A fair fiscal balance<\/p>\n
Like the bill on regional administration designed to give
\nprovinces and regencies more power over their political and
\nadministrative affairs, the draft legislation on striking a
\nfiscal balance between the central government and local
\nadministrations aims at providing the latter with more control
\nand a bigger share of their wealth.<\/p>\n
The bills therefore complement each other. Bigger local
\nautonomy demands greater spending responsibilities, which should
\nbe met with a higher financing capacity. Devolving more
\nadministrative power from Jakarta, the seat of the central
\ngovernment, to the regions (provinces, regencies and
\nmunicipalities) would be meaningless if not supplemented with
\nbigger revenue-raising authority.<\/p>\n
The Habibie government should be commended for its quick move
\nto democratize local administrations and to give the local people
\na fairer share of the wealth in their areas, which is the essence
\nof both bills. Overly centralized power, both political and
\nfiscal, in Jakarta has long been cited as the main reasons behind
\nthe simmering regional tensions kept in check by authoritarianism
\nduring the 32-year-rule of Soeharto.<\/p>\n
Regrettable, however, is that the two bills do not reflect a
\ntrue commitment by the central government to distribute more
\npower to the regions. The regional administration bill, for
\nexample, grants only \"cosmetic\" power to local administrations,
\nwhile Jakarta will continue to call the shots in the most crucial
\nareas of policy formulation and the choice of leadership.<\/p>\n
The bill on the fiscal balance between the central government
\nand local administrations also fails to directly address the
\negregious economic injustice suffered by local people. As the
\nfour factions in the House of Representatives pointed out during
\ndebates on the bill on Monday, the draft legislation still leaves
\nthe most important decisions on revenue-raising and revenue-
\nsharing authority in the hands of the central government.<\/p>\n
The new bill is certainly much better than Law No. 32 of 1956
\non the same matter, yet it will not do much in addressing what
\nlocal people have long felt is Jakarta's greed for the provinces'
\nwealth and disregard for their welfare.<\/p>\n
The draft legislation does empower local administrations to
\nformulate their own budgets with the approval of local
\nlegislatures, and sets up strong foundations for budget
\naccountability and control. The stipulation that empowers local
\nlegislatures to appoint public accountants as comptroller of
\nlocal budgets should be lauded as a good start in establishing
\ntransparency and accountability.<\/p>\n
However, the most important elements of the fiscal authority
\nremain in the grasp of the central government. The bill
\nstipulates only that sources of revenue for local administrations
\nare local income (local taxes and user charges), fiscal balancing
\ntransfers, borrowing and other legal income. Fiscal balancing
\ntransfers are defined as the regional share of property tax and
\nthe benefits from local natural resources, bloc and specific
\ngrants from the central government. In the absence of a clear-cut
\nrevenue-sharing formula, this most crucial matter will still be
\ndecided by Jakarta.<\/p>\n
True, the central government should take into serious account
\nthe implication of revenue-sharing on distributional equity and
\nmacroeconomic management, especially in a country like Indonesia
\nwith such wide differences in economic development and natural
\nresource endowments among the provinces. Adequate attention
\nshould also be taken concerning the central government's capacity
\nto repay its foreign debts, now exceeding US$57 billion.<\/p>\n
Nevertheless, a clearly delineated formula on each region's
\nshare of the benefits accrued from its natural wealth such as
\nroyalties, value added and income taxes should be stipulated in
\nthe bill. A clear formula will also serve as a great incentive to
\nlocal administrations to take probusiness measures and to be more
\naggressive in wooing investment to their areas, knowing that a
\nset percentage of tax proceeds from business activities will flow
\ndirectly to their budget. The climate will in turn prompt
\nprovinces to make themselves greatly hospitable to businesses and
\nset off competition between them to gain investor confidence.<\/p>",
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"sponsor": "Okusi Associates",
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