August 15, 2025 | 08:27 am
TEMPO.CO, Jakarta - The government’s move to cut fund transfers to regional governments threatens fiscal decentralization and regional autonomy, risking even greater inequality.
FISCAL decentralization and regional autonomy are now under threat because the funds that should be used for development and public services in the regions have been allocated to cover the costs of the central government’s wishes.
This is reflected in the order from President Prabowo Subianto on budget cuts. The Rp50.59 trillion reduction in funds transferred to the regions (TKD) this year will be continued. The government even plans to further reduce from 4.05 to 4.7 percent of gross domestic product this year to only 2.8 to 2.9 percent in the 2026 State Budget. The total is estimated at Rp275 trillion to Rp300 trillion. This means that each region could lose up to Rp2 trillion of income.
The funds transferred to the regions are State Budget funds allocated to the regions as part of the implementation of decentralization. This allocation is aimed at reducing the disparity of funding between the center and the regions, decreasing the funding inequality for governance affairs between the regions, improving public services and covering the costs of the implementation of special autonomy and regional privileges.
The impact of these budget cuts, which began in February 2025, has been felt strongly in the regions. Construction of infrastructure that was underway has been halted immediately, while other previously planned projects have not gone ahead. These include improvements to roads and bridges in Lima Puluh Kota Regency in West Sumatra and the construction of low-cost apartments in Pasuruan, East Java.
This is because between 60 and 70 percent of regional budget funds are highly dependent on TKD. There are even regencies where 87 percent of revenue in the regional budgets is from transfers from the central government. A number of regions are reported to have taken shortcuts by borrowing funds, increasing their fiscal burdens.
These cuts have been carried out in order to cover the costs of President Prabowo’s priority programs. For example, the free nutritious meal program needs Rp240 trillion. The establishment of 80,801 Red-and-White cooperatives in the villages requires funding of up to Rp400 trillion. And the defense budget has soared from Rp166.1 trillion to Rp245.2 trillion.
It is true that Prabowo has also asked for savings in other ministries and institutions to the tune of Rp256.1 trillion. But this is reasonable because these funds are being reallocated to cover the cost of the President’s wishes. Conversely, transferring the fiscal burden from the center to the regions is unjust and damages regional autonomy.
The transfer of funds to the regions is a concrete manifestation of the endeavor to bring about economic equity. The disparity of the locally derived income between regions in Indonesia is conspicuous. For example, Jakarta receives Rp72.9 trillion in income from within the region itself. This is 40 times higher than the average figure for provinces in eastern Indonesia.
One budget item that has received significant reductions is the physical special allocation funds (DAK), which are used to cover physical activities such as the construction of roads, bridges, schools, public health centers, irrigation systems, and other public facilities. When the physical DAK is cut, the impact is felt immediately by economic actors in these regions, from contractors and suppliers of goods to the owners of small food stores near projects. The quantity and quality of public services decline.
By cutting fund transfers to the regions, Prabowo is throttling the Indonesian economy.
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