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Deficit widens to $46.3b as govt spending picks up
Tax revenue has fallen by 16.9 percent this year.
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ndonesia’s budget deficit has risen to Rp 682.1 trillion (US$46.3 billion) and is on track to reach the highest level in history this year as government spending increases and tax revenue dwindles, creating a need for debt financing.
The budget gap hit 4.16 percent of the gross domestic product (GDP) in September, well within the government’s forecast of a record-high deficit of 6.34 percent, Finance Ministry data shows. Finance Minister Sri Mulyani Indrawati said the latest data indicated an acceleration in government spending that would prop up the economic recovery.
“The government has succeeded in accelerating spending, which will be able to boost the economy in the third and fourth quarters,” Finance Minister Sri Mulyani Indrawati told reporters on Monday. “This is an all-out effort from us to revive the economy.”
State spending rose 15.5 percent from the same period last year to Rp 1.84 quadrillion, or 67.2 percent of the year’s target. Government spending rose 21.2 percent yoy to Rp 1.21 quadrillion as of September because of higher social and stimulus spending.
“We will maintain and accelerate government spending to drive economic growth, but other policy measures should become the drivers going forward,” she said. The other measures, Sri Mulyani said, included the Job Creation Law, which she said would support the economy and help maintain fiscal sustainability.
As of September, the government had collected Rp 1.15 quadrillion in state revenue, a 13.7 percent year-on-year (yoy) decline from last year because of falling tax revenue. Tax revenue itself, the main source of income for the government, fell by 16.9 percent yoy to 750.6 trillion because of a sharp fall in import taxes and a corporate income tax cut amid suppressed economic activity.
The budget deficit is expected to increase the government’s debt to 38.5 percent of GDP this year. It has sold Rp 790.6 trillion worth of debt papers so far this year.
Bank Indonesia (BI) has purchased Rp 320.8 trillion of that government debt directly as part of a “burden sharing” agreement between the government and the central bank.
Finance Ministry financing and risk management director general Luky Alfirman said the government would fully utilize the burden sharing agreement this year, adding that some of the proceeds would be used to finance the procurement of vaccines.
Danny Darussalam Tax Center (DDTC) research partner Bawono Kristiaji said the tax shortfall was impossible to avoid because of the COVID-19 induced slowdown. He noted that the government’s tax incentives had also hit its tax revenue.
“The government’s decision to implement several measures such as the digital tax policy could help in expanding the tax base and lowering the tax shortfall,” he told The Jakarta Post. “But the tax outlook will largely depend on economic performance in the fourth quarter.”
The cut in corporate tax from 25 percent to 20 percent starting in 2023 will hurt the country’s revenue collection and impede fiscal consolidation, credit ratings agency Moody’s said recently, adding that the cut would result in about a US$6 billion loss in government revenue each year, which would further drag down the country’s already low tax revenue.
Bahana Sekuritas economist Satria Sambijantoro said the latest data showed that government expenditure would rebound and contribute positively to GDP in the third quarter of this year, after falling by 6.9 percent in the second quarter.
“The budget deficit may reach the government’s target as recent data showed rising imports of raw materials and capital goods,” he told the Post. “We expect a positive surprise coming in the fourth quarter because of rising investment in manufacturing and infrastructure.”
