Income of Local Government Corporate Management of

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4. General Allocation Funds DAU

According to the Law No.33 2004, the General Allocation Funds are sourced from the State Revenues and Expenditure Budget APBN to be allocated for local government in balancing the financial capacities among regions and to fulfill local government needs in terms of decentralization. The source of regional revenues in the context of autonomy and decentralization are dominated by aid and transfer from the central government in form of the General Allocation Funds DAU, Special Allocation Funds DAK, and Tax shares DBH, whereas the amount of PAD is still relatively small Mardiasmo, 2002. Referring to Law 104, 2000 that the prime DAU objective is horizontal equity and sufficiency. The objective of horizontal equity is in the central government’s interest in order to distribute the income in a fair and equitable way to avoid wide disparities among regions. Meanwhile, the regional interest adequacy sufficiency is to close the fiscal gap. The sufficiency is influenced by several factors, namely Authority, Capacity, and Minimum Service Standards MSS Mardiasmo, 2002. According to Halim 2009, economic disparities among the provinces cannot be avoided by fiscal decentralization due to the lack of tax sources and fewer natural resources, which can be explored by the Regional Government. In order to tackle inequality, the Central 31 Government provides subsidies in the form of DAU to the local government. For local government with a low level of Original Local Government Revenues PAD, the DAU is larger than for those with sufficient income from local sources. In addition to reduce the disparities in financial capacity among regions, the General Allocation Funds of 26 taken the national revenue. General Allocation Funds will provide certainty for regions in obtaining financial means to cover the expenditures. General Allocation Funds DAU are funds coming from the state budget APBN allocated to equal financial capacities among regions to finance the Local Government Expenditures. The DAU provisions are as follows Halim, 2007: a. General Allocation Funds DAU cover 26 at a minimum level of the domestic revenues in the state budget. b. General Allocation Funds DAU are set as 10 for the provinces and 90 for districts cities of the General Allocation funds as defined above. c. General Allocation Funds DAU for specific districts cities are determined by multiplying the number of general allocation funds for districts cities set by the state budget with a portion of concerned districts cities. In Act, No.322004 mentions that for the implementation of the local government authority, the central government will transfer the 32 Balanced Budget consisting of the General Allocation Funds DAU,