DAU Allo The lowes

6 a d s lo o g b ta H th a ti p g o p s m a g v d a 1 th tr 2 u 6 authority of development small portion opment acti of regional g goods. This by regional ation of re However, on he regional and capable ies plannin priority in o goods needs More do only found i pines. The ce sub-national mula-based allotments o grants Ichim vernmental f dominated b average 16.5 1992-2001. In he largest ransfer cond 2007. DAU all using a form regional g t programs n of the DA ivities demo overnments fact has bec governmen egional aut n the other l governmen to formulat ng in accor order to th remain met ominant unc n Indonesia entral gover governmen block grants or IRA an mura and B fiscal transfe by a block g percent per nversely to th transfer ty ditional or sp location to mula based Source Figure 5 Ju overnments s and acti AU allocatio onstrates the to provide m come a class nt since the onomy, on side, on the nt must be te programs dance with he provision . onditional tr , but also in rnment tran nt are of two s the intern nd ad hoc Bahl 2008. ers, the tran rant which year during he case of U ype occupie pecific purp the regions on the cal e: Finance Minis

5. DAU Allo The lowes

urnal Ekonom to finance vities. The n for deve- e limitation more public sic problem implemen- n one side. e condition, e intelligent and activi- h the main n of public ransfers not n the Philip- nsfers to the o types: for- nal revenue categorical In intergo- nsfer type is grew by an g the period United State, ed by the pose Fisher, is done by lculation of stry, Finance No ocations by P st and the lar mi Pembang basic dat the DAU compone the DAU Finance a lump-s official e No. 33 o compone the Basi CF. DA ponent o cial capa ence in each reg are regio or greate ences in fiscal gap cal capac relatively fiscal gap Base the all shows th ble. In 20 est recip of West Java and province ote various editio Provinces in 2 rgest propor gunan Volum ta DAU. His U formula ents: the min U allocation e Note, 2009 sum compo expenditure. of 2004, the ents of PM ic Allocation AU allocatio of inter-regi ability, takin the fiscal n gion. Based ons that rece er than othe the fiscal ga p that is fis city the regio y large num p. ed on the D province, hat horizont 009, there ar pient of DAU t Kalimantan d Central J es as the lo ons: processed d 2008 in billi rtion me 13, Nomor storically sin is divided nimum alloc based on the . PM is calc onent and th Since the en e effective fo and KF are n AD and on is based ional equali ng into acco needs and fi on the FG eive less DA er regions be ap. A region cal needs is on receives mber compar DAU allocat districtcity tal inequalit re five provi U allocation n, Papua, W ava. While, west recipie data ion rupiah r 1, Juni 2012: nce 2001 to 2 into two m cation AM e fiscal gap culated based he proportio nactment of orce since 2 e perfected d the gap F on the CF c zation of fin ount the di iscal capacit indicator, t AU allocatio ecause of di n that has a l greater than the DAU wi red with a sm tion formula y in Indon ies are still nces as the l that is Prov West Java, there are ent of DAU : 1-17 2005, main and KF d on on of Law 2006, into iscal com- nan- iffer- ty of here on to iffer- arge n fis- ith a mall a for nesia visi- larg- vince East four U are Implem East K Jakarta ducer receive enough seem to is inter eral D such a Jawa B trict. It i oil-p as DKI 2009. Th the DA City. I Indone from 3 Paser, the ran Among amoun shown ance. I in a m of fisca ment is Th fund is of 51 t mentation of Kalimantan, a. Those pro in Indonesi e revenue h. In 2009, o occupy the resting for th istrictsCitie as District B Barat, Kutai t may be be producing d I Jakarta rec he situation AU allocatio In 2008, fou esia received 33 to 37 bill while five d nge from 95 g of them, B nt of DAU, n the creatio If the govern more significa al decentral s increasingl he second la s revenue sh trillion per y Source: Finan Figure 6. D i f Fiscal Dece Riau, Riau ovince are th ia and there sharing c the four pr e same posit his year is t es that do n Bengkalis, R District, and ecause of tw districts and ceives PAD is different on for the en ur of 542 d DAU alloc lion, the sm districtscity 59 to 1.063 ogor City re 1.1 trillion. n of inter-re nment does ant for the f lization on r ly unconvinc argest comp haring DBH year for the nce Ministry, Fin DAU Allocat in billion rup entralization Archipelago he largest oi efore they w considered rovinces tha tion in 2008. hat there ar not receive Rokan Hilir, d South Bur wo considera ii own rev by 11.1 trill when look ntire Distric DistrictCiti ation in the mallest is Pen y receives DA billion Figu eceived the l This fact ha egional fisca not make e future, the im regional dev