Transcript Suggested Strategic Directions

Fiscal Decentralization in Indonesia:
Status and Directions for Reform
Bert Hofman
Lead Economist, World Bank
Indonesia’s Fiscal Decentralization
Big Bang Decentralization
High Dependency on Grants
Limited Own Tax Base
Large Fiscal Disparities
Big jump in spending share
Sub-National Shares of Government Revenue and Expenditures
Developing Countries 1990s
Transition Countries 1990s
OECD Countries 1990s
Republic of Indonesia 2000
Republic of Indonesia 2001
Sub-National Revenue
as a Percentage of
Total National Revenue
9
17
19
4.7
2.9
Source: Kajatmiko and Sidik (2002) and staff estimates
Sub-National Expenditure
as a Percentage of
Total National Expenditure
14
26
32
17.1
31 (budget)
Largely financed by grants
DAU Dominates
Regional Revenues 2001 and 2002 (Rp. Trillion)
DAU
FY 2001
60.5
FY
2001adjusted
60.5
FY 2002
69.1
DAU Contingency
6.0
3.1
2
Shared Taxes
20.3
-
21.2(**)
-
Special Autonomy
1.3
Special
Allocation
(Reforestation)
Fund
Total Transfers
Regional
(PAD)
Own
24.6
Revenues
0.9
0.7
0.8
87.7
85.4
97.8
7.0
7.0
7.6
More revenues are shared
Revenue Sharing
(Shares of revenues to central, provincial and regional government)
Item
Oil (non-tax, onshore)
LNG (non-tax, onshore)
Mining: Land-rent
Mining: Royalty
Forestry: Land-rent
Forestry: Resource rent
Fishery
Property Tax
Land Transfer Fee
Personal Income Tax
Central
Government
Provincial
Government
85
70
20
20
20
20
20
9a
3
6
16
16
16
16
Originating
Local
Government
6
12
64
32
64
32
16.2
16
8
64.8
64
12
80
Other Local
Governments
in the same
province
6
6
-32
-32
-----
All Local
Governments in
Indonesia (Equal
Share)
------80
10
20
--
And some own tax base
Regional Taxes
Type of Tax
Assignment
Max Rate
Motorized Vehicles
Motor Vehicle Transfer Tax
Motorized Vehicles Fuel
Utilization of Water
Hotel tax
Restaurant tax
Entertainment tax
Advertisement tax
Street Lighting
Mining of C-Class Minerals
Parking tax
Province
Province
Province
Province
Local
Local
Local
Local
Local
Local
Local
5%
10%
5%
20%
10%
10%
35%
25%
10%
20%
20%
More than enough on aggregate
100.0
DAK
90.0
Contingency
Surplus
80.0
70.0
60.0
July Wage Increase
DAU
Transferred Spending
Kanvil/Kandep
50.0
Regional
Development
40.0
30.0
20.0
Shared
Revenues
Regional Routine
10.0
PAD
0.0
revenues
expenditures
And development spending
increased
Consolidated Government Development Expenditures
(Rp. Trillion and percent)
1999/2000
2000
2001
2002
Central Development Budget
Central Regional Development Transfers(i.e.
Inpres/Ipeda)
Central Own Account Development
Expenditures (APBN)
57.64
50.48*
45.46
52.30
12.45
20.55*
-
-
45.19
34.93*
45.46
52.30
Regional Development Expenditures
12.69
14.0*
33.5
30.46
Total Development Expenditures
57.88
48.93
78.48
82.76
As a percent of GDP
5.17%
3.72%
5.26%
4.91%
But some are more equal than
others
Rp./Capita
Own Rev.
