House urges govt to revise 2004 state budget

Dadan Wijaksana, The Jakarta Post, Jakarta

Speaker of the House of Representatives Akbar Tandjung criticized the 2004 draft state budget for its limited spending for development programs that would provide a stimulus for the sluggish economy.

He suggested that the government revise the draft.

"I'll leave the revision to the legislators (in the budget committee), but it will be good if the portion for development spending can be increased," Akbar told reporters on Wednesday.

Akbar said that development spending, albeit larger than this year, was insufficient to create more robust economic activities, thus contributing little to economic growth.

As stated in the newly proposed 2004 budget, the government has set spending for development programs at Rp 68.1 trillion (about US$8.20 billion), a slight increase from this year's allocation of Rp 65.1 trillion.

The House budget committee is expected to start debating the proposed state budget next month.

As part of its fiscal consolidation policy, the government has been applying belt-tightening measures in its budget, with a large part of the expenditure going for repaying debts, both foreign and domestic.

By comparison, the amount needed to service government debts next year is projected to be Rp 68.5 trillion.

During the past couple of years, the government has been under pressure to cut the budget deficit in a bid to put its finances in order following the devastating late 1990s economic and financial crisis. The deficit has been gradually cut from around 3.7 percent of gross domestic product (GDP) to around 1.8 percent estimated for this year and 1.2 percent projected for next year. This fiscal consolidation policy is needed to help revive confidence in the economy.

But with the limited portion going for productive economic activities, such as development spending, the economy has been growing over the past several years by a modest 3 percent to 4 percent per year, which does not help remedy the country's chronic unemployment problems.

However, as has been mentioned by the government, raising the allocation for productive areas would also create a wider deficit -- unless the government jacks up revenue, especially from taxation.

While the first option would be difficult, as it requires more loans from foreign creditors, increasing income from taxes would be a more realistic option, according to economist Rizal Ramli.

Rizal, who is a former finance minister, said that the current tax ratio, which compares the ratio between tax revenue and GDP, was not maximal.

"The current ratio of between 13 percent to 14 percent is too low compared with our actual potential," he said, without stating the ideal level.

The government has set a tax revenue target for 2004 at Rp 271 trillion, or 13.5 percent of GDP, as against Rp 254.1 trillion (13.1 percent) estimated for this year.

Rizal also said that overall, the government's conservative approach in determining the budget's figures reflected its lack of creativity in striking a balance between maintaining fiscal stability and generating higher economic growth.

Development Spending --------------------------------------------------

2003 2004

(draft) -------------------------------------------------- 1. Rupiah Financing Rp 46.2 t Rp 47.5 t 2. Project Financing Rp 18.9 t Rp 20.6 t -------------------------------------------------- Total Rp 65.1 t Rp 68.1 t -------------------------------------------------- Source: Ministry of Finance