cing. ponent of ba H with an av period 2001 nance Note vario tion by Distr piah Nursini o and il pro- would large at still What re sev- DAU Siak, ru dis- ations: venue ion in ing at ct and ies in range najam AU in ure 6 . argest as not al bal- efforts mpact velop- alance verage 1-2009 Fi the DB of rev rev to 21 co La M so res era na str the D ing to 20 Or inc or Al an tha the ch ous editions: pro rictCity Sele igure 4 . The e fund balan BH is calcula domestic s venues or re venues deriv the region i and PPh 25 untry, Land and and B eanwhile, s urces to be sources SDA al mining, f atural resour ry reforestati Transfer e size of the DBH taxes an g of the state the region 0.7 trillion in r during the creased by a an average lthough DBH nce, but the a an the DAU e governme hanisms of D In 2008, th ocessed data ected the lar e DBH abso nce. Based o ated based o shared reve evenues of n ved from tax include pers 5-29 of perso d and Build uilding Tra state revenu shared the r A of petrole orestry, and rce DBH als ion fund DB of revenue e state reven nd SDA. In e revenue re has increase n 2001 to Rp e period of r an average e growth of H is only 27 average grow U, 16 percen ent attention DBH is quite he district or rgest and sm orbed of 27 on Law No. 3 on a certain p enue, either natural resou x revenues th sonal incom onal tax pay ding Tax P ansfer Fee ues from n region inclu eum, natura d fisheries. S so includes D BH DR. sharing de nue realizati line with th ealization sha ed each yea p 85.7 trillio realization 2 of 47 trillion f 21 percent 7 percent of wth per year nt. This indi n to the fun significant. r city that re allest in 200 7 percent of 33 of 2004, percentage from tax urces. State hat shared e tax PPh yers in the PBB, and BPHTB. natural re- de natural al gas, gen- Since 2006, DBH fore- epends on ion shared he increas- ared, DBH r from Rp on in 2009. 2001-2008 n per year t per year. funds bal- r is greater icates that nding me- eceived the 08 8 h m u r th o R fu e 2 d fr C c in v n in la o s th s in S r A 8 highest Natu mantan Prov ural resource eceived the he Province of the overal Revenue sha unds propo entire provin 2008 and 24 district or cit rom the tot City would b cent in 2009. n the distric vincial level. Province nue sharing nces. In 200 argest DBH oil-producing second large he province sharing is W nce is a new Sulawesi Pr eceived the Alor District Figu ural resource vince that is e DBH, while lowest Natu e of Yogyaka ll revenues n aring natur ortion from t nce in Indon 4.74 percent ty, the prop tal revenue be 11.13 perc . It seems th t or City is s es that recei are general 08, the prov is DKI Jaka g, but it has est is the Ea e that receiv West Sulawes w province an ovince. The e smallest r t and is on Source: Financ ure 7. DBH a in bill Ju es DBH is in 38.93 percen e the district ural resource arta that is 0 natural reso ral resources the total rev nesia is 25.26 in 2009. W portion reven the entire d cent in 2008 hat the reven smaller than ived the gre lly oil-produ vince who r arta. DKI Jak s the bigges ast Kaliman ved the lowe si Province. nd is a divisi e district o revenue sha nly 6 billion e Ministry, Fina allocations by lion rupiah urnal Ekonom n East Kali- nt of all nat- t or city that es DBH is in 0.01 percent ources DBH. s and taxes venue in the 6 percent in While at the nue sharing district and and 17 per- nue sharing n in the pro- eatest reve- ucing prov- eceived the karta is not t PAD. The ntan. While, est revenue This prov- ion of South or city that aring is the n, while the ance Note variou y Provinces mi Pembang Kutai D sharing w DAK absorbed ance in t did not Sidik an ous goal the DAK portant DAU for penditur The DAK investme tainmen pensates priority fiscal de tion are the coun With 2002, D which is reforesta Finance station a and mar There h us editions: proc the largest a gunan Volum District rece with 4,308 b K is special d an average the period o fully meet nd Kadjatmi ls in the des K is mainly needs that c rmula and t res that relat K is also use ent, and 3 t of a mini s for benefit capital inves ecentralizatio based only ntrys Refore hin two yea DAK funds s part of 40 ation funds Note, 2009 allocated for ritime affair has been en cessed data and the lowe me 13, Nomor eived the l illion. transfer to th e 17 percent f 2001-2009. all the obj iko, 2003. T sign of the D intended to could not be to assist with ted to nation ed to finance the DAK p mum stand tcost spillo stments. In t on policy, t y on revenu station Prog ars of decent allocated fo 0 percent o s Ministry . In 2004, D r clean wate rs and the ncouraging ers selected r 1, Juni 2012: largest reve he region w of the fund DAK alloca ectives of D here are num DAK such as o help fund