Developments of Regional Financial Structure in Indonesia 1985-2011 (Case Study of Papua Province

Ignatia Martha, Hendrati and Mandala, Manurung and Dolf Edward, Mitteboga (2013) Developments of Regional Financial Structure in Indonesia 1985-2011 (Case Study of Papua Province. In: International Conference on Indonesian Development ICID 2013, 12-14 September 2013, The Hague.

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Abstract

This study examines the implementation of fiscal decentralization in Indonesia 1985-2011 and case studies of Papua province. On the revenue side, although the role of revenue receipts in government revenue is improving, but the change is not large., it means the fiscal dependency of local governments to the central government greater. On the expenditure side, until the year 2011 expenditures area still dominated by routine expenditures that do not have an impact on the local economy's production capacity. In a case study of Papua province, the study showed that during the first ten years of fiscal decentralization, revenue structure Papua province weakened due to the implementation of special autonomy. This is evident from the increasing size of the role of locally generated revenues and a greater role in the transfer of central government revenue. On the other hand, the impact of additional spending to repair the level of prosperity, has declined. As a whole and in particular in Papua province, there are some very large potential issues. The first problem is the low ratio of provincial and local government taxes. At the provincial level there are only two that have a tax rate of more than 5 percent of PDRB. At the district level there are still many areas that the tax rate is much lower than 1 percent of PDRB. This suggests that local governments will continue to become more dependent on the central government. The second problem is still a poor level of efficiency and effectiveness of budget management. In the long term this can lead to loss of local budgets function as an instrument of social welfare improvements. The third problem is the lack of impact of budget growth to the level of welfare improvement. If not corrected, the long-term waste scarce resources will become chronic. Based on these results it can be concluded that the implementation of fiscal decentralization in Indonesia, during the first decade, has not given the expected results. Keywords: Fiscal Decentralization, Local Government Taxes, and Social Welfares

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