14. Regional Autonomy and Fiscal Decentralization in Indonesia

14.1. Underlying Forces for Implementation of Regional Autonomy and Fiscal Decentralization

Growing Dissatisfaction on Sentralistic Government System Central Government “exploit ” regions Unfair distribution of revenue from exploitation of natural resources Top-down approach in development Unequal development  Java > Outer Java

Revenues from mining, especially mining declines from time to time,  Impossible to continue dependency of regions on the central government’s financial assistance  Sharing financial responsibility needs to promote Political reformation  Open way for citizens for participating in process of politic and development. Centralistic system of government did not fit with

Economic globalization  Exploitation of local comparative advantages for global competition

14.2. Legal Foundation “UU No.22 Tahun 1999” about local government “UU No.25 Tahun 1999” about sharing of financial responsibility between the central and local governments Thus, Regional Autonomy and Fiscal decentralization policy contains  distribution of governmental authority  sharing of financial responsibility

14.3. Authority of Local Government

Include all matters, except : Foreign Policies System of legal trials Monetary and fiscal policies Religion affairs Defense and internal security Macro development

management of local natural resources and environment But, local government has authority in such matters as management of local natural resources and environment administrations of local affairs regulation of use of local space enforcement of local regulations (PERDA) provision of local public goods, such as management of local wastes, local roads and local parks

14.4. Local Fiscals

Sources of Local Finance Revenues generated locally (PAD) Sharing Funds Borrowings Other sources

Revenues generated locally (PAD) Local taxes Retributions Profits from local public firms Etc

Sharing Funds Share of local government on Tax on Building and Land (PBB), tax on transaction of land and building and natural resources’ exploitation General Allocation Fund (DAU) Specific Allocation Fund (DAK)

Tabel 1: Sharing of Fund between The Central Government and Regional (Provincial) Governments According to “UU 25 Tahun 1999” No. Sources Central (%) Local (%) A Taxes 1 Tax on land and building (PBB) 10 90 2 Tax on transaction of rights to land and building (BPHTB) 20 80 B Natural resources (SDA) 3 Oils 85 15 4 Natural gases 70 30 5 Landrent and royalty on general minings 6 Forests (IHPH dan PSH) 7 Reboisation 60 40 8 Fisheries C General allocation fund (DAU) 75 25

Tabel 2: : Sharing of Fund between The Central Government and Districts Governments According to “UU 25 Tahun 1999” No. Sources Province Generating Districts Non-generating districts A Minings 1 Oils 3 6 2 Natural gases 12 B General minings a.Land rent 16 64 b. Contribution of exploration and exploitation 32 C Forests a.Iuran Hak Penguasaan Hutan (IHPH) b.Provisi Sumberdaya Hutan (PSH) D Fisheries 50

14.5. Facts of Sharing of Funds between The Central and Regional Governments

Total Fund from the Central Government to Regions Table 1: Allocation of Fund from the Central Government to Regional Governments in Years 2005-2008 Items Rp Trillion*) 2005 2006 2007 2008 1. Decentralization allocation - Shared Fund (DBH) 28.0 48.5 60.5 64.0 - General Allocation Fund (DAU) 88.7 145.6 164.7 179.5 - Specific Allocation Fnd (DAK) 4.0 11.6 17.1 20.2 Total 1 120.7 205.7 242.3 263.7 2. Others - De-concentration (Dekon) 18.0 25.0 24.6 25.2 - Fund for assistance tasks (TP) 12.1 5.6 9.4 10.8 Total 2 30.1 30.6 34.0 36.0 Total Fund from the Central Government to Regions 150.8 236.3 276.3 299.7 Sumber: Laporan Keuangan Pemerintah Pusat (LKPP) *) Tidak termasuk dana otonomi khusus (untuk Provinsi Aceh dan Papua) dan dana cadangan

