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Budget note: Between poverty alleviation and enterprise revitalization
(illustration: dpr
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(illustration: dpr.go.id) (illustration: dpr.go.id)
(illustration: dpr.go.id)
The government and the House of Representatives (DPR) finally reached an agreement on the 2016 state budget posture on Oct. 30, after an all-night debate at a budget commission meeting and high-level lobbying involving Vice President Jusuf Kalla.
Unlike state budget negotiations in previous years, which were mostly dominated by talk of fuel and energy subsidies, this year House members and the government disagreed most strongly on the issue of state capital injections (PMN).
It was Prabowo Subianto's backer, the Gerindra Party ' the engine room of the opposition Red White Coalition (KMP) ' that previously rejected the state budget due to issues with PMN allocations, arguing that the injection would mean a subsidy for state-owned enterprises after reducing the subsidy for the people.
'The government must evaluate the PMN. For how long will the state provide these capital injections? We have to remember that there is some foreign ownership of state-owned enterprises. This means, ultimately, that people are subsidizing the enterprises, and not vice versa,' said deputy House speaker cum Gerindra deputy speaker Fadli Zon to the press, on Friday.
Twenty-four state-owned enterprises (SOEs) were allocated state capital injections totaling Rp 40 trillion (US$2.93 billion) in the 2016 budget, including electricity company PLN with Rp 10 trillion and infrastructure financing firm PT Sarana Multi Infrastruktur (SMI) with Rp 4.16 trillion.
An agreement was finally reached to freeze the Rp 40.42 trillion in PMN funds until the House and the government meet again at the beginning of 2016 to revise the state budget. Rp 40 trillion is the same amount that has been allocated to electricity subsidies in the 2016 budget.
A lowered electricity subsidy of only Rp 40 trillion in 2016 would lead to the revocation of subsidies previously enjoyed by 3 million households ' a policy that was sternly rejected by Tulus Abadi from the Indonesian Consumer Protection Foundation (YLKI) in a discussion last week.
"Some people's electricity bill will rise by 250 to 300 percent. Let's say from Rp 175,000 to around Rp 400,000 or Rp 600,000. Instead of shocking people like this, why doesn't the government raise the rate by 20 percent each three-month period?" he said on Saturday as quoted by tempo.co.
An economist at University Indonesia, Riyanto, predicted that rising electricity bills for middle- and low-income households would lead to inflation soaring to 6 percent at end of 2016, higher than the inflation target in the state budget of 4.7 percent.
At the same event, Riyanto also said, 'The assumed economic growth of 5.3 percent [in 2016] will be fallen short of by 0.59 percent, and the poverty rate will rise by 0.14 percent.'
Despite the electricity factor, we should not forget fuel prices. In 2016, when the price of oil is predicted to recover as the US economy gets better, the government may increase fuel prices that could lead to a higher poverty rate.
As the World Bank noted, Indonesia has 68 million people who are vulnerable to falling below the poverty line if food prices rise sharply. A costly fuel price would lead to higher transportation costs and increased food prices.
Maybe it explains why the government, amid the slow economy, did not give an exact figure ' but only a range ' as the 2016 poverty rate target. Jokowi's administration have listed a target poverty rate of 9 to 10 percent for 2016, compared to this year's target of 10.3 percent.
It is a very conservative target, considering that according to jobsdb.com, every year Indonesia has around 30 million people seeking jobs. That number could grow further and people could end up unemployed in a slow job market.
Tax income
Amid the slowing economy, the government seems keen to keep the PMN program intact, despite heavy criticism from opposition politicians, especially those from the Gerindra Party.
Although the amount represents only one fifth of the Rp 201 trillion total energy subsidy for 2016, it was the center of debate in the budget meeting.
Opposition parties' main point related to the irony of President Jokowi slashing the subsidies for the public only to then spend another Rp 40 trillion subsidizing state-owned enterprises. And all that amid the slowing economy, believed to be squeezing people's standard of living to begin with.
Jokowi's debut policy of raising the fuel price and slashing the fuel subsidy in October last year put the easy times behind us as the government's paradigm shifted from supporting citizens directly in the form of abundant affordable energy to supporting citizens through various alternative programs.
Some current programs are: the Rp 34.7 trillion village fund, the Rp 33.3 trillion reservoir revitalization, Rp 21 trillion in infrastructure projects, Jokowi's Rp 19.1 trillion social security cards, the Rp 16.9 trillion self-sustainable food program and the Rp 3.8 trillion anti-illegal fishing squad.
So what is it that drives the government to defend the PMN fund so fiercely? The answer is in the state budget posture itself. One cannot just ignore the raising of targeted tax revenue to Rp 1,565.78 trillion, a five percent increase on the 2015 target of Rp 1,489.3 trillion, which itself may not be realized this year.
Where does the money comes from? Amid a slowing economy, it is hardly possible to increase the tax ratio. Even the State-Owned Enterprises Ministry has lowered its dividend target from state-owned companies from Rp 37 trillion to Rp 34 trillion this year.
But the magic trick is here ' it is the state-owned enterprises' asset revaluation. Their performance must be boosted, to support their value. According to RSM AAJ tax consultant Sentot Agus Priyanto, an asset revaluation by state-owned enterprises could raise the state's tax revenue by 5 to 10 percent.
"This would add about Rp 65 trillion to Rp 120 trillion to the tax revenue target," he estimated, talking with thejakartapost.com.
The government seems to understand the current economic situation better than first thought, including how to overcome some major problems. Thus, the 'polemic' PMN fund was not plucked out of thin air. There was method in the madness, despite the politically uneasy situation it initially led to.
Even the government admits that they know better now than they did then, as implied by Finance Minister Bambang Brodjonegoro, when he said, 'In general, the 2016 state budget is more realistic than the 2015 revised-state budget, as we have a better understanding now of the global and domestic economies.' (dan)