Natural Resource Shared
revenues
3,000,000.0
0
Taxes
DAU+contin
gency
Rupiah Percapita
2,500,000.0
0
2,000,000.0
0
1,500,000.0
0
1,000,000.0
0
500,000.0
0
0.00
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The DAU is hardly helping
Regression analysis on the per capita DAU distribution 2001
and 2002 for local governments
2001
2002
(i)
(ii)
(iii)
(iv)
Dependent DAU PC
DAU PC
DAU PC
DAU PC
distribution
Fomula
distribution Formula
Independent
part
part
Own Fiscal Capacity
0.079**
0.076**
0.008 (0.56) -0.340** ((4.28)
(2.56)
11.58)
Population
-0.503**
-0.399**
-0.593** (- -0.843** ((-24.91)
(-14.02)
38.26)
29.91)
Area
0.071**
0.320**
0.079**
0.196**
(4.38)
(14.28)
(6.40)
(8.99)
Poverty
0.112**
0.274**
0.088**
0.157**
(5.96)
(10.04)
(6.13)
(6.23)
City/Kota
0.778**
3.794**
0.950**
2.465**
(3.69)
(12.96)
(5.87)
(8.69)
Constant
2.999**
-3.938** (3.936**
2.755**
(10.02)
9.37)
(17.13)
(6.95)
2
R
0.802
0.778
0.885
0.795
*
N
336
291
336
324*
Note: **=significant at the 5 percent level; dependent variable in per capita
terms. Source: See Annex 7
Although it reduces variation in
revenues
Cumulative Variation in Revenue Per Capita FY2001
Coefficient of
Variation
3.22
2.55
2.66
Standard
Deviation of
Logarithms
0.87
0.91
1.34
Gini Coefficient
0.63
0.58
0.77
Own Source Revenues
+ Shared Taxes (SXT)
+ Natural Resource
Revenue s (SDA)
DAU
0.820
0.587
0.350
DAU + contingency
0.797
0.583
0.345
Source: Results are for 336 local governments, using DAU 2001 simulation data
received from Ministry of Finance.
The center still spends a lot
Own Account Spending Per Level of Government
(2001 budget, Tr. Rupiah)
Total Own Account Spending
Current Expenditures
1. Personnel Expenditures
2. Other Current
Central
(1)
Province
(2)
Local Gov't
(3)
Regional
government
(2+3 )
235.5
190.0
40.0
150.0
23.2
14.2
4.4
9.8
72.7
48.2
33.4
14.8
95.9
62.4
37.8
24.6
.Development Expenditures
45.5
9.0
24.5
33.5
Source: Table A-3. Own account spending is net of transfers to other levels. Regional spending
estimated from accounts of 16 provinces and 267 local government budgets scaled up with
estimated total revenues for the provincial and local governments.
The center spends a lot on local
functions
Table 3: Central, Provincial, and Local Own Account Spending FY 2001
Central**
Province (1)
Local Gov't (2)
regional
government (=1+2
corrected for
provincial-local
Government
A. In Trillion of Rupiah
Total Own Account Spending
a. Current Expenditures
1. Personnel Expenditures
2. Other Current
b.Development Expenditures
Industrial Sector
Agriculture and Forestry
irrigation
manpower
trade, national business developmentfinance and cooperatives
transportation, meteorology,and geophysics
mining and energy
tourism, post, and telecoms
regional development and transmigration
environment and spatial planning
education, national culture, belief in god
population and family welfare
social welfare, health, women, children and teenagers
housing and settlement
religious sector
science and technology
law
Government apparatus and supervision
Politics, foreign relations, etc.
National defence and security
331.3
252.4
77.8
174.6
0.0
78.9
1.8
5.1
4.4
0.3
8.0
13.3
2.7
1.5
5.3
1.8
13.4
0.3
5.9
2.8
0.6
1.0
0.4
5.2
0.4
2.5
235.5
23.2
72.7
190.0
40.0
150.0
14.2
4.4
9.8
48.2
33.4
14.8
95.9
62.4
37.8
24.6
45.5
1.5
3.2
3.2
0.2
6.2
4.8
2.5
1.2
3.1
0.7
9.7
0.2
3.8
0.7
0.1
0.6
0.3
0.9
0.2
2.4
9.0
0.1
0.8
0.4
0.1
0.6
1.6
0.0
0.1
0.2
0.2
1.1
0.0
0.7
0.1
0.2
0.1
0.0
1.0
0.1
0.0
24.5
0.1
1.2
0.8
0.1
1.2
6.9
0.2
0.3
2.1
0.8
2.6
0.1
1.5
2.0
0.3
0.3
0.1
3.4
0.1
0.1
33.5
0.2
2.0
1.2
0.1
1.8
8.5
0.2
0.3
2.2
1.0
3.7
0.1
2.2
2.2
0.5
0.4
0.1
4.4
0.2
0.1
Local government has its
problems
High share of spending on wages
Lots of legal and illegal taxation
Weak financial management and
accountability
Weak coordination with the province
Directions for reforms
“Rich regions must fend for themselves, poor must be
assisted by the center”
Central government should spend less on local
functions
Resources can be devolved though
Own tax base for regions
DAK
DAU
Directions for reforms
Own taxes could be:
Property tax (center can still administer)
Business tax (Hotel and restaurant tax
already)
Personal Income Tax Surcharge (Opcen)
Conditions for reforms
Better financial management in regions
More clarity on functions/obligations
Restrictions on what taxes regions can
raise (“Closed list” in Law 34)
Civil service reform
More equalizing DAU