Effective, Efficient Public Spending

KOMPAS/PRIYOMBODO

Construction workers finish a concrete pillar on 14 Dec. 2019 at the site of the Light Rail Transit (LRT) Jabodebek project on Jl. H.R. Rasuna Said in South Jakarta. According to the World Bank Quarterly Report, Indonesia’s economic growth is estimated to reach 5 percent in 2019 and 5.1 percent in 2020.

The World Bank estimate on the country’s policy on fiscal tightening deserves attention. Public spending should be more efficient and effective.

The World Bank-Indonesian Finance Ministry joint review of the government’s public spending released on Monday (22/6/2020) highlights three recommendations, namely improving aggregate public spending in the institutional environment, human resources spending, and infrastructure spending.

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Indonesia has recorded a number of developments in the last 22 years. Economic growth averaged 5.3 percent per annum between 2000 and 2018, while per capita gross national income increased from US$540 to $3,840. The poverty rate fell from 19.4 percent to 9.4 percent in March 2019. Electrification, clean water distribution and sanitation has improved, and life expectancy increased from 66 years to 69 years in 2017.

Yet, Indonesia still has large gaps in human capital and infrastructure. Development in these two areas is among the government\'s priorities.

The potential impact of the Covid-19 epidemic could diminish ongoing achievements.

Inequality in these two areas, according to the World Bank, has impeded the government\'s capacity to create jobs and reduce poverty in the medium term. The potential impact of the Covid-19 epidemic could diminish ongoing achievements. Because fiscal space is tight, it also poses a threat to the efforts to close the gap that is widening due to Covid-19.

The World Bank has offered three recommendations: increasing fiscal space to raise more funding for the government’s priority sectors, overcoming systemic obstacles to efficient and effective spending, and overcoming specific obstacles to efficient and effective spending in every sector.

KOMPAS/PRIYOMBODO

Depok-Antasari (Desari) toll road that has been completed in the East Cilandak area, South Jakarta, Tuesday (21/8/2018). The Desari Toll Road Project is one of the national projects that will be connected with the Jakarta Outer Ring Road Toll. Infrastructure development is an example of APBN expenditure.

The recommendations from the World Bank are neither radical nor new. For example, reforming the tax system to expand the base for consumption tax and income tax, improve tax administration and increase local revenues, has been ongoing since more than five years ago, although not comprehensively.

Mechanisms for development planning meetings are in place at the national and village levels. However, it must be admitted that coordination remains an obstacle in implementing development strategies. With a limited budget, equally tight control is needed to ensure that the budgeted activities correspond with the government’s priorities. Tighter supervision is needed in the allocation and use of funds.

Increasing tax revenues is a sensitive issue. The World Bank\'s recommendations include increasing tax for the richest people, in addition to cutting energy and fertilizer subsidies. We have learned how those with strong finances also have a tendency to abuse regulatory loopholes to avoid taxes. In this, we need to build mutual trust.

Increasing the tax ratio from around only 11 percent of the national economy is imperative so it becomes a sustainable source of financing. At the same time, public spending strategies must raise the poor out of poverty and improve the welfare of the vulnerable middle class.