Indonesian Government Proposes $32.6 Billion of Subsidy Spending in 2014
The government of Indonesia proposes to allocate IDR 336.24 trillion (USD $32.6 billion) for subsidy spending in the 2014 state budget draft: IDR 284.7 trillion (USD $27.6 billion) for energy subsidies and IDR 51.6 trillion (USD $5.0 billion) for non-energy subsidies. The proposed amount implies a 3.41 percent fall in total subsidy allocation compared to Indonesia's state budget in 2013. However, despite a reduction, subsidy expenditure is still large at 18.5 percent of total government spending (IDR 1,816.7 trillion).
Subsidy spending accounts for the largest portion of central government spending and - by far - exceeds capital expenditures, even though the latter is needed for Indonesia's much-needed infrastructure development.
| Revised State Budget 2013 |
State Budget Draft 2014 |
|
| Total State Spending |
1,726.2 | 1,816.7 |
| - Central Government Spending |
622.0 | 612.7 |
| a. Personnel Expenditure |
233.0 | 276.7 |
| b. Goods Expenditure |
206.5 | 203.7 |
| c. Capital Expenditure |
192.6 | 205.8 |
| d. Interest Payments on Debt | 112.5 | 119.5 |
| e. Subsidy Expenditure |
348.1 | 336.2 |
| f. Grant Expenditure | 2.4 | 3.5 |
| g. Social Expenditure |
82.5 | 55.9 |
| - Transfer to Regions | 529.4 | 586.4 |
in trillion rupiah
Indonesia's high amount of subsidy spending, which increases almost every year, is a concern to many. In 2014, proposed subsidy spending equals 3.5 percent of Indonesia's gross domestic product (GDP). Between 2008 and 2013, realization of the subsidy budget spending increased IDR 72.8 trillion, or an average of 4.8 percent per year. This increase is due to changes in macroeconomic assumptions, such as the exchange rate, Indonesia's crude oil price and the volume of subsidized fertilizers.
Most of subsidy expenditure in 2014 is allocated for subsidized fuels and electricity. Subsidies for gasoline, LPG and bio-fuels are proposed at IDR 194.9 trillion. This amount is IDR 4.96 trillion lower (or 2.5 percent) compared to the allocation in the 2013 state budget (IDR 199.9 trillion). Since 2009, fuel subsidies have experienced a 272 percent surge, and will account for 10.7 percent of total government expenditures in 2014 according to the government's proposed budget.
| Revised State Budget 2013 |
State Budget Draft 2014 |
|
| Energy Subsidy |
299.8 | 284.7 |
| - Fuels |
199.9 | 194.9 |
| - Electricity |
100.0 | 89.8 |
| Non-Energy Subsidy |
48.3 | 51.6 |
| - Food |
21.5 | 18.8 |
| - Fertilizer | 17.9 | 21.0 |
| - Seeds |
1.5 | 1.6 |
| - Public Service Obligation | 1.5 | 2.2 |
| - Credit Programs |
1.2 | 3.2 |
| - Tax Subsidy | 0.8 | 1.0 |
in trillion rupiah
The government uses a number of parameters to assume the fuel subsidy budget at IDR 194.9 trillion. These parameters include an Indonesian crude oil price at USD $106 per barrel, an exchange rate of IDR 9,750 per US dollar, and domestic consumption of subsidized fuels estimated at 50.5 million kilo liter (which is about 2.5 million kilo liter more than in 2013).
With an economy that is growing at a pace of about six percent, an increase in oil consumption cannot be avoided, despite the government's decision to raise prices of subsidized fuels in June 2013. Rapid economic expansion requires a greater energy supply. Nevertheless, analysts feel that too much subsidies will also weigh on the budget, particularly if these subsidies, like the fuel subsidies, are misplaced: Indonesia's middle class segment benefits more from these fuel subsidies than the poor.