Sri Mulyani: Indonesia Presses Fiscal Inequality Through The HKPD Law

Minister of Finance, Sri Mulyani Indrawati. (Photo: Doc. Antara)

Minister of Finance Sri Mulyani Indrawati said Indonesia is trying to suppress vertical-horizontal inequality in fiscal management through Law Number 1 of 2022 concerning Financial Relations between the Central Government and Regional Governments (UU HKPD).

"Reducing fiscal imbalance is one of the most important goals, which we designed with reforms to the HKPD Law. We made revisions and strengthened several fiscal decentralization designs, the goal of which was to reduce vertical and horizontal inequality," Sri Mulyani said at the 2024 Fiscal Decentralization International Seminar at the Ministry of Finance's office in Jakarta, quoted from Antara, Tuesday, September 24.

The Minister of Finance explained that Indonesia has started to decentralize, both fiscal and political, since the reform era. A number of responsibilities of the central government have been decentralized to local governments, except for eight matters that are still held by the center. In addition, administratively, several responsibilities have also been delegated to local governments.

The HKPD Law also encourages improving the quality of regional spending so that the local government can provide better services for local residents.

Strengthening local taxes is also one of the focuses that is considered. However, according to Sri Mulyani, there are still challenges faced for this effort.

"Regional income still depends heavily on the transfer of the central government. Therefore, local tax power needs to be increased," he said.

The State Treasurer also emphasized the importance of synchronizing between fiscal central and regional governments so that the budget can be absorbed optimally.

He gave an example during the last COVID-19 pandemic and there was an increase in commodity prices, the central government tried to stabilize the economy with countercyclical fiscal policies.

However, sometimes the regions do not immediately spend transfer funds, so the effectiveness of the central fiscal policy is limited.

"This is what we are still at the Ministry of Finance trying to improve on how to synchronize the central and regional fiscals, so that the impact of the fiscal policy can optimally affect the economy and society," he explained.

This is what underlies the Ministry of Finance to hold a fiscal decentralization seminar. In this activity, the Ministry of Finance also attended speakers from a number of international organizations, such as the World Bank, the Asian Development Bank (ADB), the Organization for Economic Cooperation and Development (OECD), the ASEAN+3 Macroeconomic Research Office (AMRO), and the Australian Ministry of Finance.

"We continue to strive to improve synchronization between the central and regional fiscal policies. This is a long journey, and an international seminar like this is very helpful for all parties," said the Minister of Finance.