Budget Deficit Narrows in 2016 Thanks to Spending Cuts, Help From Tax Amnesty

Finance Minister Sri Mulyani during a hearing with House of Representatives Commission XI in Senayan, South Jakarta, during August 2016. (Antara Photo/Puspa Perwitasari)

By : Tabita Diela | on 8:32 PM January 03, 2017
Category : Business, Economy

Jakarta. Indonesia's budget deficit for 2016 stood at 2.46 percent of the country's estimated gross domestic product, narrowing from last year's 2.58 percent, thanks to hefty spending cuts and additional revenue from the government's tax amnesty program.

Right after assuming office in July, Finance Minister Sri Mulyani Indrawati – known as "the Iron Lady" from the time she led the ministry during President Susilo Bambang Yudhoyono's era – made it her top priority to improve the state budget, which she said at the time was not realistic.

By the end of the year, her ministry managed to cut spending by up to Rp 137.6 trillion ($10.2 billion) after a strong push for ministries and government agencies to tighten their belts and cut unnecessary spending.

During a press conference on Tuesday (03/01), Sri Mulyani said the ministry has focused much of its efforts to ensure that the state budget is credible, effective, efficient and sustainable.

She also said state revenue collection – which includes revenues from taxes, customs, excise, non-tax revenue and grants – stood at Rp 1,551.8 trillion, which is 86.9 percent of the target set in the 2016 revised state budget.

Meanwhile, total spending stood at Rp 1,859.5 trillion, or 89.3 percent of the target.

This saw Indonesia post a budget deficit of Rp 307.7 trillion, or the equivalent to 2.46 percent of GDP.

The deficit ratio exceeds the 2.35 percent estimate set in the revised budget, but it is better than the ministry's December estimate of 2.7 percent. A final audited deficit estimate will be released later.

Indonesia has a legal budget deficit limit of 3 percent of GDP.

The country has traditionally missed revenue collection and spending targets in its state budget.

In 2015, revenue collection reached 85.6 percent of the Rp 1,761.6 trillion target, while spending hit 91 percent of the targeted Rp 1,984.1 trillion.

Growth Estimate

Sri Mulyani, who is a former managing director of the World Bank, said the ministry estimates that the domestic economy may have expanded by 5 percent last year, which is lower than the 5.2 percent assumption in the revised budget, but better than 2015's 4.79 percent growth.

"The economic pulse was beating weakly throughout 2016," she said, adding that the ministry forecasts 5.1 percent growth of the country's economy this year.

Last year's weak economic environment and sluggish exports, the minister said, have overshadowed state revenue collection, of which earlier revenue from taxes was projected to fall short by Rp 219 trillion.

Companies in Indonesia struggled for their earnings amid a weak growth environment and this in turn, has reduced their tax contributions to the state.

Sri Mulyani said the state collected Rp 1,283.6 trillion in tax last year, which amounted to 83.4 percent of the target. Apart from collecting less in tax due to weak financial performance, the ministry's policy to increase individual taxpayers' non-taxable income as part of efforts to stimulate household spending and widen the taxpayer base, reduced collection by up to Rp 20 trillion.

Tax Amnesty

Sri Mulyani said the government's tax amnesty program boosted tax revenue, despite the additional revenue having been lower than expected.

The minister revealed that the government's flagship tax amnesty program added an additional Rp 107 trillion to the state coffers.

The government has set a target to collect up to Rp 165 trillion in additional tax revenue from discounted penalties, tax dues and other tax-related charges.

The amnesty program was set up as an incentive for major taxpayers to declare their previously unreported assets and repatriate overseas assets back to the country. The program started in July and will wind down at the end of March.

Sri Mulyani said if the ministry did not include the proceeds from the tax amnesty program, tax revenue from the non-oil and gas sector would be 4.9 percent lower than last year.

"The temporary evaluation of tax revenue left a strong impression that tax reform is very urgent," the minister said, adding that she has established a tax reform team to oversee such a mission.

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