The subsidy system is a system that municipalities and governments subsidize to maintain railway and bus lines which are difficult to maintain by the only operating company due to problems of profitability. An example of the subsidy system is a system that the Ministry of Land, Infrastructure and Transport bears 40% of the bus operating expenses of the deficit route. Nowadays, the number of users of public transportation is on a downward trend, so especially in rural railways and bus lines are in danger of survival due to management difficulties, so there are many railways and bus lines where the subsidy system is used for the survival in Japan. Government and municipalities actively support public transportation management because its purpose is not only pursuing the interests of private enterprises but also a project of like public service. However, if profitability is too bad and it is judged that there is no merit of maintaining the route, it may be discontinued of support. As an example, supposing that the subsidy by the country mentioned above is paid on condition that it is "a line that spans multiple municipalities and a sufficient profit can be expected", and if it is judged that the object of support does not apply to that condition, it may be discontinued.
As a merit of the subsidy system, subsidies lead to the maintenance of public transportation. The withdrawal of public transportation is a serious matter for the local society. It might lead to a decline in convenience and eventually to the depopulation of the area. Maintaining a route by giving subsidies is great benefit in perspective of the maintenance and development of the community.
As a disadvantage, it needs to put in a lot of taxes for subsidies. For many local governments that can not be said to have good fiscal situation, it can be a big burden to turn some or most of the tax revenue into support for railways and bus companies. Moreover, taxes that should be thrown into public services are used as support, so that the quality of public services by local governments will decline and the residents cannot be given services properly.
The subsidy system is not a measure that leads to fundamental profitability improvement, but it is an emergency measure like sticking a bandage to an abrasion. If the railway and bus companies not only rely on subsidies but also by self-help efforts to tackle the improvement of profits, the situation can be changed. However, if companies did not do like that, the transportation would be stopped. For example, the railroad company "Nogami Electric Railway" which existed in Wakayama prefecture did not do any profit improvement measures such as rationalization and management structure improvement while be given a lot of subsidy, was terrible. For example, they purchased vehicles that can not be used due to the route conditions. They faced the bankruptcy in 1994 after the subsidy was cut off in 1992, the railway line which the company owned was completely abolished, and they left a adverse effect in the area.