Fiscal Room to Drive Consumption

KOMPAS/KARINA ISNA IRAWAN

Finance Minister Sri Mulyani Indrawati (left), Head of the Fiscal Policy Office (BKF) of the Ministry of Finance Suahasil Nazara (center), and Finance Ministry Director General of Budget Askolani (right) discuss before starting a meeting with the DPR Budget Board in Jakarta on Wednesday (17/10 / 2018).

JAKARTA, KOMPAS – The government is thought to have enough fiscal room to stimulate economic growth through labor-intensive programs and other productive activities. The stimulus can be provided if the fiscal management is not too tight.

Bank UOB Indonesia chief economist and researcher Enrico Tanuwidjaja believes that a tight state budget is a double-edged sword. A small state budget deficit reflects the government\'s ability to maintain financial stability amid fluctuating exchange rates and global pressures. On the other hand, a tight state budget can slow economic growth. "If this year\'s state budget posture is similar or tighter than in 2018, it is not good for economic growth. In fact, the government has the room to increase fiscal spending," Enrico said in Jakarta on Thursday.

The ratio of the 2018 state budget deficit to gross domestic product (GDP) is 1.76 percent, or Rp 259.9 trillion, and the lowest since 2012. This year, the government is targeting a budget deficit of 1.84 percent GDP.

According to Enrico, the State Finance Law allows for a maximum budget deficit of 3 percent GDP. The fiscal room can be used to increase labor-intensive programs and various activities for accelerating economic growth.

Economics head Rizal Damuri at the Center for Strategic and International Studies (CSIS) said that it would be difficult to boost consumption, which was expected to stagnate at around 5 percent.

However, the government had the room to increase consumption among low-income households through increased assistance like labor-intensive programs and direct assistance. Their income must be increased in order to boost consumption.

The policy to boost consumption among 40 percent of middle-income households and among 20 percent of high-income households is deemed ineffective, despite their majority contribution. The stimulus for these two groups must have long-term impacts, while boosting consumption among the low-income bracket has short-term impacts.

According to Statistics Indonesia (BPS), spending among 20 percent of the high-income bracket fell from 48.25 percent (March 2015) to 46.12 percent (September 2018), while spending among 40 percent of the middle-income bracket and 40 percent of the low-income bracket increased.

Fiscal Policy Agency head Suahasil Nazara of the Finance Ministry said that the general election in April could stimulate consumption in the first half of 2019. The government was also increasing social spending to spur consumption among 40 percent of the low-income bracket.

National Development Planning Minister/National Development Planning Agency (Bappenas) head Bambang P.S. Brodjonegoro said the economic growth target could be achieved if consumption grew more than 5 percent. (KRN/JUD)