Budget Deficit of Indonesia Safe on non-Optimal Government Spending
One advantage of Indonesia's non-optimal government spending is that it somewhat covers for the shortfall of tax revenue that is expected to occur in 2015. The shortfall in tax collection may reach up to IDR 250 trillion (approx. USD $18 billion) and this failure to meet the government's tax collection target in the 2015 State Budget was the reason behind the resignation of Sigit Priadi Pramudito as Director General of Indonesia's Tax Office. But with government spending estimated to reach only about 90 percent of this year's target, the budget deficit should not go beyond the 2.7 percent of gross domestic product (GDP) mark.
Although originally set at 1.9 percent of GDP in the 2015 State Budget, Indonesia's Finance Minister Bambang Brodjonegoro recently stated that the budget deficit is expected to widen to between 2.5 and 2.7 percent of GDP, primarily due to the big shortfall in tax revenue as well as the slow pace of economic growth. Brodjonegoro added that the deficit will not go beyond the legal limit of 3 percent of GDP as the Indonesian government will seek additional financing through multilateral loans from the World Bank and Asian Development Bank.
Indonesia targets to collect IDR 1,294.3 trillion in tax money in 2015. However, it may see a shortfall of IDR 250 trillion. Most - if not all - analysts believe that the government had set an unrealistically high tax revenue target (considering that tax revenue realization in 2014 was only IDR 984.9 trillion, up 7.5 percent from realization in the preceding year). Indonesian Vice President Jusuf Kalla responded to criticism on the high tax collection target by saying that the target is not too high but that the slowing economy is the main reason why the target cannot be achieved. "If GDP growth was still at the level as it was several years ago, then it would be possible to achieve the target," Kalla said. However, this statement only confirms that the Indonesian government has set an unrealistically high tax revenue target as the government failed to take a slowing economy into account when determining the target. Meanwhile, Darmin Nasution, Indonesia's Chief Economics Minister, said weak tax collection is due to "the combination of a slowing economy and a too higher tax revenue target".
Indonesia's Tax Collection Target & Realization and Budget Deficit 2008-2016
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
| Target (in IDR trillion) |
534.5 | 597.5 | 661.4 | 878.7 | 885.0 | 995.2 | 1,072.4 | 1,294.3 | 1,360.1 |
| Realization (in IDR trillion) |
607.4 | 563.2 | 650.0 | 872.6 | 835.3 | 916.3 | 984.9 | ||
| Budget Deficit (% of GDP) |
n.a | n.a | -0.73 | -1.14 | -1.86 | -2.33 | -2.25 | -2.70¹ | -2.15 |
¹ revised projection
Sources: Direktorat Jenderal Pajak & Nota Keuangan & Finance Ministry
Meanwhile, government spending after the first eleven months of 2015 stood at IDR 1,567.4 trillion, or 79 percent of the full-year target. However, Ministers Nasution and Brodjonegoro said the government will not have to cut spending as it is likely to reach only 90-92 percent of the full-year target, implying that the budget deficit will not be in danger of moving up to 3 percent of GDP.
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