JAKARTA: The share of the state budget controlled by Jakarta is expected to climb from 72% in 2021 to 83% in 2026, leaving most programmes to be designed and implemented by the central government.
President Prabowo Subianto’s focus on funding costly flagship programmes, such as free nutritious meals and the Red and White Cooperatives, from next year’s state budget, could leave regions bearing the brunt, as the government plans to slash regional transfers (TKD) by nearly 25%.
Experts have warned that the move could strain public services in remote regions and widen inequality.
Deni Friawan, an economic researcher at the Centre for Strategic and International Studies, said that shrinking regional budgets would have serious consequences
“Many regional governments still rely on transfers from the central government for around 70% to 80% of their funds,” said Deni.
A smaller TKD means less money for local governments, creating gaps in funding for civil servant salaries, regular programmes and local development, according to Deni.
He noted that the pressure, as such a shift was also implemented in this year’s budget, has pushed some regional governments, like Pati regency in Central Java to hike land and building taxes (PBB) to cover shortfalls, resulting in widespread protests.
“Since major tax bases remain controlled by Jakarta, regional finances were never truly decentralised,” he said at a press briefing on Monday.
According to him, the draft of next year’s budget marks another shift towards recentralisation, with the central government directing most spending.
Deni warned that this could force local governments to either impose new levies or cut distinctive regional development programmes, both of which risk weakening local growth.
While the TKD is set to plunge by 24.8%, central government spending is projected to rise by 17.8%.
As a result, the share of the state budget controlled by Jakarta is expected to climb from 72% in 2021 to 83% in 2026, leaving most programmes to be designed and implemented by the central government.
Meanwhile, regional administrations will have to rely on the Special Allocation Fund and the General Allocation Fund, both of which are already tightly earmarked at 155.1 trillion rupiah (US$95.6mil) and 373.8 trillion rupiah, respectively.
The government is also pushing for a 10% rise in state revenue to control the deficit and fund priority programmes, with tax collection expected to surge by 13%, more than double the usual 5% to 6% growth, Deni said.
The bulk is expected to come from a 16% jump in non-oil and gas income tax, driven by stricter enforcement under the Coretax system, suggesting intensified pressure on existing taxpayers.
Over the past five years, tax’s share of state revenue has climbed from 77% to 86%, while non-tax income, particularly from natural resources, has dropped from 23% to 14% amid falling commodity prices.
“This stands in stark contrast to President Prabowo’s pledge that natural resources must benefit the people,” Deni noted.
Local fiscal vulnerability Bank Permata chief economist Josua Pardede also warned that the steep drop in regional budgets threatened to widen inequality, with underdeveloped regions like Papua, Maluku and East Nusa Tenggara bearing the brunt of funding cuts
Fiscally independent areas such as Jakarta and East Java will remain insulated, said Josua.
Though officials claim the 2026 budget still honours special autonomy for Aceh, Papua and Yogyakarta, the reduced transfers will hit impoverished regions hardest, according to Josua.
Long-term risks may include rising social tensions in marginalised areas and widening development gaps, which contradict the state budget’s equality pledges.
“The central government is rolling out massive national programmes as compensation, but whether these centralised initiatives can match the localised impact of regional budgets remains doubtful,” he said.
Bhima Yudhistira, executive director of the Centre of Economic and Law Studies (CELIOS), warned that, combined with fiscal pressures and efficiency demands on the central government, the move to cut the TKD could trigger widespread regional instability.
A CELIOS report found that a staggering 58 districts and cities fall into the “very low fiscal capacity” category, while another 152 rank as “low capacity”, meaning 41.3% of Indonesia’s local governments remain financially vulnerable, he explained.
With many regional administrations yet to develop creative alternative revenue streams, cash-strapped local governments may resort to hiking easily adjustable taxes, such as the PBB, parking fees and hospitality taxes, to fill budget gaps.
“This could trigger widespread public discontent in 2026,” he said.
After President Prabowo unveiled the draft of next year’s state budget before lawmakers last Friday, including the planned cut to the TKD, Home Minister Tito Karnavian called on regional governments to reduce their reliance on central transfers and innovate in local revenue collection.
“Many potential revenue sources, particularly motor vehicle taxes and parking fees, are underutilised across regions.
“These are areas we can and should optimise through better management,” he said on Friday.
The former police chief noted that many regions remain dependent on central funds despite some having strong local revenue capacity, urging better fiscal management amid national budget efficiency measures. — The Jakarta Post/ANN
