Several regional leaders under the Association of Regency Governments of Indonesia (APKASI) have voiced concern over the difficulty of determining development priorities following the government’s reduction of Regional Transfer Funds (TKD) in the 2026 Draft State Budget (RAPBN). The House of Representatives (DPR) allocated IDR 650 trillion for TKD, marking a significant decrease from the 2025 allocation of IDR 848 trillion.
This situation presents regional governments with a critical fiscal dilemma, forcing them to choose between funding the rising costs of personnel spending or financing urgent development projects.
A professor of public policy governance at Universitas Gadjah Mada, Gabriel Lele, explained that the dilemma faced by regional governments as a result of the TKD cuts stems from their low fiscal independence.
“The majority of regional revenue comes from the central government, which creates heavy dependency,” said Professor Lele on Friday (Oct. 24).
He further explained that when the central government’s fiscal policies change, it significantly affects the ability of local governments to manage their development programs. Professor Lele also pointed out that several binding expenditure regulations imposed by the central government restrict local discretion.
“The central government’s latest policy stipulates that routine spending, salaries, and allowances must not exceed 30 percent. On top of that, certain percentages are fixed for infrastructure, 20 percent for education, and another portion for health,” he elaborated.
Ironically, at the same time, the central government has increased the burden of regional personnel spending by massively appointing Government Employees with Work Agreements (PPPK).
According to Professor Lele, regional governments now have no choice but to allocate larger budgets for personnel expenses.
“The central government says personnel spending must not exceed 30 percent, but it continues to add new burdens to the regions. This is clearly inconsistent,” he emphasized.
As a lecturer in Public Sector Ethics and Accountability at the Faculty of Social and Political Sciences (Fisipol UGM), Professor Lele also noted that this budget rigidity affects many regional development programs and campaign promises, which often fail to materialize due to locked expenditure allocations.
“The discretion or flexibility of regional leaders to respond to local needs or even fulfill political promises has become increasingly limited,” he said.
Professor Lele predicted that regional governments might raise tax and retribution rates to cover the shortfall caused by reduced TKD allocations.
“Local governments may resort to adjusting retributions, but that requires hard work. The quickest, though less responsible, alternative is to sharply increase public tax rates,” he explained, referring to recent cases of drastic property tax (PBB) hikes in several regions.
In addition, Professor Lele highlighted the weak oversight role of the House of Representatives (DPR) in determining TKD budget policies.
He argued that Indonesia’s democracy tends to be overly centralized and leaning toward autocracy. To address this deadlock, he urged the central government to take concrete measures.
“It is necessary to reassess national spending priorities and revisit the design of an ideal fiscal decentralization scheme,” he concluded.
Author: Aldi Firmansyah
Editor: Gusti Grehenson
Post-editor: Rajendra Arya
Illustration: Freepik