Testriono – Several regional leaders have openly protested the Ministry of Finance's reduction of TKD, warning that the cuts could undermine their ability to provide basic public services.
The reduction in TKD is part of a broader trend toward political recentralisation in Indonesia over the past several years. It risks not only reversing important gains made through decentralisation, but also weakening the capacity of local governments to deliver public goods and services.
National transfers to subnational governments are projected to decline significantly, from around 28 percent of total government expenditure in 2023 to approximately 17 percent by 2026. The 2026 TKD budget ceiling has been set at Rp693 trillion, a 24.6 percent year-on-year decrease from the IDR 919.87 trillion allocated in 2025. The Prabowo Subianto administration has proposed a 5.5 per cent increase in TKD funds (set at Rp 735 trillion) in the draft 2027 State Budget, but that would still leave regional funding way below the 2025 figure.
Deputy Minister of Home Affairs Bima Arya has admitted that these cuts are already affecting public services in 138 local governments.
North Maluku Governor Sherly Tjoanda, for example, has warned that her province is facing a 20-25 per cent reduction in its regional transfers, equivalent to approximately Rp709 billion to IDR 800 billion for the 2026 fiscal year.
She made this point during a working meeting in June between Commission II of the House of Representatives (DPR), the Ministry of Home Affairs, and several regional heads. She even claimed that North Maluku may not have sufficient funds to pay the salaries of Government Employees with Work Agreements (Pegawai Pemerintah dengan Perjanjian Kerja or PPPK – one category of Indonesian civil servants, introduced to give the government a more flexible mechanism for filling positions with a fixed, contract-based term of service) through to the end of the year.
Research by the Center of Reform on Economics (CORE) Indonesia suggests a reason for this. In its view, the government's budget-efficiency policy – designed in part to finance programs such as the Free Nutritious Meals (MBG) program and the Merah Putih Village Cooperatives (KDMP) – is placing significant pressure on local government finances.
The logic of decentralisation
To understand why these cuts matter, we need to return to the basic logic of Indonesia's decentralisation.
Following the fall of the New Order regime in 1998, Indonesia embarked on one of the most ambitious decentralisation programs in its modern history. Beginning in 1999 and implemented more formally in 2001, the reform transferred significant administrative, political, and fiscal responsibilities from the central government to provinces and districts. This process fundamentally transformed Indonesia's political economy, moving the country from a highly centralised system toward a much more decentralised form of governance.
The logic of decentralization, however, is not simply about transferring power and resources from the central government to local governments.
Its deeper purpose is to bring government closer to citizens and make public institutions more responsive to local needs. Decentralisation can improve government responsiveness by bringing decision-making closer to the people affected by those decisions. It is has also been a response to the weaknesses of excessive centralisation, including stagnant local economies and inefficient central bureaucracies.
Yet Indonesia's decentralisation has never been without problems. Some national political elites have long been frustrated with the outcomes of regional autonomy, arguing that the powers granted under Law 22 of 1999 on Regional Governments have not produced the expected improvements in public services. These concerns subsequently contributed to efforts to modify and, in some cases, reverse aspects of decentralisation.
The return of central control
In fact, the balance between central and local authority has gradually shifted over time, with recent reforms strengthening the central government's growing control over local fiscal management.
Law 1 of 2022 on Financial Relations between the Central Government and Regional Governments replaced important elements of the previous fiscal decentralisation framework and expanded central influence over fiscal transfers and spending priorities.
This does not mean that Indonesia has entirely abandoned decentralisation. Rather, the country appears to be entering a new phase in which decentralisation formally remains in place but the central government increasingly exercises control over resources, placing local autonomy under real pressure.
Many of these changes have been introduced openly. The recentralisation of authority became increasingly visible with the 2020 Omnibus Law on Job Creation, which shifted important regulatory powers from local governments back to Jakarta. Central control has expanded over key areas such as business licensing, environmental approvals (including Analisis Mengenai Dampak Lingkungan or AMDAL – environmental impact assessment requirement for any planned business or activity that has significant impacts on the environment), and local regulations, with the central government gaining renewed authority to override or cancel regional regulations (perda) that it considers obstruct national economic and investment priorities.
The result is a gradual shift in the balance of power: local governments remain responsible for many public services, but their fiscal capacity to deliver them is increasingly shaped by decisions made in Jakarta.
Local government capacity matters
This is why cutting regional transfers should not be treated simply as a matter of budget efficiency.
The central government cannot manage every aspect of government from Jakarta. The closer government is to citizens, the better positioned it is to understand and respond to their everyday needs. Local governments know better than Jakarta whether a particular village needs better roads, clean water, waste management, schools, health services, or other forms of basic infrastructure. Fiscal resources should therefore follow administrative responsibilities.
Regional governments also have legitimate claims to revenue-sharing funds generated from resources in their territories. Regions with oil, gas, mining, and other natural resources should receive adequate revenue-sharing allocations because they bear many of the social and environmental consequences of resource extraction.
A bleak future?
Further cuts to TKD could worsen an already difficult situation. Public services may deteriorate, while local development could stagnate.
This is particularly concerning because roughly 90 percent of Indonesia's 546 provinces, districts, and municipalities have low fiscal capacity. For many of these governments, there are few alternatives to central transfers. The problem is even more acute for regions located far from Jakarta. Local governments with limited fiscal resources and weak access to alternative financing have fewer opportunities to experiment, innovate, and develop locally appropriate solutions.
One of the strongest arguments for greater central control is that centralised budget management will make public spending more efficient. However, there is little reason to believe that centralisation automatically eliminates waste, inefficiency, or corruption. Budget leakage and corruption can just as easily occur at the national level as at the local level.
Recent controversies surrounding major national programs, including the MBG program, illustrate that bringing budgetary authority to the centre does not, by itself, guarantee that public funds will be managed more efficiently.
If the government genuinely wants to promote more balanced economic growth across Indonesia, it should reconsider the direction of fiscal policy toward local governments. Rather than repeatedly reducing TKD allocations, the government should ensure that local governments have sufficient and predictable fiscal resources to perform the responsibilities assigned to them.
This does not mean giving local governments unlimited resources without accountability. Decentralisation must be accompanied by stronger transparency, monitoring, and performance evaluation. But accountability should not become an excuse for excessive central control – an effective takeover
If the government wants national priority programs such as MBG, it should also consider giving local governments a meaningful role in implementing and managing them.
Local governments are closer to communities and better positioned to understand local conditions, identify beneficiaries, and adapt implementation to local needs.