THE ROLE OF INTERGOVERNMENTAL FISCAL TRANSFERS
In the previous post, I mentioned how to enrich the quality of your city, case study - Kuala Lumpur, Malaysia (the city in the growing country or
developing country). If we explore cities in developed country, they were not
only has a good quality on environment but also on wealth. They can build a
good infrastructure and public services.
The
cities can be developed both by private and by government. The new towns or
cities, such as Bumi Serpong Damai, Bintaro Jaya, Karawaci, Kota Wisata, and
Kota Parahiyangan, were developed by private. Private usually already knew that
government had a policy to build road (toll road or other infrastructures) in prospective
areas or the infrastructures in those areas developed by government were already
existed. Nevertheless, there is no formula that guarantees private response quickly
to build an area. There are some aspects that must be considered before they
take an action, such as: market, location, design, financing scheme,
entrepreneurship, and timeframe.
In the context of
government, ability of local governments to develop their region can be seen
from their fiscal capacity. Each local
government in Indonesia has different fiscal capacity (table 1). Under prevailing law of decentralization in 2004, e.g revision of Law No. 22 of 1999 become Law No. 32 of 2004 on local government and law No. 25 of 1999 become Law No. 33 of 2004
on fiscal transfer, local governments had greater autonomy and right of balancing
funds from central government.
Most of budget to
build infrastructure comes from intergovernmental transfer (revenue sharing,
general and specific purpose grant). Fiscal transfer e.g. general purpose grant
(DAU), mostly used either for payment of the local civil servant or for managing
the development.
The system of intergovernmental transfers in Indonesia comprises three basic types of schemes: revenue sharing, a general purpose
grant (DAU), and grants for specific purposes (DAK). The transfer system has
seven main objectives:
i). Address
vertical fiscal imbalances between levels of government (revenue sharing, DAU);
ii) Equalize regional government
fiscal capacities to deliver services (DAU);
iii) Encourage regional
expenditure on national development priorities (DAK);
iv) Promote the attainment of
minimum infrastructure standards (DAK);
v) Compensate for benefit/cost
spill over in priority areas (DAK);
vi) Stimulate regional commitment
(DAK); and
vii) Stimulate revenue
mobilization (revenue sharing, DAU, DAK).
Revenue Sharing: there are three types of revenue sharing mechanisms, one for property
based taxes (PBB and BPHTB), one for natural resource revenues (forestry,
mining, fisheries, oil, and gas) and one for the personal income tax. The
revenue sharing schemes are intended to respond regional aspirations for increasing
access and control revenues, assisted in the stimulation of increased regional
revenue mobilization and address vertical imbalances (table 2).
A general purpose grant (DAU) is intended to respond regional aspiration for a greater access and control
over revenues. The DAU also addresses problems related to vertical imbalances
and in intended to equalize fiscal capacities across regions.
A specific-Purpose Transfers
(DAK) is intended to help funding need which cannot be
estimated in a DAU formula and to assist with funding of expenditures which
related to the national priorities. Now, there are 6 priorities e.g. education,
health, infrastructure (road, irrigation, pipe water), agriculture, fishing and
marines, government infrastructure, and environment.
The ability of local governments in manage fund transfer on their annual budget is important. Even though
they have a big fiscal capacity, it does not guarantee their budget will invest optimally in infrastructure, micro scale
enterprise, community development, education and health. Currently, the
obstacles be faced are delayed on legalisation of APBD (regional annual budget),
the late to start the project and the low disbursement of some project. Those
obstacles made the momentum of development gone. In this context, time is
really important for a success development or a good work plan.