Positive Fiscal Consolidation

- Rabu, 4 Januari 2023 | 19:34 WIB
Sri Mulyani (Antaranews.com)
Sri Mulyani (Antaranews.com)

DEPOK (eNBe Indonesia) - Movement of commodities in international market gives Indonesia more to hope this year, including a stronger fiscal consolidation. Brent crude, which is closer to Indonesian Crude Price (ICP), is now traded around US$82 per barrel, way below target for State Budget 2023 (US$95 per barrel).

State oil and gas company Pertamina has on Tuesday cut its retail price of non-subsidized fuels, which might support household consumption, the largest component of Indonesian GDP. Lower than expected oil price will free up the State Budget from more fuel subsidies, giving room for other expenses.

Key export commodities, particularly thermal coal and nickel, are still very strong. Nickel, for example, gained 4.73% to US$31,335 per ton on Tuesday, 43% higher than the same period last year. Thermal coal retreated to US$392.5 per ton, but still 126% above the same period last year. Combined with higher volume, especially from nickel, the revenue side of the State Budget should get a lift.

Finance Minister Sri Mulyani Indrawati said the fiscal consolidation is expected to reach this year, supported by narrowed budget deficit (unaudited) in 2022, at 2.38% of the GDP, or Rp464.3 trillion, half of initial estimate.

State revenue reached Rp2,626.4 trillion per December 2022, grew 30.6% year on year (y/y) while state spending reached Rp3,090.8 trillion, grew 10.9% y/y.

Sri Mulyani explained that there was an increase in spending, especially for social protection. But, the high state revenue meant that the state budget deficit could be realized below the initial estimate (4.5% over GDP or Rp868 trillion) as set in the Presidential Regulation Number 98/2022.

“A figure of Rp464.3 trillion is much lower, almost half of initial estimate. This shows a strong fiscal consolidation, really an extraordinary,” said Sri Mulyani in a press conference on Tuesday (January 3).

On state revenue, tax collection reached Rp1,716.8 trillion in 2022, grew 34.3% y/y, equivalent to 115.6% of target. Non oil and gas contributed Rp920.4 trillion of tax revenue, or 122.9% of target. Oil and gas contributed Rp77.8 trillion, or 120.4% of target.

The value added tax (VAT) and tax on luxury goods sales (PPnBM) reached Rp687.6 trillion or 107.6% of target. The land and building tax revenue (PBB) and other taxes reached Rp31 trillion, or 95.9% of target.

Sri Mulyani noted that the positive realization of tax revenues in the fourth quarter (Q4) of 2022 was still affected by the trend of increasing commodity prices, expansive economic growth, and the implementation of the Law on Harmonization of Tax Regulations (HPP).

On spending, it reached Rp3,090.7 trillion, or 99.5% of target. Central Government spending reached Rp2,274.5 trillion, consisting of spending for ministries and institution (Rp1,079.3 trillion) and spending for non ministries and institution (Rp1,195.2 trillion).

Government reduced spending on the Covid-19 pandemic management and national economic recovery program, as cases of the spread of the virus decreased.

Capital spending in 2022 was recorded at Rp238.8 trillion, down 0.3% y/y, due to the completion of the 2020 infrastructure projects, be paid in 2021 (carry over) worth Rp18.5 trillion.

Spending on subsidies and compensation throughout 2022 reached Rp551.2 trillion, consisting of energy subsidies (171.9 trillion) and potential compensation (Rp379.3 trillion). The total spending increased from the initial estimate of Rp502.4 trillion.

“In order to maintain people’s purchasing power and support economic recovery, the government is increasing subsidy and compensation spending,” said Sri Mulyani.

That said, rising oil prices boosted the energy subsidy and compensation budget in 2022. Government set crude price (ICP) at US$63 per barrel, but due to the war between Russia and Ukraine, the price of crude oil soared to US$126 per barrel.

In the Presidential Decree No. 98/2022, the assumption of ICP is then raised to US$100 per barrel. Overall, the average ICP in 2022 was US$97 per barrel.

With these developments, Government in September 2022 adjusted the spending by increasing subsidies and compensation. Else, the domestic fuel prices have the potential to increase by up to four times.

Alongwith, Government increased the price of subsidized fuel, but with a relatively low increase, only around 30%. As a consequence, Sri Mulyani said, subsidies and compensation jumped more than tripled, from Rp152.5 trillion to Rp551.2 trillion by end of 2022.***

Editor: Adrianus Nulangi Madaala



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