Revisiting fiscal balance<\/p>\n
In so far as the process of granting more authority to the
\nprovinces and regencies is concerned, amendments to the 1999 law
\non intergovernmental fiscal balance, which were approved by the
\nHouse of Representatives last week, are not as significant as the
\nnew legislation on regional administration.<\/p>\n
While the new law on regional autonomy transfers the power to
\nelect provincial governors, regents and mayors from regional
\nlegislative councils to the local people, the new legislation on
\nfiscal relations between the central government and regional
\nadministrations does not grant additional taxing power to local
\nadministrations.<\/p>\n
This does not, however, dilute the significance of the new law
\non intergovernmental fiscal balance which will replace Law No.
\n25\/1999. The most important elements of the new legislation lie
\nin its elaborate, clear-cut provisions on budget transparency and
\naccountability and domestic borrowing by regional
\nadministrations.<\/p>\n
The new law increases the regions' take of several centrally
\nadministered categories of state revenues, but even this raise is
\nonly incremental. For example, total general grants to regions
\nwhich are now set minimally at 25 percent of total state internal
\nrevenues (as envisaged in the central government budget) will
\nincrease to 26 percent and the regions' share of oil and natural
\ngas revenues will rise by 0.5 percent to 15.5 percent and 30.5
\npercent, respectively.<\/p>\n
Even these incremental increases will not be effective
\nimmediately. Some of them will only be realized beginning in the
\n2008 fiscal year. But seen from a fiscal sustainability
\nstandpoint, especially on the part of the central government, the
\ngradual, small increase in transfers from the central government
\nis very wise. Sharply raising the regions' take of tax revenues
\nmay erode the central government's ability to provide equalizing
\ngrants to poor regions.<\/p>\n
Also similarly rational is the rejection by both the House
\nand central government of the demand from several regional
\nadministrations for more taxing power. Granting regional
\nadministrations a broader taxing power now could kill the goose
\nthat lays the golden egg because local revenue officials, faced
\nwith weak institutional capacity, may prefer \"hunting in the zoo\"
\nor squeezing existing taxpayers, instead of broadening the
\ntaxpayer base.<\/p>\n
More important elements of the new law are the emphasis it
\nplaces on the aspect of financial accountability on the part of
\nlocal administrations. The legislation stipulates elaborate and
\nclear-cut provisions designed to enhance budget transparency and
\naccountability through a better accounting system and stronger
\nprocedures for planning, implementing, reporting and auditing
\nregional budgets.<\/p>\n
To comprehend how urgent and imperative is the need for
\nhigher standards of budget accountability, just look at how
\nrampant corruption has been in the regional budgets. Hundreds of
\nformer legislative councillors in dozens of provinces, regencies
\nand municipalities are currently either under investigation or
\nprosecution on charges of corruption related to regional budget
\nimplementation.<\/p>\n
Similarly important are the clearly-defined provisions in the
\nlaw that allow regional administrations to take short, medium and
\nlong-term domestic loans, including floating municipal bonds, all
\nwithin strict rules, which include a debt ceiling and require
\nprior approval from regional legislative councils.<\/p>\n
Issuing bonds not only will enable regional administrations to
\nbuild better infrastructure that will stimulate investment. A
\nmuch greater impact will be the influence of the bonds on budget
\ntransparency. Since bond issues have to meet capital market
\nregulations, regional administrations intending to issue bonds
\nare required to fulfill stringent financial criteria. They will
\nhave to publish audited budget reports.<\/p>\n
Rating agencies also will put regional administrations under
\nclose scrutiny in light of rating municipal bonds and this
\nprocess will further accelerate the development of good
\ngovernance.<\/p>\n
___________<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/revisiting-fiscal-balance-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }