JAKARTA: A lack of satisfying answers on how to reach growth goals set forth in the freshly unveiled 2026 state budget has led economists to conclude that the fiscal document is based more on political ambition rather than on technocratic calculation.
Centre of Economic and Law Studies (CELIOS) executive director Bhima Yudhistira Adhinegara told The Jakarta Post on Saturday (Aug 16) that the targets set in the budget plan “overshoot and require strenuous effort” to attain.
“It’s ripe with political aspects to fulfill the populist programmes as opposed to being based on technocratic calculation, which includes fiscal discipline,” said Bhima. One of the targets highlighted by Bhima was for gross domestic product (GDP) growth to accelerate to 5.4 per cent, which he doubted the country would attain due to external pressure, sluggish global commodity markets and a lack of domestic driving forces.
The last time Indonesia registered such strong GDP growth in a full year was in 2013 with 5.56 per cent, and it has mostly hovered around the five percent mark since. In 2022, a full-year growth rate of 5.31 percent did get close to next year’s target, but that was largely attributed to a base effect, because it followed unusually slow growth in 2021, when the national economy was still suffering from the coronavirus pandemic shock.
The government’s 5.2 per cent GDP growth target for 2025 already assumes a significant speed-up in the second half, after year-on-year (yoy) rates of 4.87 per cent and 5.12 per cent, respectively, in quarters one and two, yet even from that level another big step-up would be needed to reach 5.6 per cent next year.
Institute for Development of Economics and Finance (Indef) economist Eko Listiyanto, likewise, said the budget draft was “a political document” that served the purpose of exerting optimism “by setting higher targets”; it was not solely technocratic in nature.
He said in a press briefing on Saturday that attaining the growth target “is not easy, but the opportunity is still there”, before mentioning a range of thorough overhauls that could place the target within reach.
Priority would have to be given to creating jobs and “fixing” people’s spending power that have been weakening over the past years, said Eko. Moreover, the government would need to “optimise” the export market, encourage investment and make the bureaucracy more effective.
Asked about the course to reach the growth target in a press conference on Friday, Finance Minister Sri Mulyani Indrawati answered: “We will look for sources of economic growth.” She only mentioned “improving the business climate” to attract more investment as one of the sources and suggested pursuing that effort by rewarding regional governments with incentives if they made their jurisdiction more attractive for investors.
There was a similar lack of illustrated strategy regarding the ambitious state revenue target, which has been set at Rp 3.14 quadrillion (US$194 billion), or 9.8 per cent more than the latest projection of Rp 2.86 quadrillion for this year.
To realise that income next year, Sri Mulyani revealed that tax revenue would need to grow by 13.5 per cent yoy, which was “rather high and ambitious”. Nevertheless, she insisted the target was achievable, given the budget’s GDP growth and inflation assumptions of 5.4 and 2.5 per cent, respectively, a combination that would bring the tax buoyancy to between seven to nine per cent.
Tax buoyancy is an indicator that connects the GDP growth with tax revenue that arrives at a conclusion whether the tax is buoyant or not. Tax is considered buoyant when the revenue increases proportionately to or more than the economic growth.
With the seven to nine per cent buoyancy, Sri Mulyani said the government’s “extra effort” could be focused on pursuing another five per cent, which could be achieved through various means: “We still see room for improvement.”
The senior economist stressed that there would be no regulatory changes to pursue the ambitious tax collection. The path the government planned to pursue instead was “a focus on internal reform”, such as by fixing flaws in the Coretax system.
In search of increased revenue, the government is also eying the shadow economy and illegal activity overlooked in tax collection in the past. President Prabowo Subianto said in a state budget address on Friday that the government had taken control of 3.1 million hectares of illegal oil palm plantations.
Neither the President nor Sri Mulyani explained how this would reshape the revenue collection, but the latter said without elaborating that it “created a new database”.
Syafruddin Karimi, an economist from Andalas University, wrote in an analysis on Saturday that “an excessively high tax target is a double-edged sword” that reflected the government’s optimism in the national tax base but might result in spending cuts should realisation fall short of expectations.
“History reveals that overestimation of tax [income] frequently plays out with realisation falling short. Under those circumstances, the state budget no longer is a countercyclical tool but merely an administrative instrument that follows the economic tide,” said Syafruddin. - The Jakarta Post/ANN
