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Jakarta Post

Expand deficit to 5%, cut taxes on rich in exchange for required COVID-19 donations: House

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Tue, March 24, 2020   /   03:45 pm
Expand deficit to 5%, cut taxes on rich in exchange for required COVID-19 donations: House Finance Minister Sri Mulyani Indrawati (‘right’) attends a working meeting of House Commission XI overseeing financial affairs at the House complex in Senayan, Jakarta, on Feb. 19. (Antara/Aditya Pradana Putra)

The House of Representatives has urged the government to issue a government regulation in lieu of law (Perppu) to revise the 2020 state budget, expand the budget deficit cap and provide incentives for individual taxpayers to cope with the economic effects of COVID-19.

The House’s budget committee (Banggar) chairman Said Abdullah said on Monday that the government should raise the budget deficit ceiling from the current 3 percent of gross domestic product to 5 percent. The government debt-to-gross domestic product (GDP) ratio, he said, had to be kept in check at 60 percent from around 30 percent today.

“Almost every macroeconomic indicator has changed significantly due to the spread of the COVID-19 pandemic. The 2020 state budget, as the government’s fiscal instrument, will no doubt change as well,” Said wrote in a public statement after a teleconferenced meeting with Finance Minister Sri Mulyani Indrawati and Bank Indonesia governor Perry Warjiyo.

The government should also issue another Perppu to make changes to the current income tax law to roll out incentives for individual taxpayers, Said added.

“The important point is to [reduce] income tax to 20 percent for those with savings of more than Rp 100 billion,” he said. As a consequence of lower income tax for the haves, they will then be required to pay Rp 1 billion per person to the National Disaster Mitigation Agency (BNPB) for the COVID-19 response fund.

The prevailing 2008 Income Tax Law, Article 17

Layers of taxable income (annually)

Percentage taxed

Income up to Rp 50 million

5%

Income of Rp 50 million to Rp 250 million

15%

Income of Rp 250 million to Rp 500 million

25%

Income of more than Rp 500 million

30%

 

“This Perppu is meant to support the public’s recovery efforts due to COVID-19, ensure the implementation of a social safety net program and help informal and small and medium businesses survive in the face of a hard economic situation,” Said added.

Sri Mulyani was not immediately available for comment in response to the ideas from the Banggar. However, she previously estimated that the state budget deficit could widen to between 2.2 and 2.5 percent of GDP this year, taking into account the large government stimulus packages provided to fuel the virus-stricken economy.

Read also: More cash aid, stimuli needed to soften economic shocks of COVID-19: Economists

The government will reallocate Rp 62.3 trillion (US$3.9 billion) of state spending from the 2020 budget to tackle COVID-19, focusing on healthcare, the disbursement of social funds and economic stimuli for businesses and workers.

The allocated sum will add to the Rp 120 trillion of stimulus packages already stipulated as the government prepares for worst-case scenarios, including the possibility of zero percent economic growth, ministers have said.

“We’ve identified about Rp 62.3 trillion of planned spending that can be reallocated to priority areas put forward by the President. This includes funding for business trips, blocked funds and non-operational purchases of goods, among other items,” Sri Mulyani said.

Several economists have also called for a flexible state budget to help the country cope with the COVID-19 pandemic.

“Desperate times call for desperate measures,” University of Indonesia rector Ari Kuncoro told The Jakarta Post. “The government should look to implement an intertemporal budget. If we pass the 3 percent limit this year, then we should compensate for the deficit over the next three to five years.”

As of Tuesday, Indonesia had 579 confirmed cases of COVID-19 and 49 deaths. Thirty people who contracted the virus have recovered. Globally, the pneumonia-like illness has infected over 381,000 people and has claimed at least 16,500 lives.


If you want to help in the fight against COVID-19, we have compiled an up-to-date list of community initiatives designed to aid medical workers and low-income people in this article. Link: [UPDATED] Anti-COVID-19 initiatives: Helping Indonesia fight the outbreak