Table 2: Actual Revenues of Provincial Government in 2003 - 2005 No.   Types Rupiah (Billion) % Total Revenues 2003 2004 2005 A. Local source revenues 39,546.5 46,219.9 47,506.5 84.4 86.7 88.0 1 Original Local Revenues (PAD) 17,755.1 22,564.9 22,652.5 37.9 42.3 42.0 1.1. Local Taxes 14,880.1 19,694.5 19,813.3 31.8 36.9 36.7 1.2. Local Retribution 920.1 1,155.7 1,135.7 2.0 2.2 2.1 1.3. Local Public Firms 459.0 517.1 709.6 1.0 1.3 1.4. Others 1,495.9 1,197.6 994.0 3.2 1.8 2 Sharing Funds 17,849.8 20,162.1 20,683.0 38.1 37.8 38.3 2.1. Shared Taxes 6,455.5 7,369.5 7,193.9 13.8 13.3 2.2. Shared Revenues from Non-tax sources 3,474.8 4,151.9 4,404.3 7.4 7.8 8.2 2.3. Genral Allocated Funds 7,749.5 8,624.2 9,072.6 16.5 16.2 16.8 2.4. Specific Allocated Funds 170.0 12.1 0.4 0.0 3 Other legal sources 3,941.6 3,492.9 4,170.9 8.4 6.6 7.7 B. Local government expenditure 7,314.6 7,097.7 6,485.7 15.6 12.0 Total 46,861.0 53,317.5 53,992.2 100.0 Sumber: Badan Pusat Statistik (diolah)

Tabel 3: Actual Revenues of Districts Governments in 2003 - 2005 Types of Revenues Rupiah (Billion) % Total Revenues 2003 2004 2005 A. Local source revenues 111,300.4 118,593.6 124,875.8 89.7 90.6 90.9 1 Original Local Revenues (PAD) 8,602.6 9,463.7 10,023.2 6.9 7.2 7.3 1.1. Local Taxes 3,128.4 3,726.6 3,908.2 2.5 2.8 1.2. Local Retribution 2,767.6 3,307.7 3,735.9 2.2 2.7 1.3. Local Public Firms 342.3 394.8 595.2 0.3 0.4 1.4. Others 2,364.3 2,034.6 1,783.9 1.9 1.6 1.3 2 Sharing Funds 93,754.6 104,580.8 110,525.6 75.6 79.9 80.5 2.1. Shared Taxes 9,927.3 11,332.8 10,061.2 8.0 8.7 2.2. Shared Revenues from Non-tax sources 10,403.5 11,091.2 11,779.3 8.4 8.5 8.6 2.3. Genral Allocated Funds 70,230.4 73,328.9 78,627.0 56.6 56.0 57.2 2.4. Specific Allocated Funds 3,193.4 3,022.2 4,225.9 2.6 2.3 3.1 2.5. Other legal sources   5,805.7 5,832.1 0.0 4.4 4.2 3 Local government expenditure 8,943.1 4,549.2 4,327.0 3.5 3.2 B. 12,728.3 12,300.9 12,474.6 10.3 9.4 9.1 Jumlah/Total 124,028.7 130,894.6 137,350.4 100.0 Sumber: Badan Pusat Statistik (diolah)

14.6. Potential Advantages Public service and public goods will be more suitable for local needs More effective control of publics on the governments Better development at local level

14.7. Potential Disadvantages (1) Weak coordination between the central and regional governments may prevail when dealing with national development issues, such as food security, poverty alleviation

14.7. Potential Disadvantages (2) Potential abuse of power by local governments in generating revenues locally (PAD) Emergence of local regulations may be in contradiction with the national constitution (UUD 1945) and other national laws Emergence of regional sentiment

14.8. Readings (1) Badan Pendidikan dan Pelatihan Keuangan, Departemen Keuangan Rep. Indonesia. 2004. Dasar-Dasar Keuangan Publik. Jakarta: Badan Pendidikan dan Pelatihan Keuangan, Departemen Keuangan Rep. Indonesia. Chapters 13-21.

14.8. Readings (2) Suparmoko, M. 2001. Ekonomi Publik untuk Keuangan dan Pembangunan Daerah. (Chapters 1,2,3,4) H.A.W. Wijaya. 2001. Otonomi Daerah. Jakarta: PT RajaGrafindo Persada. (Chapters 5, 13,16)