Indonesia’s regional budget cuts set to spur more local tax hikes and public outrage

JAKARTA – Thousands of Indonesians have taken to the streets in August to vent against higher taxes, and local leaders warn that public outrage will only worsen if President Prabowo Subianto’s new proposal to slash regional funding comes to pass.

Mr Prabowo last week proposed to Parliament that regional funding be cut by a quarter to 650 trillion rupiah (S$51 billion) in 2026 – part of his efforts to re-centralise government finances and fund signature ambitious policy programmes like his promise of free school lunches nationwide.

The planned cuts are sure to inflame

the debate over Mr Prabowo’s spending priorities

. The government argues that the programmes will bring economic growth and prosperity over the long term, but critics counter that his priorities are too costly and endanger democracy by taking away autonomy from regional areas.

Local leaders say the proposed cuts, which would result in the smallest regional budget in a decade, will just lead to more jumps in local taxes.

They add that they have had no choice but to hike taxes due to the previous administration’s efforts to rein in local control over natural resources, and a 6 per cent cut to 2025 regional funding compared with initial budget plans.

Already in some towns, anger has hit a boiling point.

In Pati in Central Java last week, police fired tear gas and used water cannon to disperse thousands of protesters who hurled rocks into a government office and set ablaze a police car amid an outcry over a 250 per cent land tax hike.

Another town in the Sulawesi islands, Bone, saw hundreds demonstrate against a planned 65 per cent increase in local land and property taxes.

“This is a matter of fairness. The source of people’s unrest is economic issues, when distribution is unfair and economic development is not inclusive, is uneven and does not trickle down,” said Mr Bursah Zarnubi, chairman of Indonesia’s association of district leaders.

Local leaders are seeking to meet Mr Prabowo by the end of August, he said. 

Mr Masinton Pasaribu, head of Sumatra island’s Central Tapanuli district, said the cuts threatened many planned projects and “the people will certainly be angry”.

Mr Bursah noted that his district of Lahat in South Sumatra province is dependent upon the central government for 90 per cent of its budget. The proposed cuts could put a water irrigation project worth trillions of rupiah, as well as services such as healthcare and education, at risk, he said.

Representatives for the Ministry of Home Affairs, the Finance Ministry and the President did not immediately respond to requests for comment about local leaders’ concerns.

Asked about planned cuts last week, Finance Minister Sri Mulyani Indrawati said the public would benefit at the regional level from central government initiatives, including the free meals and infrastructure projects.

Decentralisation in danger

Mr Prabowo is seeking to spur economic growth of 8 per cent during his term, and recent economic data has been solid, with South-east Asia’s biggest economy expanding at a better-than-expected 5.1 per cent in the second quarter, the fastest pace in two years. 

The rupiah has stabilised after hitting a nearly three-decade low in March, and foreign investment is also rising, with total investments growing 2.6 per cent year-on-year in the first six months of 2025.

That said, analysts worry that Mr Prabowo is robbing Peter to pay Paul with the regional funding cuts.

The budget for the programme to give free meals to 83 million school children and pregnant women – or a quarter of the population – is set to nearly double to 335 trillion rupiah. Cases of food poisoning and kitchens not being paid have also resulted in much public ire.

Some critics are also worried about the implications of the regional funding cuts for democracy in Indonesia.

Decentralisation and regional autonomy were two key pillars of reform in the wake of the 1966-1998 New Order era of the late autocrat Suharto, whom Mr Prabowo served under as a top military commander.

Though local leaders have often been criticised for failing to use funds promptly for development projects, decentralisation was lauded as a crucial way to ensure equitable development across a vast, resource-rich archipelago.

That is now in danger, said Regional Autonomy Watch executive director Armand Suparman. 

“Re-centralisation means regional autonomy as a reform agenda disappears,” he said. “Democracy doesn’t just mean elections, but also public access to budget planning and policy.” REUTERS