Published by Global Banking & Finance Review®
Posted on August 22, 2025
4 min readLast updated: January 22, 2026
Indonesia's budget cuts may lead to local tax hikes and protests, as regional leaders warn of public outrage and threats to autonomy.
By Stefanno Sulaiman and Ananda Teresia
JAKARTA (Reuters) -Thousands of Indonesians have taken to the streets this month to vent against higher taxes, and local leaders warn public outrage will only worsen if President Prabowo Subianto's new proposal to slash regional funding comes to pass.
Prabowo last week proposed to parliament that regional funding be cut by a quarter to 650 trillion rupiah ($40 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 Prabowo's spending priorities. The government argues the programmes will bring economic growth and prosperity over the long term, but critics counter 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% cut to 2025 regional funding compared to 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% land tax hike.
Another town in the Sulawesi islands, Bone, also saw hundreds demonstrate against a planned 65% 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 Bursah Zarnubi, chairman of Indonesia's association of district leaders.
Local leaders are seeking to meet with Prabowo by the end of the month, he said.
Masinton Pasaribu, head of Sumatra island's Central Tapanuli district, said that the cuts threatened many planned projects and "the people will certainly be angry."
Bursah also noted his district of Lahat in South Sumatra province is dependent upon the central government for 90% 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 Reuters 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
Prabowo is seeking to spur economic growth of 8% during his term and recent economic data has been solid, with Southeast Asia's biggest economy expanding at a better-than-expected 5.1% 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% year-on-year in the first six months of 2025.
That said, analysts worry that 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 ($20.5 billion). 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 reforms in the wake of the 1966-1998 New Order era of the late autocrat Suharto, whom 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."
($1 = 16,345.0000 rupiah)
(Reporting by Stefanno Sulaiman and Ananda Teresia; Writing by Gayatri Suroyo; Editing by Martin Petty and Edwina Gibbs)
President Prabowo proposed to cut regional funding by a quarter to 650 trillion rupiah ($40 billion) in 2026, aiming to re-centralize government finances.
Local leaders warn that the proposed cuts will lead to increased local taxes and have expressed concerns about public outrage and the impact on planned projects.
Thousands of Indonesians have protested against higher taxes, with incidents of violence reported, including police using tear gas to disperse crowds.
Critics worry that the cuts threaten decentralization and regional autonomy, which are seen as essential for equitable development and public access to budget planning.
President Prabowo aims to achieve an economic growth rate of 8% during his term, supported by recent positive economic data indicating a 5.1% growth in the second quarter.
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