With a significant cut in the fuel subsidy, President Joko '€œJokowi'€ Widodo will be able to double the government'€™s capital expenditure (capex) in the revised 2015 state budget, which will soon be submitted to the legislature for approval.

The allocation of capex spending, which includes capital investment as well as growth-generating infrastructure projects, will be more than doubled from the Rp 139 trillion it was last year to Rp 290 trillion (US$23 billion) this year, according to the latest draft of the revised budget proposed to lawmakers on Friday.

Due to the increase in capex spending, three ministries will see significant boosts in their new budgets. They are the Public Works and Public Housing Ministry, the Transportation Ministry and the Agriculture Ministry, each of which will receive an additional Rp 33 trillion, Rp 20 trillion and Rp 16 trillion, respectively.

The ministries would be told to focus on ready-to-build infrastructure projects, not on ones with sophisticated designs that were deemed difficult to execute, said Finance Minister Bambang Brodjonegoro.

'€œThe three ministries have been viewed by the President as strategic in fulfilling his vision and mission,'€ Bambang explained in a press briefing on Friday.

'€œAn interesting point worth highlighting here is the fact that ministries'€™ spending, for the first time in years, will exceed non-ministry spending that includes fuel subsidies or others,'€ added the minister.

Bambang, an experienced official in the Finance Ministry who has been involved in state budget design for at least four years, described the new revised 2015 state budget as '€œthe closest to perfect'€ budget that Indonesia has had in recent memory.

The removal of the subsidy for Premium gasoline and the introduction of a fixed-subsidy system for diesel would also cushion the budget from unwanted fluctuations in oil prices and exchange rates, he noted.

The budget will also adopt a healthier posture as the fiscal deficit, the gap between state revenues and spending, is set at 1.9 percent this year, lower than the 2.3 percent set in the previous year.

But Bambang identified one state budget risk that should not be taken lightly: tax revenue collection, which is predicted to hit Rp 1.3 quadrillion this year, an ambitious target compared to last year'€™s realization of approximately Rp 900 trillion.

Facing the daunting task of meeting the target are four people whose names are currently in the hands of the President, who will handpick someone to fill the post of the Finance Ministry'€™s taxation office chief, which has been left vacant since November.

'€œFor the taxation office'€™s director general, I need someone who has the right chemistry so that [he or she] can work in tandem with me, someone who can implement major breakthroughs,'€ said Bambang, who has aimed to increase Indonesia'€™s tax-to-GDP ratio from the existing 12 percent to 13.5 percent by the end of this year.

The more ample fiscal space in the revised 2015 budget is attributed to a recent change in the government'€™s policy that removed the subsidy for Premium gasoline and implemented the use of a fixed subsidy for diesel fuel.

Consequently, fuel subsidy spending allocations will shrink significantly from the previous
Rp 276 trillion to Rp 81 trillion in the revised budget.

However, while the fuel subsidy reallocation might be a fiscal windfall for Indonesia, it remains unclear whether lawmakers could approve the new fuel price-setting scheme included in the budget, warned analysts from Japan-based fund manager Nomura.

'€œIt [legislative approval of the revised budget] tends not to be a straightforward process,'€ Nomura analysts Euben Paracuelles and Lavanya Venkateswaran wrote in a report.

'€œWe think this is even more the case currently, given President Jokowi'€™s lack of legislative control and its fragmented nature.'€

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