e estimated h funding of nal priorities physical cap promotes the dards, and c overs related the beginnin he DAK all ue derived f gram. ralization 2 or reforestat of total reve y of Fina AK Non ref er infrastruc fisheries sec DAK cove in 2008 : 1-17 enue which bal- ation DAK mer- s: 1 im- in a f ex- s, 2 pital e at- com- d to ng of loca- from 2001- tion, enue ance, fore- cture ctor. rage Implementation of Fiscal Decentralization Nursini 9 since 2005 in agriculture sectors, environment, family planning and forestry. To demonstrate local commitment in the implementation of DAK, the required matching funds in the budget, at least 10 percent of the amount re- ceived in DAK allocation. In line with the addi- tion of fields that are funded through the DAK, DAK realization increases from year to year. Similarly regions that receive DAK also increased due to expansion of the provincial and district or city. East Java is the highest re- gion that received DAK allocation in 2008. From Figure 3 to 7 shows the transfer of funds from central government to regional governments provincial and districtcity. It can be concluded that the allocation of funds transfers the fund balance to the regional government has absorbed most of the state budget. DAU is the largest component of the balance funds. Fund balance is one source of regional government revenue. The presence of the balance of funds as one source of regional revenue affects the structure of regional govern- ment budgets. Thus, the structure of regional government budget consists of regional reve- nues, expenditure and financing. The regional revenue side consist of local own revenue PAD, fund balance and other local revenues. One of the purposes of the policy of regional autonomy and fiscal decentralization is the reduction of financial dependence by the regional governments to central government. This means that regional governments are required to increase the potential revenue source that comes from their own region. In this case the question arises how far regional governments have reduced their dependency levels during the implementation of regional autonomy and fiscal decentralization? The Degree of Fiscal Decentralization in Indonesia Act No. 34 of 2000 mentioned that there are 11 eleven local taxes granted to regional govern- ments provincial and districtcity in deter- mining the tax base, tax rates and as well as administrative and types of local taxes and user charge that may be levied by regional govern- ments. However, the Act allows regional gov- ernments to add local tax sources and user charges in accordance with predetermined cri- teria Simanjuntak and Mahi, 2003. The eleven of the local taxes can be seen in Table 1. With the presence of such Act, has the regional government PAD increased signifi- cantly? Realization of the sources of regional revenue for all provinces and districtscities can be seen in Figure 8. For three years 2007- 2009, fund balance position as the largest source of regional revenue with an average of Rp191.45 trillion per year, the second largest revenue is PAD with an average increase of Table 1. Local Taxes Types Based on Law No.342004 in Indonesia Revenue Vehicle tax Vehicle transfer tax Fuel tax Exploration tax of surface and underground water DistrictCity Hotels tax Restaurants taxes Entertainment taxes Advertisement taxes Streetlighting taxes Exploration tax of mines type c Parking tax Responsibility Disposition revenue Base Rate Adm Center Province Local C,P P P 30 70 C,P P P 30 70 C,P P P 90 10 C,P P P 100 0 C,L L L 0 100 C,L L L 0 100 C,L L L 0 100 C,L L L 0 100 C,L L L 0 100 C,L L L 0 100 C,L L L 0 100 Source: Simanjuntak and Mahi,2003 1 4 a y r to a s a p th r a 10 47.12 trillion average Rp16 This figu years, there evenue each o Rp61.96 tr age increase smaller than ance reached periods. By hat the con evenue com all programs So Source: Finance Figure n per year a 6.77 trillion ure shows th is a trend i h year, from rillion in 20 e only reac n the averag d 78.68 perce considering ntribution of mes from loca and activiti ource: Finance M Fig e Ministry, vario e 8. Regiona City in In a b a b c Ju and others P Figure 8. hat during th increase in o Rp36.10 tril 09. Howeve ched 31.52 ge increase i ent during th g this fact o f regional g al own reven es is still rela Ministry, Finance gure 9. PAD M ous editions pro l Revenue So ndonesia, 20 c b a b c urnal Ekonom PAD by an he last three own source llion in 2007 er, the aver- percent, is n fund bal- he 2007-2009 one can say government nue to fund atively very e Note, 2009 Map by Provi ocessed data ources by C 007-2009 a b c mi Pembang low. In o ernment consider the shar nues tha over the contribu still goin of regio tion will Figu in 2009. sia