This study discusses the planned reduction of Indonesia's regional transfer funds, known as Transfer ke Daerah (TKD), by the central government. TKD is an important fiscal instrument that helps local governments finance public administration, infrastructure, education, health services, and local development. The study notes that in the 2026 budget plan, the central government intended to cut TKD by around 25 percent, equal to approximately Rp 215 trillion.
A heavy dependence on transfers
The study argues that many local governments remain highly dependent on central government transfers. With an average of 79.4 percent of regional revenue coming from central transfers, a major reduction in TKD could weaken local fiscal resilience. As a result, regional governments may struggle to fund employee salaries, routine operations, infrastructure projects, and development programs. Some regions may also look for quick revenue sources, such as increasing land and building taxes, which can burden low-income communities and trigger public protests.
Impacts on services and local economies
The study highlights several possible impacts of TKD cuts, including delayed infrastructure projects, weaker public service delivery, and slower local economic activity. Education, health, sanitation, administrative services, and basic infrastructure may face budget constraints. Local economic sectors such as construction, trade, services, and MSMEs could also be affected because regional government spending is one of the main drivers of local economic circulation.
“Local governments are considered better positioned to understand contextual needs, local priorities, and community-specific issues.”
A question of autonomy
From a governance perspective, the study warns that replacing regional transfer funds with spending controlled directly by central ministries may reduce local autonomy. Local governments are considered better positioned to understand contextual needs, local priorities, and community-specific issues. Therefore, the study calls for a fairer fiscal reform that balances central and regional finances, strengthens regional fiscal capacity, and avoids placing the burden of fiscal adjustment on ordinary citizens.