The cuts to the 2017 general allocation funds require regional heads to carefully cut their own budgets and come up with ways of generating revenue locally.
The cuts of 3-4 percent based on the 2017 target for government tax revenue amount to Rp 50 trillion.
The General Allocation Fund (DAU) constitutes one form of transferring funds from the central state budget (APBN) to the regions. The DAU is part of the implementation of regional autonomy to ensure equal distribution of financial capabilities to fund regional needs. The DAU is given in the form of a block grant, and its use is entrusted to the regions.
The cuts will force the regional governments to adjust their budgets. Because the civil servants’ spending cannot be cut, things to be cut are capital expenditure for infrastructure improvements, development programs and community services.
What we all want is for regional leaders to be able to respond to this challenge creatively and intelligently, especially the heads of regencies and cities where revenue depends largely on transfers from the central government. There are at least 11 regencies and cities that spend 70 percent of their budget funds on civil servants’ salaries.
Regional autonomy on the one hand is intended to enable an equal distribution of development and involve the community in regional administration. In reality, quite a few community groups convey their demands to their regional leaders, but those demands are not followed up on or backed by increased institutional capacity and human resources. As a result, a number of regencies and cities rely on central government funds for implementing various development programs.
In the future, even though the national economy is improving and budget transfers are improving, local governments should not only rely on funds from the central government if they want to progress in terms of quality and sustainability.
We encourage regional leaders to develop the ability to explore locally generated revenue, because opportunities are wide open. We do not want local governments to take shortcuts to collect all kinds of levies that will hamper business activities and entrepreneurial spirit.
The regional governments can empower regency- or city-owned enterprises and utilize village funds creatively. The regional economy could be strengthened, for example, by developing the agroindustry from the upstream to the downstream as well as the agribusiness in a wider sense, including agritourism, with multiplier effects for the urban and national economy.
In order to realize this, regency and city heads need to recognize the economic, social and cultural potential of their region and mobilize that potential in creative ways. The success of the regional leaders will reflect in the welfare of the communities using local resources in a sustainable way.
