The government decision to reduce the amount of the Transfer to Regions (TKD) by more than US$13 billion for 2026, from US$61 billion (Rp919 trillion) in 2025 to US$47 billion has sparked concerns regarding its impact on regional autonomy and fiscal decentralization as it could undermine local governments’ ability to manage their own budgets effectively.

Achmad Nur Hidayat, an economist and public policy expert at State UPN Veteran University Jakarta, emphasized that this reduction conflicts with the spirit of Law No. 1/2022 on Financial Relations between the Central Government and Regional Governments, which guarantees regional fiscal rights.

"The reduction of TKD essentially penalizes decentralization and threatens the autonomy of local governments," Hidayat said in a statement on Wednesday, October 8, 2025.

The central government justifies the cut by citing inefficiencies in regional fund utilization, claiming that many local governments have not fully absorbed or utilized their allocated funds. However, Hidayat argued that reducing these funds is not a solution, but rather a violation of regional rights.

"TKD is not just a handout from the central government − it is a constitutional right for regions," he said.

In place of the reduced TKD, the government claims to have increased "central government programs for regions" from approximately US$60 billion (Rp900 trillion) in 2025 to US$87 billion in 2026. However, the composition of these funds has shifted fundamentally: instead of development funding, much of the new allocation is for social assistance programs like the Family Hope Program (PKH) and food aid, which do not contribute to strengthening local fiscal capacity.

This shift could have serious consequences for local governments, many of which rely heavily on the General Allocation Fund (DAU) and Revenue Sharing Fund (DBH) to finance basic public services and infrastructure. The reduction in TKD risks leaving regions, especially those with limited fiscal resources, unable to meet payroll obligations for civil servants or fund key infrastructure projects. According to local leaders, some regions are already facing potential budget deficits due to these cuts.

Hidayat warned that the new allocation structure could erode regional autonomy, turning local governments into mere implementers of central government policies.

"The essence of regional autonomy is to allow local governments to set their own priorities based on the needs of their people. This policy shift undermines that principle," he said.

Legal framework

From a legal perspective, Hidayat noted that the drastic cut in TKD and the replacement of funds with ministry-controlled spending could violate the legal framework established by Law No. 1/2022, which sets clear guidelines for DBH and other regional fiscal entitlements. "If the central government reduces DBH or alters its distribution outside the legal framework, it risks a legal dispute," he said.

As the situation unfolds, Hidayat called for a comprehensive evaluation of the policy, urging the government to uphold the principles of fiscal justice and transparency.

"The central government must ensure that the allocation for DBH, DAU, and DAK (Special Allocation Fund) remains in line with the legal formula, and any changes should go through proper regulatory channels, not just political decisions," he said.