Government budget plan gets cautious welcome

Government budget plan gets cautious welcome

JAKARTA (JP): Economists and members of the House of Representatives (DPR) describe the 1995-96 state budget draft as realistic but are warning the government to take stronger measures to curb the widening current account deficit and mounting inflationary pressures.

Aberson Marle Sihaloho of the Indonesian Democratic Party (PDI) said yesterday that the lower projection in state revenues from domestic sources reflects the real situation of the country's economy.

"It indicates that we are getting more reliant on the private sector," he said in regards to the 1995-96 budget draft.

Aberson, the deputy chairman of the House's Budgetary Commission, said that the lower growth in income tax revenues would not affect the overall tax revenue target, as the government is expected to bring in more revenues from other tax sectors.

President Soeharto unveiled the budget draft for the 1995-96 fiscal year yesterday, with revenues and spending expected to balance at Rp 78.02 trillion (US$36.28 billion), a nominal increase of 11.9 percent over the 1994-95 budget.

State revenues from oil and gas taxes in 1995-96 are projected to increase by 3.3 percent to Rp 13.27 trillion, after declining 15 percent in the 1994-95 fiscal year. Revenues from non-oil taxes are expected to surge by approximately 12.2 percent to Rp 52.98 trillion while foreign assistance levels are expected to soar 17.4 percent to Rp 11.75 trillion.

Hamzah Haz, from the Moslem-dominated United Development Party (PPP) and member of the Budgetary Commission, said that he was optimistic that the projected increase in Value Added Tax (VAT) receipts could be reached.

He asked the government, however, to delay any plans to increase telephone and electricity tariffs in a bid to compensate for the increased VAT burden that consumers will face in the next year under the government's new tax laws.

Government VAT revenues are projected to increase by 25.8 percent to Rp 16.65 trillion, second only to income tax revenues, which are projected to grow approximately 2.1 percent to Rp 19.23 trillion.

Too small

Hadi Soesastro, an economist at the Centre for Strategic and International Studies (CSIS), said that the government's projection of a 12.2 percent increase in non-oil tax receipts is too small, given the country's high tax potential.

The ratio of tax receipts to Indonesia's Gross Domestic Products (GDP) is only around 11 percent, much lower than the Philippines and their 16 percent ratio, he said, indicating that the government could expand the tax coverage much further.

In terms of the export tax, Fadel Muhammad, an executive of the Chamber of Commerce and Industry (Kadin), questioned the government's dramatically increased figure in this area.

"I am really surprised about the rise in the government's export tax projection," he said, adding that the rise in the income from export taxes will consequently hurt export-oriented companies.

"I hope the rise in the export tax target does not set back the government's policy of fair trade," he said.

Government's officials said that the 170 percent rise in export tax receipts to Rp 44.4 billion will not be caused by an expansion of export tax coverage but mainly by greater export tax revenues collected from crude palm oil (CPO).

Widening deficit

House members and economists harbored strong reservations about the country's widening current account deficits in light of inflationary pressures which are expected to be stronger in 1995- 96.

Hamzah said that sharp growth in imported capital goods, resulting from increased investments, could hurt the country's balance of payments considerably if no appropriate measures are taken to increase non-oil exports.

The proposed salary increase for civil servants and industrial workers would push up consumer demand, thereby resulting in stronger inflationary pressure, he said.

An increase in both inflationary levels and the current account deficit, according to Hamzah, could become very sensitive issues in the country's monetary system if they are not carefully handled

Last year's inflation rate reached 9.24 percent, declining slightly from 9.77 percent in 1993. The current account deficit is estimated to grow to 4.09 billion in 1995-96, up from last fiscal year's level of $3.56 billion and the 1993-94 level of $2.94 billion.

Hadi said that the country's balance of payments prospects are promising due to higher growth predicted in the world economy. In addition, the surplus in the balance of payments is expected to increase from $1.01 billion in 1994-95 to $1.8 billion in 1995-96.

"Inflation will also be manageable," he said, estimating that the inflation rate will be checked at nine percent in the 1995-96 fiscal year, even with six to seven percent growth expected in the country's economy.(rid/hdj/hen)