard Real deficit ratio Consolidated real deficit ratio Prefectures :3.75% Municipalities :11.25% ~ 15% Prefectures :8.75% Municipalities :16.25% ~ 2% Prefectures : 5% Municipalities :2% Prefectures : 15% Municipalities :3% * The real deficit ratio and consolidated real deficit ratio standards for Tokyo were set separately from the general municipalities ratios. Real debt service ratio 25% 35% Future burden ratio Prefectures, Government-ordinancedesignated city:4% Municipalities :35% Finance shortfall ratio (for each public enterprise) 2% Management soundness standard Public announcement of indexes began with FY27 settlement of accounts. Obligatory formulation of financial soundness plan was applied as of FY28 settlement of accounts. 33 White Paper on Local Public Finance, 217