is onl inces in 2009 omposition t gunan Volum other words t dependenc red big enou re fund bala at reached a last three y uting of 19.74 ng on in the nal autonom l not yet achi ure 9 shows Total PAD ly recorded a in Millions r the whole Pr a a b c me 13, Nomor s, the level o ce on centra ugh. This can ance to tota an average o years, while 4 percent. If coming yea my and fisc ieved optima the PAD ma for all provi at Rp 42.5 tr rupiah rovinces and b b a c c r 1, Juni 2012: of regional g l governmen n be shown f al regional r of 73.63 per the PAD is o this conditio rs, then the cal decentra ally. ap by provi inces in Ind rillion. Only d District c b a : 1-17 gov- nt is from reve- rcent only on is goal liza- nces one- four Implem provin Rp4 tr contrib percen Sulawe revenu If of 2000 not giv revenu district the cau are stil for exa nal gov plore p there w level w vely co harm course, and 3 Law is rejected cates th variety revenu zation mentation of nces of 33 pr rillion, In 20 butor is DKI nt of total rev esi, Rp64 m ue. connected w 0 one can sa ven importa ue at the re tcity. Ther use: 1 most ll taken ove ample, incom vernment do potential sou was some ca with regiona ollecting tax local comm , this case w Criteria of s very strict d by the ce hat local go y of policies ue without b of increasin Figure 10. Pr in a b f Fiscal Dece rovinces tha 009, the larg Jakarta, Rp1 venue and t illion or 0.5 with the pres y that the ta ance to the egional leve re are three t of the poten er by the cen me tax and oes not work urces of othe ases that occ al governme xes from peo munities an was not justifi f local taxes so many PE entral govern overnments to encourag burdening th ng revenue t roportions P n percent b c entralization at have PAD gest own rev 11.1 trillion the lowest is 8 percent of sence of Act ax assignmen increase of l provincia main reaso ntial taxes so ntral govern oil tax, 2 R k optimally er taxes, alth curred at the ent was agg ople who se nd investor ied under th s according ERDA which nment. This still need to ge increased he public. Op hrough the PAD Sources a b Nursini D over venue 26.16 s West f total No.34 nt has f own al and ons as ources nment, Regio- to ex- hough e local gressi- eem to rs. Of he Act, to the h was s indi- o do a d local ptimi- inten- sif the see so to Am tax PA PA Ind lar ro cit ow at tio flu am oth ch pe 9.4 typ pr tax ing to Total PAD a c fication is sti Although e total regio en and an urces which the PAD a mong the fou xes, user cha AD, local ta AD the who donesia, wh rgest. Taxes le between ty. In genera wn revenue the district o During th on of local t uctuated, but mount was e her types harge only c ercent, local e 44 percent fo pes of own rospects and xes without g other own D Provinces a b b c a ill badly nee h PAD is a onal revenu nalyzed typ h provide th and has pro ur sources o arge, public axes is the ole province hile the user and user ch different pr al, local tax source at th or city is the he period 2 tax revenue t the average encouraging of own re contributed enterprise is or other ow revenue sou d still need to forgetting t n revenue sou and District c a c ded. small contr ue, but it ne pes of own he largest co ospects in t f increased P enterprises largest cont e and distri r charge is t harge have a rovincial and revenue is t he provincial user charge 2007-2009, th to total ow e is 74.13 pe when comp venue sour an average s only 4.66 pe wn revenue. urces that h o be increas the efforts o urces. tCity, 2007-2 b c 11 ribution to eeds to be n revenue ontribution the future. PAD local and other tributor to ictcity in the second a different d district the largest l level and e. he propor- wn revenue rcent. This pared with rces. User e of 11.78 ercent and Therefore, have better sed is local of improv- 2009 1 o fu c is R 2 tr in p in lo c o b ti r fa p ic g o s p w tu th d r r a 12 After rev of regional g und transfer can be conclu s recorded Rp140.6 trilli 2009 or incr rillion per y ng the peri provide grea n funding t ooking at th can say that obstacle for r be expected ive correlati egional reve are. The suc policies of ea cy can be d gional reven oriented to th so it can crea poor people will be refle ure. There a he structure direct expend ect expendi ectly related activities. Th So Figure 11 viewing and overnment r r and other l uded that th substantial ion in 2007 reased by an year, or grow iod 2007-20 at meaning to the provisio he magnitud the fundin regional gov to occur is ion between enues and i ccess of a r ach regional done throug nues in pr he needs of s ate jobs and e. Allocation ected in the are two com e of regional diture and d iture is expe d to the fin here are eigh ource: Finance M

1. Trends in R 2007-2009