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.

Summary

 HOW TO ENRICH THE QUALITY OF YOUR
CITY

                    Case: Urban Quality Management in  Kuala Lumpur

One of the cities that I
observed during my course is Kuala Lumpur. As the capital city of Malaysia, Kuala Lumpur city managers face grave challenges in managing the metropolis.  

ISSUES OF URBAN QUALITY
IN  KUALA LUMPUR REGION

Urbanization in Malaysia is
nevertheless, very rapid growth. KL is the focus of employment opportunities
and as a result, rural-urban migration is fueling the growth of KL. The negative impact of urbanization: poor living
conditions associated with squatter settlements; under supply of waste disposal
facilities and portable water; air pollution and high lead levels in exhausts
are already generating health hazards in KL; and water pollution.

 CURRENT STANDARDS

 Some standard to measure
the urban quality are (a) Malaysia Urban Quality Life Index (MUQLI); (b)
Quality of Life; (c) Water Quality (Sewerage Management); (d) Air Quality.

 (a) MUQLI

Malaysia defines a measurement call MUQLI (Malaysia Urban Quality Life Index). Some
basic area of the MUQLI are working life, housing, transport &
communication, health, education, social participation, income &
distribution, culture & leisure, family life, environment and public
safety.

 (b)Quality of Life

Selected indicators of
quality of life are life expectancy (in years), infant mortality rate/1000,
population/doctor ratio, literacy rate (%), telephones/1000 population,
utilities such as pipe water (% of population) and electricity (% of
households).

 Selected
Indicator of Qualitty Life [1]) table 1

 (c)Water Quality

To monitor the quality
of water, the government of Malaysia set up a standard based on  the Interim River Water Quality. To control the
level of pollution in the waterways, 2 effluent standards: (i) Standard A – for
upstream of water catchments; (ii) Standard B – for downstream of water
catchments. Effluent standards set as Absolute Standards. In design, an Average
Standards much lower than the limits as on the table 2.

(d) Air Quality

5 (five) major
pollutants measured such as particulate matters (PM10), sulfur dioxide (SO2),
Nitrogen Dioxide (NO2), Carbon Monoxide (CO) and Ozone (O3). The ambient of air
quality show on the table 3.

Some actions have been taken also to solve some of the challenges, such
as establishment of regulations aimed at maintaining green areas, expanded and
preservation of water resources in Wetland Areas, development of low cost
housing, building new towns to balance development such as Putra Jaya township,
development of e-government such as in Subang Jaya and strengthened partnership
between the government and private sector in Shah Alam City (Selangor
Development Corporation).