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Realistic, but tax revenue target quite challenging: Analysts
The 2020 state budget proposal presented by President Joko “Jokowi” Widodo to lawmakers on Friday reflected the government’s optimism in facing global uncertainties, although there are growing challenges in meeting the tax revenue target
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span>The 2020 state budget proposal presented by President Joko “Jokowi” Widodo to lawmakers on Friday reflected the government’s optimism in facing global uncertainties, although there are growing challenges in meeting the tax revenue target.
State expenditure in the draft of the 2020 budget, which will mark the first budget under Jokowi’s second five-year term, is projected to reach Rp 2.52 quadrillion (US$177.36 billion), consisting of Rp 1.67 quadrillion of central government spending and Rp 858 trillion in transfers to regional administrations, including village funds.
State revenue, meanwhile, is projected to reach Rp 2.21 quadrillion, which will comprise Rp 1.86 quadrillion in tax revenue and Rp 359.3 trillion in nontax revenues.
Bahana Sekuritas economist Satria Sambijantoro highlighted the increase in central government spending, which rose 9.4 percent from the projected Rp 1.52 quadrillion this year, reflecting the government’s commitment to boosting economic growth.
“The [increase in] central government spending reflects the commitment to use fiscal levers as an instrument to increase growth,” said Satria, adding that such a move was welcomed from a perspective that progrowth monetary policy would get the support of fiscal policy in accelerating the pace of the country’s economic expansion amid expected weakening in global growth.
Bank Indonesia (BI) previously cut its seven-day reverse repo rate by 25 basis points to 5.75 percent last month, citing benign inflation and the need to encourage domestic economic growth, with the central bank’s Governor Perry Warjiyo saying the doors were open for further rate cuts in the future.
Satria added that the proposed macroeconomic assumption in the 2020 state budget proposal was “realistic and pragmatic in nature” considering external uncertainties.
The government targets gross domestic product (GDP) to expand 5.3 percent next year, unchanged from the same target this year, with inflation to be maintained at 3.1 percent year-on-year (yoy).
While the 2020 budget proposal conveyed optimism amid a turbulent global environment, UOB Indonesia economist Enrico Tanuwidjaja said challenges remained on how revenue collection would be able to support GDP expansion in 2020 at a time when global growth is slowing and commodity prices are unfavorable.
“From the revenue side, I think [the government] should take note on whether there are alternatives for fiscal revenue that we could dig up,” said Enrico.
He added the government still had room to widen the fiscal deficit, which was targeted at Rp 307.2 trillion, equal to 1.76 percent of GDP, to further advance economic growth amid an improvement of Indonesia’s good credit rating and sustainable debt-to-GDP ratio, currently recorded at 29.5 percent to GDP as of June.
The 2020 fiscal deficit was slightly lower compared to the Rp 310.8 trillion deficit projected this year, equal to 1.93 percent of GDP.
Finance Minister Sri Mulyani Indrawati separately said the government was looking for an equilibrium between maintaining a prudent deficit but also encouraging growth amid external pressures, adding that the state budget was an instrument to support the country’s priority agendas.
“It’s not a fixed direction [to lower the fiscal deficit]. The state budget is a flexible instrument and we will maintain its credibility and health,” she said.
Satria echoed Enrico’s view that the tax revenue target, which is expected to book 13.3 percent yoy growth from the Rp 1.63 quadrillion estimated to be collected this year, was challenging amid the government’s desire to attract investment via fiscal incentives.
The finance minister said the government would continue its tax reform agenda to increase tax revenue without hurting the investment climate, while emphasizing that the tax revenue target was derived from macroeconomic assumptions in the budget, which she said was “dynamic” in nature.
Samuel Sekuritas economist Lana Soelistianingsih urged the government to be brave in setting a “conservative” economic growth target considering it was the basis to calculate important factors in the state budget, including tax revenue.
The government and the House of Representative will further discuss the draft of the 2020 budget, which is expected to be formalized into law by October at the latest.
