Deficit May Widen

KOMPAS/PRIYOMBODO

Finance Minister Sri Mulyani Indrawati (center) and Deputy Finance Minister Mardiasmo (left) prepare to speak at a press conference on the June 2019 edition of the APBN KiTa (Performance of the State Budget) at the Finance Ministry, Central Jakarta, Friday (21/6/2019). For the realization of the 2019 State Budget to 31 May 2019, state revenue reached Rp 728.5 trillion, state spending was Rp 855.9 trillion and there was a deficit of 0.79 percent to gross domestic product.

JAKARTA, KOMPAS — The government is wary of the impact slowing tax revenue growth may have on the state budget. Revenue growth has weakened since the beginning of the year, which could cause a wider budget deficit, even though it is still expected to remain below the targeted 1.84 percent of the gross domestic product (GDP).

According to Ministry of Finance data, realized tax revenue as of May 2019 was Rp 569.3 trillion, or 31.9 percent of the 2019 state budget ceiling. Tax revenue in May 2019 was up 5.7 percent from May 2018. In May 2018, tax revenue had been up 14.5 percent from May 2017.

Meanwhile, the state budget deficit per May 2019 was Rp 127.5 trillion or 0.79 percent of the GDP, which is up from May 2018, when the deficit amounted to Rp 93.5 trillion or 0.63 percent of GDP.

Finance Minister Sri Mulyani Indrawati said the 2019 state budget deficit could widen from that in 2018, because revenue growth had weakened, while spending remained fixed. "So far, we believe we will be able to keep the deficit below the [targeted maximum] of 1.84 percent of GDP," she said during a press conference on the state budget in Jakarta on Friday (21/6/2019).

According to her, tax revenue growth weakened in almost all industrial sectors. This explains the government\'s prudence.

The weakening of revenue growth reflected in tax revenue of Rp 496.6 trillion, import duties of Rp 15 trillion, export duties of Rp 1.5 trillion, and non-tax revenue of Rp 158.4 trillion. Tax revenue recorded the lowest annual growth in May 2019, at 2.4 percent. In May 2018, it had been much higher at 14.2 percent.

Sri Mulyani said the weakest tax revenue performance was that of the processing industry, where tax collection of Rp 132.35 trillion in May 2019 was down 2.7 percent from May 2018. The decline in productivity of the manufacturing industry is confirmed by receipts of import income tax (PPh), which only grew 0.6 percent in May 2019.

"The import tax for that period fell from the same period of last year, when it grew 30.5 percent. This situation must be watched, because some of the imports are raw materials and capital goods," Sri Mulyani said.

Nevertheless, Sri Mulyani added, economic conditions as of May 2019 were somewhat different. Even though industrial tax revenue was weakening, individual tax revenue grew more than 20 percent. This shows that jobs are available and people are building purchasing power.

KOMPAS/PRIYOMBODO

Finance Minister Sri Mulyani Indrawati speaks at a press conference on the June 2019 edition of the APBN KiTa (Performance of the State Budget) at the Finance Ministry, Central Jakarta, Friday (21/6/2019). For the realization of the 2019 State Budget to 31 May 2019, state revenue reached Rp 728.5 trillion, state spending was Rp 855.9 trillion and there was a deficit of 0.79 percent to gross domestic product.

Yustinus Prastowo, the executive director of the Center for Indonesia Taxation Analysis (CITA), believes that the weakening of tax revenue from the processing industry is inseparable from falling commodity prices. Therefore, downstream industry development was very important to end our dependence on raw commodities.

"The government also could target other sources of revenue, such as domestic value added tax, further action on the tax amnesty or the optimization of financial data exchange," he said.

University of Indonesia\'s Economic and Macroeconomic Study Center head Febrio Kacaribu asked the government to keep the state budget deficit below 2.5 percent of GDP. Thereby, Indonesia\'s debt rating would continue to rise, so the yields on government notes is expected to drop. Thus, spending on debt interest of around Rp 200 trillion every year will be reduced, alleviating the burden on the state budget. (KRN)