TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Realistic budget, yet issues remain
President Joko “Jokowi” Widodo’s administration may dream of creating higher growth and welfare next year, but its proposed 2018 state budget seems to lack the fiscal push needed to drive the economy as it still relies heavily on increased spending as its main engine, experts have said
Change Size
President Joko “Jokowi” Widodo’s administration may dream of creating higher growth and welfare next year, but its proposed 2018 state budget seems to lack the fiscal push needed to drive the economy as it still relies heavily on increased spending as its main engine, experts have said.
The government has allocated Rp 2,204.4 trillion (US$164.9 billion) for state spending next year, a 3.3 percent increase from Rp 2,133.3 trillion set in the revised 2017 state budget.
State revenue for next year, meanwhile, has been set at Rp 1,878.4 trillion, an increase of 8.1 percent compared to Rp 1,736.1 trillion targeted in this year’s revised budget. The growth is lower compared to 12 percent seen between 2016 and 2017 state budgets.
Such an arrangement was an indication of the government’s move to amend tax shortfalls in previous years’ state budgets, by setting out a rather moderate target, said Berly Martawardaya, program director at the Institute for Development of Economics and Finance (INDEF).
“The government has been more careful in drafting next year’s budget, most likely because they want to clean up any stains in the country’s balance sheet,” Berly said in Jakarta on Friday.
In addition, the government also realized that the oil and gas sector could no longer be its main source of non-taxed state revenue becuase of the volatility of their prices, he said.
“Nevertheless, the government is becoming more reliant on tax revenue,” he said, pointing out that the expected taxation revenue in the proposed 2018 state budget was set to grow by about 9 percent.
Finance Minister Sri Mulyani Indrawati claimed on Friday that the taxation revenue target of Rp 1,609.4 trillion as stated in the draft 2018 state budget was realistic and achieveable as it was only a 9.3 percent increase from this year’s target of Rp 1,472.7 trillion.
This projection was relatively moderate compared to the expected 14.5 percent growth in 2017 tax revenue, Sri Mulyani said.
However, economists have said the government had a tendency to increase its expenditure instead of giving tax incentives to stimulate growth, even though the latter option may have worked better to boost growth, particularly as Jokowi seeks reelection in the 2019 presidential election.
The government’s inability to spread its spending evenly each quarter was a result of bureaucratic habits becuase of which the realization of contracts could only show up in the final part of the year, an issue that should be adressed, said INDEF economist Mohammad Reza H. Said.
Reza suggested the government formulate better short-term policy to boost household consumption, which accounts for more than half of Indonesia’s economy, rather than relying solely on infrastructure developments that were time-consuming.
However, as Indonesia lags behind its ASEAN peers in infrastructure development, the government is expected to further engage the private sector to support its massive program because an increase in private investment could help reduce financing from debt issuance.
“The government should be able to better differentiate which projects they can build and which can be given to private companies,” said INDEF executive director Enny Sri Hartati.
In his 2018 budget proposal, read out to legislators on Wednesday, Jokowi, a former furniture businessman, highlighted that the 5.4 percent economic growth target for next year would be geared toward developing the economies of regions outside Java.
Bank Indonesia Governor Agus Martowardojo said Friday that the central bank was in line with most of the government’s macroeconomic assumptions in the proposed 2018 budget, such as the rupiah exchange rate against the US dollar and the inflation rate, which were set at Rp 13,500 and 3.5 percent, respectively.
However, BI had a slightly different projection for economic growth next year with a range between 5.1 and 5.5 percent, something that the central bank and the government needed to discuss further, Agus said. (dea/rdi/mrc)
