State Budget Under Pressure

The State Budget was increasingly pressured by the global economy between January and October this year. The budget deficit continues to widen due to a drastic fall in tax revenue growth.

KOMPAS/PRIYOMBODO

A screen shows infographics displayed over video footage of Finance Minister Sri Mulyani Indrawati as she provides information at the 2019 November Performance and Facts press conference at the Finance Ministry in Central Jakarta on Monday (18/11/2019). Indonesia\'s economic stability is still maintained amid the prospect of slowing global economic growth. Indonesia\'s gross domestic product (GDP) in the third quarter grew 5.02 percent and cumulatively increased 5.04 percent in line with the strong growth of household spending and nonprofit institutions serving households.

JAKARTA, KOMPAS – The government has tightened its belt to respond to the condition, balancing budgetary spending against revenue. As a result, government spending has also slowed.

Finance Minister Sri Mulyani Indrawati said in Jakarta on Monday (18/11/2019) that global economic and geopolitical turmoil had offset budgetary performance throughout the year. External pressures include the China-US trade war, weakening global oil prices and negative interest rates. “The risk of global pressures on the domestic economy this year is being monitored closely,” she said.

The downturn in tax revenue reflects the global pressure on the State Budget. The Finance Ministry recorded tax revenues of Rp 1.02 quadrillion (US$72.35 billion) in October 2019, 64.5 percent of the State Budget target, or a year-on-year (yoy) increase of just 0.23 percent, much lower than the 14.2 percent growth recorded in the same period last year.

The risk of global pressures on the domestic economy this year is being monitored closely.

October realized a total of Rp 1.51 quadrillion in state revenue, comprising Rp 1.17 quadrillion in tax revenue, Rp 333.3 trillion in non-tax revenue and Rp 1.7 trillion in grants. State revenue grew 1.2 percent in October, much lower than the 21.3 percent growth recorded in October 2018.

Sri Mulyani said that slower growth in tax revenue growth had widened the budget deficit. The government projected that the 2019 State Budget deficit would widen to 2.2 percent from the 1.84 percent originally targeted. The widening deficit would stimulate economic growth.

The state budget recorded a deficit of Rp 289.1 trillion in October 2019, or 1.8 percent of gross domestic product (GDP), widening from a deficit of Rp 229.7 trillion in October 2018, or 1.56 percent of GDP.

KOMPAS/PRIYOMBODO

Finance Minister Sri Mulyani Indrawati along with Deputy Finance Minister Suahasil Nazara (left) and their staff prepare to give a press statement on the 2019 November Performance and Facts at the Finance Ministry in Central Jakarta on Monday (18/11/2019).

Government spending

Center of Reform on Economics (CORE) Indonesia executive director Mohammad Faisal said that the slowdown in tax revenue had affected spending. The government would need to manage budget absorption prudently until the yearend.

This was reflected in the Rp 1.79 quadrillion recorded in government spending in October, or 73.1 percent of the State Budget ceiling. Spending increased a mere 4.5 percent, compared to the 11.9 percent increased in October 2018.

The slower increase in government spending was also reflected in overall economic growth. Government consumption slowed from 6.27 percent in the third quarter of 2018 to 0.98 percent in the third quarter of 2019.

“The contribution of government spending to economic growth until the yearend is not high, only 2 percent at most,” said Faisal.

Budget director general Askolani of the Finance Ministry said that the government had increased efficiency in several spending categories without making any cuts. Savings measures were implemented in subsidy and capital spending. Government spending was expected to reach 98 percent by the yearend.

The contribution of government spending to economic growth until the yearend is not high, only 2 percent at most.

Meanwhile, taxation director general Suryo Utomo said that tax revenue performance would improve in the fourth quarter of 2019, despite falling short of its target. The improvement was due to the normalization of tax restitution. The government would also optimize tax revenues from financial services, transportation and warehousing. “Tax supervision will also be strengthened to maximize [revenue] realization,” he said.

Meanwhile, the Indonesian Tax Care (Intac) asked that the government not just aim to meet the tax target. Taxation services and billing must also be evaluated and improved.

Intac director Basuki Widodo said that tax officials might commit deviations due to the high tax revenue target, by locating errors and imposing high taxes on taxpayers.