Jejak Vol 9 (2) (2016): 180-199. DOI: http://dx.doi.org/10.15294/jejak.v9i2.7625 JEJAK Journal of Economics and Policy http://journal.unnes.ac.id/nju/index.php/jejak The Fiscal Capacity of The Seven New Provinces and its Implications Juli Panglima Saragih1 1The Research Centre of Expertise Agency of DPR RI, Indonesia Permalink/DOI: http://dx.doi.org/10.15294/jejak.v9i2.7625 Received: March 2016; Accepted: June 2016; Published: September 2016 Abstract Since 2001 the regional autonomy policies have brought out seven new provinces in Indonesia. Consequently, they require the central transfer budget to finance the delegated duties and authorities and the development programs in each province. Since its establishment until today, the fiscal capacity in seven provinces except Banten has not fulfilled the increase in local expenditure needs every year. It still much depends on the central transfer because the local revenue source like PAD is very low. This research uses a descriptive method- analysis by analyzing the secondary data relevant to the discussed topic and using the concept of fiscal capacity in the fram ework of the fiscal decentralization theory. The results of this qualitative research explain that the high fiscal capacity index (IKF) is obtained by four provinces those are Bangka Belitung, West Papua, Riau, and North Maluku, while the intermediate index is obtained by Banten, and the low fiscal capacity index is obtained by Gorontalo and West Sulawesi. Good fiscal capacity with high index does not guarantee that the poor population in the area will be reduced as West Papua and Riau which populations are still relatively large. Besides, Ban tam with the very high PAD compared with six other provinces still has a large number of poor population of poor among seven provinces. But , overall the central transfer is recognized to be very helpful for the fiscal capacity of the seven new provinces above. Keywords: autonomy, fiscal capacity, index, budget; revenue, expenditure How to Cite: Saragih, J. (2016). The Fiscal Capacity of The Seven New Provinces and its Implications. JEJAK: Jurnal Ekonomi Dan Kebijakan, 9(2), 180-199. doi:http://dx.doi.org/10.15294/jejak.v9i2.7625 Corresponding author : p-ISSN 1979-715X Address: Jalan Jenderal Gatot Subroto Senayan Jakarta 10270. E-mail: [email protected] e-ISSN 2460-5123 JEJAK Journal of Economics and Policy Vol 9 (2) (2016): 180-199 181 INTRODUCTION ment, the provincial governance (province), and the local governance (regency/city). The grant of autonomous region and an extensive, real, and responsible decentra- Since the establishment of the lization to the region since the reform era is autonomous region in1999 until today, the three strategic steps in the history of Government has already established a new Government in Indonesia. First, in the autonomous region, either the new provinces political perspective the regional autonomy or regencies/cities. The new province areas and decentralization is the answer to the that have already been formed since 1999 are local problems of the Indonesian nation, the Riau Islands, Bangka Belitung, Banten, among others, the existence of a "threat" of Gorontalo, North Maluku, West Papua, West the disintegration of the nation, the high Sulawesi, and North Kalimantan. One of levels of poverty, the uneven (disparity) many factors that encourage the establish- interregional development, the poor quality ment of new provinces in Indonesia is the of the public life, and the issue of the economic and political factor. The domestic development of human resources (HR). political condition at the start of the autonomy is very easy to establish a new Second, the regional autonomy and autonomous region because of the euphoria decentralization is a strategic step for of political society at that time, besides the Indonesia to welcome the nation's era of non-political ones such as economy, poverty, economic globalization by strengthening the and others. Besides, the policy on one unit regional economy base (Mardiasmo, (SKPD, autonomous region, and other 2002:59). The essence of granting autonomy government units) apparently will influence is financial (fiscal) decentralization from the the policies on the other unit, Maggetti central government to the local governments (2015). (sub-national governments). The expansion or establishment of the Third, from the aspect of legal-formal, new autonomous regions certainly brings the the era of the autonomous region is marked consequences of the financial side by the appearance of the Law No. 22 of 1999 particularly the National Budget (APBN). At on the Local Governance and the Law No. 25 the beginning of the formation of the new of 1999 on the Financial Equalization autonomous region, the regional