Tokyo Faces ¥225.5 Billion Furusato Nozei Deficit as 19 Prefectures Bleed Tax Revenue

Tokyo’s furusato nozei (hometown tax donation) deficit reached ¥225.5 billion in fiscal 2025, the largest loss among 19 prefectures running deficits under the system. Total donations nationwide hit a record ¥1.33 trillion, but the structure funnels tax revenue from wealthy urban areas to rural regions, creating severe imbalances that threaten city finances.

How Tokyo lost ¥225.5 billion

Tokyo received only ¥162 billion in donations while paying ¥66 billion in return gift expenses and intermediary fees. The real drain came from resident tax deductions: ¥235.1 billion in taxes were deducted from Tokyo residents who donated to other municipalities. This ¥235.1 billion outflow far exceeded the ¥162 billion inflow, creating the massive deficit. The system allows donors to deduct 75% of their donation amount from resident taxes, shifting the fiscal burden to their home prefecture.

Other major cities face similar crises

Kanagawa Prefecture posted a ¥84.6 billion deficit, followed by Osaka (¥48.9 billion), Saitama (¥48.1 billion), and Aichi (¥46.9 billion). Of 1,741 municipalities nationwide, 498 ran deficits. Tokyo saw 57 of its 62 municipalities in the red, while Saitama had 49 of 63 municipalities posting losses. The three major metropolitan areas account for the bulk of the system’s structural damage.

Rural regions reap massive surpluses

Hokkaido recorded the largest surplus at ¥70.9 billion, followed by Miyazaki (¥281 billion) and Yamanashi (¥228 billion). Eight prefectures posted surpluses exceeding ¥100 billion. In contrast, Akita, Yamagata, Tottori, and Miyazaki saw all their municipalities post gains. The system concentrates wealth in rural areas by attracting donations through high-value return gifts like seafood and local specialties.

Prefectures fight back with new return gifts

Hyogo Prefecture received ¥153 billion in donations in fiscal 2025, up from ¥138.6 billion the prior year, yet still posted a ¥194 million deficit due to ¥139 billion in outflows from residents donating elsewhere. The prefecture expanded its return gift menu to 1,000 items, partnering with universities and private firms to develop unique offerings like Kobe beef and Awaji Island fruit onions. Hyogo set a ¥2 billion donation target for fiscal 2026 to achieve a surplus. The Ministry of Internal Affairs and Communications released the fiscal 2025 data, prompting the Asahi Shimbun to calculate each municipality’s balance by combining donation amounts with return gift expenses and resident tax deductions applied in fiscal 2026 taxation.

The system’s structural flaw

Prefectures recover only 25% of resident tax deductions through local government finances; the national government covers 75% via local allocation tax. This creates a perverse incentive: wealthy urban areas subsidize rural donations through the national budget. As total donations climbed to a record ¥1.33 trillion in fiscal 2025, the fiscal imbalance worsened. Urban residents can claim deductions far exceeding their local tax burden by donating to rural municipalities, effectively transferring wealth from cities to countryside.

Final Thoughts

Tokyo and urban prefectures face a structural crisis as the furusato nozei system drains ¥225.5 billion from Tokyo alone. While rural regions thrive on record donations, cities cannot offset the outflow through new return gifts. Reform pressure is mounting as the imbalance becomes undeniable.

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