by: Agung Ariwibowo (public relations, information services, and protocol division)
After the political and economic crisis that hit Indonesia in 1998, fundamental changes occurred in various aspects of national life, including governance. These changes then gave birth to a new era in the bureaucratic system in Indonesia in strengthening the implementation of regional autonomy and decentralization, including in the implementation of fiscal in the regions. Decentralization has implications for the pattern of relations between the central and regional governments by taking into account the uniqueness and diversity in each region.
The regulations on Central-Regional Financial Relations have been regulated and implemented fairly and in harmony based on Law Number 33 of 2004 on the Financial Balance between the Central Government and Regional Governments.
The fiscal decentralization policy that has been going on for almost two decades has also influenced the policy of allocating Transfer to Regions (TKD) in the State Revenue and Expenditure Budget (APBN). One of the influences can be seen from the trend of allocations that continue to increase every year. This policy is indeed quite impactful, as evidenced by relatively high economic growth in some regions. However, unfortunately, this has not been followed by significant improvement and improvement in the welfare of the community as mandated by law.
Therefore, the government considers it necessary to improve the laws that regulate the Central-Regional Financial Relations. Against this background, the government through the Ministry of Finance together with the DPR RI changed and replaced Law Number 33 of 2004 on the Financial Balance between the Central Government and Regional Governments and Law Number 28 of 2009 on Local Taxes and Levies with the Law on Central-Regional Financial Relations (HKPD) which was newly enacted on December 7, 2021.
The purpose of the HKPD is to realize the efficient and effective allocation of national resources through HKPD that is transparent, accountable, and equitable for the equitable welfare of the community throughout Indonesia. At a press conference after the Plenary Session of the HKPD RUU Ratification, the Minister of Finance explained that the HKPD is based on 4 main pillars that will strengthen the implementation of fiscal decentralization. The first pillar is to develop Central-Regional Financial Relations in reducing vertical inequality (between the central government and local governments, both provinces and regencies/cities) and horizontal inequality (between local governments at the same level). The second pillar is to develop a local tax system that supports the efficient allocation of national resources. The third pillar is to encourage the improvement of the quality of local spending, and the fourth pillar is to harmonize fiscal policies between the Central Government and Local Governments for the optimal provision of public services and to maintain fiscal sustainability.
