The Politics of Populist Budget

Starting from the election of Donald Trump as the president of the United States and then the withdrawal of Britain from the European Union, known as Brexit, populism has swiftly grown in many parts of the world.

The populist narrative has proven to be a magnet for people who consider themselves alienated from the daily political process, but the populism is challenged by its own manifestation in the fiscal policy. Populism itself is often regarded as a form of dissatisfaction with established political institutions.

As a political movement, populists put themselves in an antagonistic frame of the elite and have a strong sense of group identity, both in terms of economic, racial and religious structure. Populist leaders claim to represent and have personal relationships with the people to fight elites by prioritizing the interests of their groups (Weyland, 2001).

In terms of political economy, the rise of populism is characterized by dissatisfaction with economic performance, where there is an assumption that condition should be better. It usually occurs in countries that experience moderate economic growth, stagnation, and depression over the economic inequality (Dornbusch and Edwards, 1990).

How does populism win? Learning from two major populist movement in the US and Britain, disinformation and fears over threats from outside the group proved to be capable of winning the heart of the people. Trump\'s campaign “Make America Great Again” evoked anti-immigrant sentiments due their threat to the US economy. Something similar occurred in the Brexit case which used “Take Back Control” as the main theme of the campaign. The dissemination of disinformation that the UK contributed about 350 million pounds each week to the European Union and the messages that the funds should be better allocated to finance the national health system was used in the Brexit case.

The campaign also spread the threat of fear of the influx of over 70 million of migrants from Turkey if Turkey joined the European Union. Such information was widely spread although it was entirely true, until it attracted British voters. According the latest survey, the Britain people might change their mind and choose to stray with the European Union if a referendum is held again.

The state budget is the manifestation of the campaign rhetoric and policy statements raised during the election. The populists generally do not pay much attention to the budget policy that will be implemented in order to realize the promises of their populism. It is clearly seen that the US case confirmed that the populism caused a problem to the state budget policy. Trump\'s campaign promises to build a border wall with Mexico caused a deadlock in the budget discussions in Congress which resulted in a government shutdown or a temporary halt of the government activities.

Populist Indonesia

The rise of populism in the 2014 election economically and politically fulfilled the criteria mentioned above. During the previous 10 years, Indonesia experienced a moderate economic growth. The economic policy reforms were not significant enough to overcome the problems resulting from the

increase in the energy subsidy spending and infrastructure deficits (Hill, 2015). The inequality also grew as reflected in the increase in the Gini ratio from 0.36 in 2005 to 0.43 in 2014. Not surprisingly, the rise of populism has also touched Indonesia since the 2014 election that sharply divided the voters.

In fact, Australian expert on Indonesian politics, Marcus Mietzner (2014), put the 2014 election as a battle between two populists. Prabowo was categorized as an oligarchic populism, with claims to represent groups who opposed the elite and with a promise to bring change to solve crisis and fight the threats and external enemies even though he himself comes from the group of the political elite born from oligarchic power relations (Aspinal, 2015), while Jokowi was categorized as populist technocrat or a mild form of populism born from outside the elite circle, who brought social programs that were pragmatic or technocratic (Mieztner, 2014).

The 2019 election, which will be held within the next few weeks, will be the rematch of the presidential candidates in the previous election. The difference is that Jokowi is now an incumbent who is still committed with his welfare programs through the issuance of cards in giving the poor people the access to health, education and government subsidies. Prabowo, meanwhile, will again use campaign narratives that are relatively the same, such as the country’s assets under the foreign control, anti-elite, and the mounting debts.

Comparing the two candidates

The implication of the populist politics on the fiscal policy, such as in the case in the US and Brexit, they should provide lessons for the public so that they would not be easily swayed by the promises of the populist movement. The public should be careful in assessing the promises of the presidential candidates because they will bring a significant implication in our fiscal, both in terms of income, expenditure and financing.

In terms of income, the presidential candidate pair No 01 promise to continue to improve tax governance following the tax amnesty program in 2016 and to increase import taxes on certain goods. Meanwhile the candidate pair No 02 offer a quite attractive program by lowering Income Tax by between 5 and 8 percent to stimulate consumption, which could in turn boost state revenues from Income Tax.

Even though it looks promising, this policy could become a time bomb that can further widen the gap in income because it will only benefit the super-rich. On the state expenditure, the public need to look at the populist programs of the two presidential candidates more carefully both in term of their effectiveness and their impact on state expenditure.

The incumbent candidate pair again offers card programs to boost people\'s welfare. Admittedly, although in their effectiveness needs a further improvement, the card program, while the rival pair also offers programs that are not much different from those promised by the incumbent.

On the financing side, the candidate pair No 01 is more moderate related to the foreign debt issue by planning to reduce the proportion of foreign ownership by 20 percent in the next five years, while the pair No 02 has a more populist argument against debts, by promising to stop using debts to pay off existing debt and to pay routine spending. Although it is quite interesting, the debt narrative offered by the pair No 02, is unrealistic as they at the same time plan to cut income tax. The question is “where will the source of the state revenue come from to run their programs?”

In the area of public finance, the concept of the fiscal policy that emphasizes fiscal discipline and economic growth rather than fulfilling public services and aspects of justice is being tested by public finance scholars (Renzio and Lakin, 2019).

The media, international financial institutions and financial markets often ask a question on the impact of the state budget deficit and its contribution in stimulating investment and growth. In practice, the fiscal policy in a number of countries is often based on strict fiscal discipline with a focus on low deficit, low debt and low tax rates in order to stimulate growth. However, it limits the fiscal space and makes the redistribution of income and the improvement of the quality of public services only as a secondary goal.

In the context of the 2019 elections, fiscal policy should be used as the basis in assessing whether or not the populist narratives offered by the presidential candidates are realistic and can be implemented. Populist leaders often promise an extreme menu in order to get the people’s support, but we have to be aware that the unrealistic promises can lead to a fiscal disaster. Remember, elections are not just looking for leaders, but about the fate of future generations.

Yuna Farhan, Observer of the Budget Policy