State budget won't bolster growth: Expert<\/p>\n
JAKARTA (JP): The contraction of funds reflected in the state
\nbudget plan for 1995-1996 will not affect Indonesia's economic
\ngrowth because the government no longer plays the major role in
\ndevelopment, a leading economist says.<\/p>\n
\"We have no reason to worry about the contraction in public
\nspending because the government is no longer the major agent of
\ngrowth,\" Hadi Soesastro, an economist from the Center for
\nStrategic and International Studies, said in an interview with
\nThe Jakarta Post here yesterday.<\/p>\n
In the 1995-1996 draft budget submitted yesterday by President
\nSoeharto to the House of Representatives, the government plans to
\nallocate Rp 30.78 trillion for development programs. It aims to
\nextract Rp 52.98 trillion from the private sector through
\ntaxation and other levies.<\/p>\n
\"This apparent contraction will not affect economic growth
\nbecause the private sector has been playing a bigger role since
\nthe government moved to encourage non-oil exports in the early
\n1980s,\" Hadi said.<\/p>\n
The 1995-1996 draft budget, which will be implemented on April
\n1, after gaining approval from the House, balances revenues and
\nspending at Rp 78.02 trillion (US$35.45 billion), up 11.9 percent
\nfrom the current budget.<\/p>\n
President Soeharto said in his 1995-1996 budget proposal that
\nlast year the economy beat the 1993 growth rate of 6.5 percent.<\/p>\n
The economy is expected to grow even more rapidly in 1995.<\/p>\n
Indonesia is one of the few oil producing countries which have
\nbeen successful in maintaining steady economic growth since the
\noil boom ended in the 1980s.<\/p>\n
The government has said that Indonesia needs a total
\ninvestment of about Rp 660 trillion in the coming five years, 75
\npercent of which is expected to come from private investment.<\/p>\n
Hadi said that the 1995-1996 budget plan generally reaffirms
\nthe government's sound fiscal and monetary policies.<\/p>\n
Revenue<\/p>\n
On the revenue side, Hadi did not find anything unexpected
\nexcept the modest projection for income tax receipts. The
\nproposed budget targets a 2.1 percent increase in income tax
\nrevenue in fiscal year 1995-1996, amounting to Rp 19.24 trillion.
\nThis is compared to the 26.9 percent increase budgeted in this
\nfiscal year.<\/p>\n
\"This is unprecedented, and I do not know why the government
\ndid it. Are they skeptical about their ability to collect income
\ntaxes?,\" he asked.<\/p>\n
In the 1995-1996 budget, income tax will constitute about 36
\npercent of the government's total domestic non-oil revenues of Rp
\n52.98 trillion.<\/p>\n
In turn, total domestic non-oil revenues -- which means total
\ngovernment levies -- make up 79.9 percent of the projected total
\ndomestic revenue of Rp 66.26 trillion.<\/p>\n
The economist added that the modest projection for income tax
\nreceipts could be due to the newly amended tax laws, which became
\neffective this month.<\/p>\n
\"Maybe they need some time to adjust,\" he said, adding that
\nIndonesia's self-assessment system in income-tax collection is
\ndifficult to administer.<\/p>\n
Hadi acknowledged that the government plans to compensate for
\nthe modest receipts from income tax with a boost in its receipts
\nfrom value-added tax by about 25.8 percent in 1995-1996, to Rp
\n16.65 trillion.<\/p>\n
The economist also voiced his concern over the fact that the
\nratio of Indonesia's tax collection against the gross domestic
\nproduct is still low, at around 11 percent.<\/p>\n
\"The government should raise this ratio to 16 percent in the
\ncoming five years so that we can be more independent in financing
\nof our development,\" he said.<\/p>\n
Hadi also remarked that despite frequent political rhetoric,
\nthe role of foreign aid will actually increase in 1995-1996 due
\nto its 17.4 percent increase to Rp 11.75 trillion.<\/p>\n
Foreign aid will account for 38.2 percent of the government's
\ndevelopment spending of Rp 30.78 trillion in 1995-1996. By
\ncomparison, this fiscal year's foreign aid of Rp 10.01 trillion
\nwill account for only 36.5 percent of the development spending,
\nestimated at Rp 27.39 trillion.<\/p>\n
The economist felt confident about the government's estimate
\nof an average oil price of $16.50 per barrel in projecting that
\noil revenue will reach Rp 13.27 trillion or about 36 percent of
\nall domestic revenues.<\/p>\n
\"If this is not achieved, we can still count on the non-tax
\nreceipts which are estimated to rise by 51.2 percent to Rp 6.49
\ntrillion in 1995-1996,\" he said.<\/p>\n
Non-tax receipts comprise about 9.79 percent of all domestic
\nrevenues in the proposed budget. This sector will mostly be
\ndominated by public offering of the shares of state firms,
\nofficials said.<\/p>\n
Expenditure<\/p>\n
Hadi also welcomed, albeit with some reservations, the 11.5
\npercent increase in routine expenditure which is mostly generated
\nby the 10 percent wage increase for civil servants and military
\npersonnel in 1995-1996.<\/p>\n
\"I do not think that the wage increase will have a serious
\ninflationary effect, and it is about time for those people to get
\na raise since they have been very poorly paid,\" he said.<\/p>\n
The economist noted that routine expenditures for personnel
\nhave become a constant burden for state budgets ever since the
\noil boom ended in the 1980s.<\/p>\n
\"Maybe it's about time we redefined the role and size of our
\nbureaucracy,\" he said.<\/p>\n
Personnel spending will make up about 32 percent of all
\nroutine expenditures, at a proposed Rp 47.24 trillion in 1995-
\n1996.<\/p>\n
Hadi regarded the new level of development spending, proposed
\nto reach Rp 30.78 trillion, to be a \"wise decision\" because most
\nof it will be allocated for infrastructure development and
\npoverty alleviation.<\/p>\n
Hadi also stated that although the current account deficit in
\nthe 1995-1996 fiscal year is estimated to rise to $4.09 billion
\nfrom $3.58 billion, \"everything will be manageable\".<\/p>\n
The government estimates that the projected deficit in 1995-
\n1996 will be \"neutralized\" by the inflow of private foreign
\ncapital reaching $5.07 billion.(hdj)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/state-budget-wont-bolster-growth-expert-1447893297",
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