State Budget Heading for Recovery

Kompas, Wednesday, 23 December 2009 | 3:37 PM

KOMPAS.com - The year of 2009 is about to end. It's been a tough year for the state finance managers, marked by numerous problems. The problems resulted in new funding alternatives adjusted to the requirements of the State Budget (APBN).

AP/Ahn Young-joon

To anticipate the worsening global economic crisis, the 2009 APBN was adjusted at the beginning of the year. One main cause was the additional Rp. 12.5 trillion fiscal stimulus that brought the total to Rp. 71.3 trillion to suppress the effect of the economic crisis.

The total fiscal stimulus is 1.4 percent of the gross domestic product (PDB). It was considered sufficient to handle the pressure from the global economic crisis as it was supposed to be able to block the rapid unemployment surge in 2009.

Due to the economic crisis, the unemployment rate was estimated to be 8.87 percent of the 107 million work force. However, with the fiscal stimulus, the unemployment rate was suppressed to 8.34 percent thanks to 150,000 new job opportunities.

Lately, the fiscal stimulus hasn't been entirely utilized. For instance, the stimulus to exempt income tax from those whose basic income is Rp. 5 million per month or less. The insentive was not fullly used because it relied on the honesty of employers, who in turn avoid tax audits.

Though the budget requirement is increasing, the government's income isn't. Due to the global crisis, the earning, expenditure, and funding of the APBN must be changed.

From the aspect of income, the tax earning is down by Rp. 58.95 trillion. And the state earning from non-tax sources is also cut by Rp. 73.07 trillion. Both caused the 2009 APBN to drop to Rp. 853.68 trillion from the previous target of Rp. 985.7 trillion.

The state budget will decline due to the subsidy that decreased by Rp. 43.54 trillion, and the regional funding would lose Rp. 16.9 trillion. The main cause is the decline in the price of oil fuel and the fixed pricing for Indonesian crude oil that dropped from USD 80 per barrel to just USD 45 per barrel.

For that reason, the state earning has decreased by Rp. 132 trillion and the state budget cut down by Rp. 53.2 trillion. All these also caused the bank deficit to go up to Rp. 51 trillion, which was 2.5 percent of the PDB or approximately Rp. 132 trillion.

Not easy

So, will it be easy to make up for the 2009 APBN shortage? No. At the start of 2009, the APBN has been stalked with low liquidity that caused a scarcity of low cost funds in the world finance. For this reason the Department of Finance has approached several creditor countries and international finance institutions to strike a deal for ready loans that will only be used if the APBN funding options become increasingly difficult.

The Department of Finance has gathered a USD 5.5 billion ready loan from the World Bank, the Asian Development Bank, and the Japanese and Australian governments. However, so far none of these sources have been tapped because the liquidity of the international money market is gradually recovering.

The government had also had to stop the auction of the state's marketable securities earlier, which was on November 17, 2009. This was done because the return from the obligation market actors were increasing. If forced to continue the government would've suffered loss from an over-high obligation cost. Fortunately, before the market took full advantage of this, the issuing target of securities had been achieved, which was at Rp. 144.549 trillion.

Though the global financial crisis is considered to have abated around the end of 2009, challenges still await in 2010. The state earning will be hard pressed.

One challenge is from the free trade agreement (FTA), both between ASEAN countries and between ASEAN and China. The FTA would cut down the income from customs by Rp. 15 trillion. Aside from that, taxation earning will also decrease since there will be a cut on income tax, from 28 percent to 25 percent.

For those reasons, anticipation for a potential crisis in 2010 must be done. The government anticipates that by keeping budgeting fiscal stimulus. The amount of fiscal stimulus is estimated to be Rp. 59 trillion, which is lower than the one for 2009, which was Rp. 73 trillion. The government considers that the national economy has improved so that the state budget, including for fiscal stimulus, can be lowered.

"The increase for the 2010 state budget is lower than 2009's because the fiscal stimulus is lower. In return, we hope to see growth in the private investment sector to make up for the lowered stimulus, so that the economy can still grow 5.5 percent as targeted," said Department of Finance's fiscal agency chief, Anggito Abimanyu.

The fiscal stimulus target in the 2010 APBN draft is one percent of the PDB. The PDB in the 2010 APBN draft is Rp. 5,981.37 trillion so that the fiscal stimulus for next year is around Rp. 59.81 trillion. This fiscal stimulus value is lower compared to 2009's, which was 1.4 percent of the PDB.

The government expansion through the state expenditure is also lower because the raised salaries for civil servants, the Indonesian armed forces, and the National Police, aren't high, or only 5 percent or equals to next year inflation. Even so, the government will persist with the stimulus in the form of tax borne by the government, as much as Rp. 16.87 trillion.

Next year there will also be a cut on income tax, from 28 percent to 25 percent, plus the insentive of a company entering the stock market, which is 5 percent. This is the most real stimulus for next year.

Warning

Economist Fadhil Hasan reminds that the contribution of the state budget on the economy will be at the minimum if the government cannot solve the slow budget disbursement. Currently, fund disbursement could pile up till the third or fourth quarters, while the economic crisis could hit on the first quarter.

The state budget is continously raised, especially during a crisis, with the additional fiscal stimulus. However, the government still finds difficulties to disburse the fiscal stimulus fund.

"With that condition, the role of the state budget on the effort to stabilize the economic growth can be minimized. In 2009 the dominating expenditure that saved the economic growth was instead from election spending and the tax saving schemes that motivated the people's consumption." (Orin Basuki/C17-09)

Editor: jimbon / Source : Kompas Cetak