Article / 10 Mar 2022 /Wienneta Aulia Hajar

Solutions to Fiscal Decentralization, According to HKPD Law

Solutions to Fiscal Decentralization, According to HKPD Law
The socialization of Law Number 1/2022 concerning Financial Relations between the Central Government and Regional Government ("Undang-Undang Hubungan Keuangan antara Pemerintah Pusat dan Pemerintahan Daerah" or HKPD Law) was delivered by the Minister of Finance Sri Mulyani in Demak on 10/03/22.

"Although in 20 years we have achieved various achievements, we recognize that there is still a lot to be done and things that need to be improved," said the Minister of Finance at the Kick Off event for the Socialization of HKPD Law.

During the last 20 years, fiscal decentralization has actually produced various positive performances, however, there are several challenges namely:

First, transfers to regions are not yet optimal in terms of quality. Most of the General Allocation Fund ("Dana Alokasi Umum" or DAU) is used for personnel expenditures of 30 percent to 65 percent.

Second, the regional tax ratio still needs to be improved. Regional Taxes and Regional Levies ("Pajak Daerah dan Retribusi Daerah" or PDRD) have increased. However, the tax ratio remains at 1.2 percent in 2020 due to the pandemic.

Third, the use of regional financing is currently limited. Total regional borrowing in Indonesia is very low, at only 0.049 percent of Gross Domestic Product (GDP), when compared to the average regional loan in developing countries, which is 5 percent of GDP (2000).

Fourth, the synergy between the central and the regional government is not yet optimal. There is still a mismatch between central and regional programs such as the Cooperation between Government and Business Entities for Umbulan Drinking Water Supply System ("Kerja sama Pemerintah dan Badan Usaha Sistem Penyediaan Air Minum Umbulan" or KPBU SPAM Umbulan) which is constrained because the local government has not yet established a connection to the community.

"The synergies between the regional and central that are out of sync have caused the fiscal policy of the Regional Budget and State Budget to have a less optimal impact, both from an economic perspective in the form of growth in creation, job opportunities, poverty reduction and in terms of public services," said the Minister of Finance quoted from kemenkeu.go.id.

By referring to HKPD Law, the government is expected to be able to resolve the challenges of decentralization and realize an effective and efficient allocation of national resources through transparent and accountable in order to achieve equitable distribution of community welfare and become part of the fiscal and structural reform agenda to achieve Advanced Indonesia 2045.

The strategy for achieving these objectives is carried out by strengthening regional taxation system, minimizing vertical and horizontal inequalities, improving the quality of regional expenditures, and harmonizing central and regional expenditures.
 
"The final impact is the output and outcome of HKPD Law, namely improving service quality for the community," added the Minister of Finance.


 

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