KPPOD Urges Comprehensive Fiscal Reform to Prevent Recurring Regional Budget Crises

Executive Director of the Regional Autonomy Implementation Monitoring Committee (KPPOD), Arman Suparman, has said the government needs to prepare comprehensive regional fiscal reform measures so that no local government experiences fiscal pressure in the future.

According to Arman, in the short term the government needs to prioritise rescuing regions currently facing fiscal pressure by improving the allocation of Transfer ke Daerah (TKD).

“The most important thing is to first rescue the regions currently experiencing fiscal pressure. The way to do this is by improving the allocation of Transfer ke Daerah,” Arman told Media Indonesia on Wednesday (5/8).

However, he stressed that the long-term solution must be directed at reducing local governments’ dependence on transfers from the central government. One way, Arman continued, is by increasing Pendapatan Asli Daerah (PAD) through optimising local taxes, levies, asset management, and utilising various creative financing schemes.

“Local governments must also increase PAD, whether through local taxes, local levies, or various creative financing schemes. The potential for local taxes is actually large, but it is often not optimised because data management and collection systems remain weak,” he said.

Arman also assessed that there is still significant untapped local revenue potential due to weak tax administration and databases. He cited restaurant tax revenue as an example, which has not been fully recorded optimally.

“When people eat at a restaurant, there is a restaurant tax that is paid. The question is whether all of those transactions are truly recorded and enter the regional treasury. This is where improving the collection system is important so that regional revenue can be maximised,” he said.

In addition to strengthening the local taxation system, Arman also encouraged local governments to optimise asset management, expand cooperation with the private sector through Public-Private Partnership (KPBU) schemes, and utilise other financing instruments such as regional bonds.

“Local governments need to consider such schemes so that in the medium and long term they do not continue to depend entirely on Transfer ke Daerah,” he concluded.

Previously, Minister of Home Affairs Tito Karnavian stressed that the government would not automatically provide additional Transfer ke Daerah (TKD) to regions claiming difficulty in paying personnel expenditure. Based on the Ministry of Home Affairs’ preliminary mapping, only around 79 regions are estimated to require additional budget after evaluation.

The statement was delivered by Tito in Jakarta on Wednesday (5/8), in response to a statement by Minister of Finance Purbaya Yudhi Sadewa, who previously mentioned that around 490 regions were facing budget problems.

According to Tito, the government will first ensure that local governments have carried out maximum budget efficiency before deciding to provide additional funds. “We will send down a team to check whether they have carried out efficiency measures. Efficiency first,” Tito said.

He also explained that the figure of 490 regions mentioned by the Ministry of Finance referred to regions whose Dana Bagi Hasil (DBH) had not yet been paid, not that all of them were unable to pay personnel expenditure. “The 490 are those whose DBH has not been paid. So it is not those who cannot pay. Those who cannot pay personnel expenditure, we see at least 79,” he said.