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2018 state budget: Toward more inclusive growth?
Fiscal policies alone will not be enough to reduce poverty and income inequality.
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A local stands next to railway tracks passing through a dense settlement in Petamburan, Central Jakarta, on July 19. ( ANTARA FOTO/M Agung Rajasa)
A
lthough the economy has been growing at a respectable rate of around 5 percent, many Indonesians have become restless at seeing the persistent poverty and income inequality.
Political pressure on the government to deliver more equitable growth has been increasing, so it is understandable that the major theme for the 2018 state budget, delivered by President Joko ”Jokowi” Widodo on Aug. 16, is how to improve the lot of the bottom 40 percent of the Indonesian population.
But any efforts will depend on the government’s success in mobilizing sufficient tax revenues. The tax revenue is projected to increase by 9.2 percent to Rp 1.6 quadrillion (US$119.5 billion), but the tax-to-gross domestic product (GDP) ratio will be a mere 10.8 percent, the lowest among ASEAN countries.
This tax-revenue target should be achievable, however, not only because the economy could grow by 5 percent-plus next year, but also because tax authorities have acquired a broader tax base through the tax amnesty, as well as more access to taxpayers’ bank accounts.
Tax authorities will also be helped by the implementation of Automatic Exchange of Information (AEoI), a scheme initiated by the OECD whereby Indonesian tax authorities will have access to data on Indonesian citizens’ assets that are parked overseas.
These efforts should be accompanied by tax reforms, especially in tax systems and tax administration. Along the way, in its efforts to reduce poverty and income inequality, the government might be forced to lift the taxable income cap and to provide tax incentives to business sectors that create more jobs. These could reduce the potential for tax increases.
The targeted infrastructure budget is Rp 409 trillion in 2018, a significant increase of 21 percent from the 2017 budget. This includes the planned construction of 856 kilometers of roads, 25 km of toll toads, 8,000 bridges and 635 km of railway tracks. If completed, they would improve connectivity, bolster economic activities, substantially increase employment and potentially reduce economic inequality across the country.