budget between the Central and Local Government. (APBD) of the core area is not adequate to Then the Law No. 22 of 1999 was revised by finance the new autonomous region. the Law No. 32 of 2004 on the Regional Therefore, the fiscal transfer to the region Governments, and the Law No. 25 of 1999 was born, including to the new autonomous was revised by the Law No. 33 of 2004 on the regions after formally passed in the Financial Equalization between the Central legislation on the establishment of the new and Local Government, and the various rules autonomous region respectively of the organization such as the Government Regulation No. 55 of 2005 on the Equali- In real terms, the financial ability of zation Funds; and the Government the new provinces is very inadequate to Regulation No. 38 of 2007 on the Divisions of finance the governmental administration and Government Affairs between the govern- development in the regions. This raises the 182 Juli Panglima Saragih, The Fiscal Capacity of The Seven New Provinces full dependency on the central government fiscal needs (the regional expenditure) in fiscal in APBN every year until today. APBD. Meanwhile the element of PAD is the One of the purposes of the fiscal most important one in measuring the transfer is the equalization of fiscal capacity regional fiscal capacity including the new of each region. There is an increase in the autonomous regions. central fiscal transfers every year in APBD, Based on the Regulation of the but it still cannot meet the demands of the Minister of Finance Republic of Indonesia increased needs of the local expenditure No. 37/FMD. 07/2015 on the Regional Fiscal every year, either the province or the Capacity Map, which means that the fiscal district/city. In 2010, for example, the fiscal capacity is a picture of the financial ability of transfers to the region amounted to Rp each region reflected through the general 344,613 trillions in APBN-P in the fiscal year receipt of the Regional Revenue and of 2010. In 2015, the number of fiscal transfers Expenditure Budget/APBD (not including to the region reached Rp 643,8 trillions in the Specific Allocation Fund (DAK), APBN-P of 2015, while the village fund emergency fund, old loan fund, and other allocation amounted Rp 20.7 trillion. From receipt which use is restricted to finance the overall allocation Transfer to the region certain expenditure) to finance the govern- in 2015, the General Allocation Funds (DAU) ment duties after reduced by the employees’ magnitude still dominates amounted Rp expenditure and associated with the number 352,8 trillions, followed by the Revenue of poor population. Sharing (DBH) amounted Rp 110,0 trillions The core of the regional fiscal capacity and the Specific Allocation Fund (DAK) is PAD, the general fiscal transfer, and the amounted Rp 58.8 trillions. other formal regional revenue source. If the Almost all of the autonomous regions, three variables keep increasing every year, especially the new autonomous regions, have the tendency of the regional fiscal capacity an enormous fiscal dependence on the state will also be increased. But it is very difficult budget, except for DKI Jakarta which PAD for the new autonomous region to increase source is able to finance the majority of its the three regional revenue sources, including expenditure. But it is also a logical PAD, because most regions whether the consequence of the political decentralization, province or district/city is very difficult to in which there is a delegation of the partial increase the receipt of the PAD. government affairs from the center to the Besides, most budgets absorbed by the provinces/regencies/cities. share of employees’ expenditure every year is This means that the fiscal ability of the increasing, not only by the employees in the autonomous regions to finance various provinces but also those in the regencies/ programs and activities of the regional cities. The increase in the share of development since the autonomy was employees’ expenditure in APBD will affect enacted is still difficult to release from the the minimum portion of capital expenditure fiscal transfer dependency. This is because for the infrastructure development and will the source of original regional financing, reduce the allocation for the goods such as the original regional revenue (PAD) expenditure in the effort to increase the still hasn't been able to finance a part of the regional assets. JEJAK Journal of Economics and Policy Vol 9 (2) (2016): 180-199 183 The element of deduction from the association between fiscal decentralization fiscal capacity is the employees’ expenditure and economic performance are based on a in APBD. If the employees’ expenditure is series of simple premises. An important, but increasing