Indonesia's Proposed 2017 Budget Welcomed as Pragmatic, Realistic

Lawmakers listen as Indonesia's President Joko Widodo proposes a 2017 state budget at the House of Representative building in Jakarta, Indonesia, August 16, 2016. (Reuters Photo/Beawiharta)

By : Hidayat Setiaji & Gayatri Suroyo | on 12:03 PM August 17, 2016
Category : Business, Economy

Jakarta. Indonesian President Joko 'Jokowi' Widodo presented a proposed 2017 budget that lifts spending a little while looking realistic about revenue and seeking to contain the country's fiscal deficit.

Economists said the budget proposal given parliament on Tuesday (16/08) is more realistic than the previous two Jokowi presented after his 2014 election.

Tax targets in the earlier budgets were highly ambitious, and in 2015, there was a revenue shortfall of nearly $20 billion.

In the 2017 proposal, Jokowi aims to balance the desire to give the sluggish economy some stimulus while not spending far more money than the government has.

"The budget is a largely pragmatic one, with realistic macroeconomic expectations and more grounded revenue and expenditure assumptions," said Wellian Wiranto of OCBC in Singapore.

The proposal was unveiled three weeks after well-respected World Bank managing director Sri Mulyani Indrawati returned home as finance minister, a post she held for some years under Jokowi's predecessor.

The budget "looks to have Sri Mulyani's fingerprints all over it, and probably carries the spirit of being better to over-deliver than to over-promise," Wiranto said.

Only days after returning, Sri Mulyani cut $10 billion from the 2016 budget to ensure the fiscal deficit does not breach the 3 percent of gross domestic product (GDP) legal limit.

Even with those cuts, the deficit is likely to be 2.5 percent this year. The 2017 plan sees a deficit of 2.41 percent and assumes the economy will grow 5.3 percent.

Sizable challenges

Indonesia's growth pace slowed every year from 2011 through 2015, reaching 4.8 percent last year. Hopes to get back above 5 percent this year were buoyed by stronger-than-expected annual growth of 5.18 percent in the second quarter, but officials said that reflected better crops.

Jokowi, who said Indonesia still faces "sizable" challenges, called for 2017 spending of Rp 2,070.5 trillion ($158.2 billion), about 5.5 percent higher than what the government expects to spend this year.

The 2017 revenue target is Rp 1,737.6 trillion. In the original 2016 budget proposal, the target was Rp 1,822.5 trillion, and Sri Mulyani now expects 2016 revenue of only Rp 1,567.2 trillion.

The 2017 target takes account of a tax amnesty program to end in March. Jokowi said on Tuesday that after the amnesty, the government will implement a "tax law enforcement" program. Historically, few Indonesians pay tax, and few pay what they should.

Yustinus Prastowo, an analyst at Center for Indonesia Taxation Analysis, called the 2017 tax target "proof that Sri Mulyani doesn't want to be too ambitious because we don't know whether this amnesty would be successful."

Sri Mulyani said big 2017 allocations would be for the public works ministry and security.

Jokowi told parliament "Fiscal policy will be directed toward supporting people's purchasing power, and improving the investment climate and competitiveness of our industry."


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