ASEAN KEY DESTINATIONS
IMF suggests budget revision to bolster revenue, growth
The International Monetary Fund (IMF) has advised the government to revise the state budget to anticipate possible tax revenue shortfalls that may reach US$22 billion this year, thus threatening government projects.
IMF’s senior resident representative for Indonesia, Ben Bingham, said on Monday that if the government had no way of increasing tax revenue, then it risked a shortfall, as it suffered last year.
“There is still a risk of shortfall if the government cannot offer a solution to this challenge […] the shortfall could result in more limited space in capital programs and transfers to regions,” Bingham said during a discussion at Atma Jaya Catholic University in Jakarta.
The IMF predicts that this year’s state revenue will reach 12.1 percent of the GDP, while state spending will reach 15 percent of the GDP. The fund has predicted that this year’s GDP will reach Rp 12.63 quadrillion ($957.8 billion), which means that revenue will reach Rp 1.53 quadrillion. Consequently, state revenue will experience a shortfall of Rp 294.4 trillion from the targeted Rp 1.82 quadrillion.
According to the IMF’s recent 2015 Article IV Consultation paper, Indonesia’s GDP growth is forecast to reach 4.9 percent in 2016 with 4.5 percent inflation and a deficit of 2.5 percent. Although the figure is much higher than the predicted global growth of 3.6 percent, it remains much lower than the government’s target of 5.3 percent growth.
In the medium term, the IMF has suggested that the government focus its reform strategies on three draft bills, namely on value-added tax, income tax and a tax amnesty, which the government hopes will boost state revenues.
One suggestion the IMF had was for the government to implement revenue measures — focusing on excises such as fuel, tobacco and vehicles — which could possibly help raise 0.6 percent of the GDP on a full-year basis.
The fund also advised the government to identify expenditure savings and lower non-priority savings to avoid a scramble at the end of the year.
“The sooner the adjustment is made, the better, partly because it will make it quicker to gain revenue and easier to cut non-priority spending,” Bingham added.
Meanwhile, economist Anton Gunawan claimed Indonesia’s economic growth was incredibly weak and was being driven solely by government investment in infrastructure.
Anton advised the government to widen the 3 percent state budget deficit threshold to 4 percent of GDP.
Although the market would perceive the widening of the deficit limit as negative and the risks would increase with the debt, Anton said that the market would understand if the government were able to prove that the debt would help fund local infrastructure.
“If we acknowledge that the only thing driving our economy is government spending, then the budget deficit needs to be increased. The market will approve if that can be proven,” Anton said.
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