Thursday, December 03, 2015

Budget note: between poverty alleviation and enterprise revitalization

Arif Gunawan S. & Marguerite Afra S.

The government and the House of Representatives have finally reached an agreement on the 2016 state budget posture on Friday (30th Oct), after an all-night long debate in the budget commission level, and high-level lobby involving the Vice President Jusuf Kalla.

Unlike the state budget negotiations in the previous years, which mostly dominated by the amount of fuel and energy subsidies, this year the House’s member and the government struck on the state capital injection (PMN) issue, as their major disagreement.

It was Gerindra, Prabowo Subianto’s backer party—and the motor of the opposing-Red White Coalition (KMP), that rejected the state budget due to the PMN allocation, arguing that the injection would mean a subsidy to the state owned enterprises after reducing the subsidy for the people.

“The government must evaluate the PMN. We have to remember that there is foreign ownership in state owned enterprises. It means, ultimately, the people subsidize the enterprises, and not vice versa,” said Deputy House Speaker cum Gerindra’s Deputy Speaker Fadli Zon to the press, on Friday.

Twenty-four state-owned enterprises (SOEs) were set to receive state capital injections worth Rp 40 trillion (US$2.93 billion) in the 2016 budget, including electricity company PLN and infrastructure financing firm PT Sarana Multi Infrastruktur (SMI) with Rp 10 trillion and Rp 4.16 trillion injections respectively.

An agreement has been finally reached by freezing the Rp 40.42 trillion PMN funds, until the House and the government meet again at the beginning of 2016 to revise the state budget. The amount, equals to the electricity subsidy which has Rp40 trillion in allocation.

The lower electricity subsidy in 2016 to only Rp 40 trillion would lead to the revocation of subsidy previously enjoyed by 3 million of households, a policy that heavily rejected by Tulus Abadi from the Indonesian Consumer Protection Foundation (YLKI) in a discussion last week.

"Their electricity bill will rise by 250 percent to 300 percent. Let’s say from Rp 175,000 to around Rp 400,000 or Rp 600,000 [after the subsidy revoked]. Instead of shocking the society, why don’t the government raise the rate by 20 percent per three months?" he said on Saturday as quoted by

An economist at University Indonesia Riyanto predicted that the rising electricity bill for the middle and low income households would end up to a soaring inflation, to 6 percent at end of 2016, higher than that of targeted in state budget at 4.7 percent.

“The assumed economic growth at 5.3 percent [in 2016] will be short of 0.59 percent, and the poverty rate will rise by 0.14 percent,” he said at the same event.

Despite the electricity factor, we should not forget the fuel price factor. In 2016, when the oil price predicted to recover as the US economy gets better, the government may increase the fuel price that leads to poverty rate hike.

As the World Bank noted, Indonesia has 68 million people who are vulnerable to fall below the poverty line if the food price rising sharply. A costly fuel price, would lead to higher transportation cost and increasing food price.

Maybe it explains why the government, amid the recessive economy, did not give exact figure—but only a range—in the 2016 poverty rate target. Jokowi’s administration eyed a 9 to 10 percent of poverty rate, compared to the 2015 target at 10.3 percent.

It is a very conservative target, regarding that in one year Indonesia has around—quoting—30 million of people seeking for jobs, and the number could grow further and they may end up as unemployment amid a recession.

Tax income

Amid the slowing economy, the government seemed to keep the PMN fund program intact, despite heavy criticism from opposing politicians, especially from Gerindra party.

Although the amount is only one fifth of the Rp 201 trillion energy subsidy in 2016, it had become the center of debate in the budget meeting.

The opposing parties’ main point was on the irony created as President Jokowi slashed public’s subsidy, just to ultimately spend another Rp40 trillion of subsidy to state-owned enterprises. And it's all set to happen amid the slowing economy which is believed to squeeze the people’s standard of living.

Jokowi’s debut policy to raise the fuel price and slash the subsidy in October last year has made the old-easy times for us gone as the government’s paradigm has shifted, from supporting the citizens directly in the form of abundant affordable energy, to supporting the citizens through varied productive programs.

The programs are; the Rp 34.7 trillion village fund, the Rp 33.3 trillion reservoir revitalization, the Rp 21 trillion infrastructure projects, the Rp19.1 trillion Jokowi’s social security cards, the Rp16.9 trillion food self-sustainability, and the Rp3.8 trillion anti-illegal fishing squad.

So what is it that drive the government so persistently defending the PMN fund? The answer is on the state budget posture, itself. One cannot just ignore the rising tax income target to Rp 1,565.78 trillion, a five percent increase from the 2015 possibly-missed tax income target of Rp 1,489.3 trillion.

Where the money comes from? Amid the slowing economy, it is hardly possible to increase the tax ratio. Even the State-owned Enterprises Ministry has lowered its dividend target from the state-owned companies, from Rp 37 trillion to Rp 34 trillion this year due to economic slowdown.

But the magic trick is there! It is the state-owned enterprises’ asset revaluation. According to RSM AAJ tax consultant Sentot Agus Priyanto, an asset revaluation in state-owned enterprises may rise the state’s tax revenue by 5 to 10 percent.

"This will add about Rp 65 trillion-Rp 120 trillion to the tax revenue target," he estimated, answering

The government seemed like knowing the economic situation better, including how to get around with it. Thus, the ‘polemic’ PMN fund was not coming from a thin air. There was a bigger objective behind it, despite the political uneasy situation they have to deal as the consequences.

Even the government admitted that they have known better on today’s situation, as implied by Finance Minister Bambang Brodjonegoro. “In general, the 2016 state budget is more realistic than the 2015 revised-state budget, as we have a better understanding on the global and domestic economy.***

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