Indonesia's proposed 2017 budget welcomed as pragmatic, realistic

[JAKARTA] Indonesian President Joko Widodo presented a proposed 2017 budget that lifts spending a little while looking realistic about revenue and seeking to contain the country's fiscal deficit.

Economists said the budget proposal given parliament on Tuesday is more realistic than the previous two Mr Joko presented after his 2014 election.

Tax targets in the earlier budgets were highly ambitious, and in 2015, there was a revenue shortfall of nearly US$20 billion.

In the 2017 proposal, Widodo aims to balance the desire to give the sluggish economy some stimulus while not spending far more money than the government has.

"The budget is a largely pragmatic one, with realistic macroeconomic expectations and more grounded revenue and expenditure assumptions," said Wellian Wiranto of OCBC in Singapore.

The proposal was unveiled three weeks after well-respected World Bank managing director Sri Mulyani Indrawati returned home as finance minister, a post she held for some years under Mr Joko's predecessor.

The budget "looks to have Sri Mulyani's fingerprints all over it, and probably carries the spirit of being better to over-deliver than to over-promise," Mr Wiranto said.

Only days after returning, Indrawati cut US$10 billion from the 2016 budget to ensure the fiscal deficit does not breach the 3 percent of gross domestic product (GDP) legal limit.

Even with those cuts, the deficit is likely to be 2.5 per cent this year. The 2017 plan sees a deficit of 2.41 per cent and assumes the economy will grow 5.3 per cent.

Indonesia's growth pace slowed every year from 2011 through 2015, reaching 4.8 per cent last year. Hopes to get back above 5 per cent this year were buoyed by stronger-than-expected annual growth of 5.18 per cent in the second quarter, but officials said that reflected better crops.

Mr Joko, who said Indonesia still faces "sizable" challenges, called for 2017 spending of 2,070.5 trillion rupiah (S$212.4 billion), about 5.5 per cent higher than what the government expects to spend this year.

The 2017 revenue target is 1,737.6 trillion rupiah. In the original 2016 budget proposal, the target was 1,822.5 trillion rupiah, and Indrawati now expects 2016 revenue of only 1,567.2 trillion rupiah.

The 2017 target takes account of a tax amnesty programme to end in March. Mr Joko said on Tuesday that after the amnesty, the government will implement a "tax law enforcement" programme. Historically, few Indonesians pay tax, and few pay what they should.

Yustinus Prastowo, an analyst at Center for Indonesia Taxation Analysis, called the 2017 tax target "proof that Sri Mulyani doesn't want to be too ambitious because we don't know whether this amnesty would be successful." Mr Indrawati said big 2017 allocations would be for the public works ministry and security.

Mr Joko told parliament "Fiscal policy will be directed toward supporting people's purchasing power, and improving the investment climate and competitiveness of our industry."

REUTERS