1. 14. Regional Autonomy and Fiscal Decentralization in Indonesia

2. 14.1. Underlying Forces for Implementation of Regional Autonomy and Fiscal Decentralization

3. 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

4. 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

5. Economic globalization
 Exploitation of local comparative advantages for global competition

6. 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

7. 14.3. Authority of Local Government

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

9. 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

10. 14.4. Local Fiscals

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

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

13. 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)

14. 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

15. 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

16. 14.5. Facts of Sharing of Funds between The Central and Regional Governments

17. Total Fund from the Central Government to Regions
Table 1: Allocation of Fund from the Central Government to Regional Governments in Years
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

18. 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)

19. 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)

20. 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

21. 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

22. 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

23. 14.8. Readings (1)
Badan Pendidikan dan Pelatihan Keuangan, Departemen Keuangan Rep. Indonesia Dasar-Dasar Keuangan Publik. Jakarta: Badan Pendidikan dan Pelatihan Keuangan, Departemen Keuangan Rep. Indonesia. Chapters

24. 14.8. Readings (2)
Suparmoko, M Ekonomi Publik untuk Keuangan dan Pembangunan Daerah. (Chapters 1,2,3,4) H.A.W. Wijaya Otonomi Daerah. Jakarta: PT RajaGrafindo Persada. (Chapters 5, 13,16)