More taxes to fund state spending

More taxes to fund state spending

JAKARTA (JP): The government unveiled yesterday its 1996-1997 fiscal year spending plan, which features a hefty 16 percent increase to be financed chiefly through more taxes.

Presenting the draft budget to the House of Representatives, President Soeharto warned that the economy is overheating because of the rapid growth of the past year.

However, Soeharto defied earlier predictions that the government would go for an austere budget. Instead he pushed for a big spending increase which he hopes will sustain the economic growth rate above seven percent.

He set total expenditure at Rp 90,616 billion ($39.4 billion) in the fiscal year starting on April 1, up from the Rp 78,024 billion budgeted for 1995-1996.

To finance its spending plans, the government hopes to collect Rp 14,120 billion from oil and gas taxes, Rp 64,082 from non-oil and gas domestic revenues, and Rp 12,413 billion in foreign aid.

Consumers, individual and corporate tax payers, property owners and exporters will underwrite most of the increases in state spending. The government envisages a 23 percent increase in income tax revenues, a 31 percent increase in value added tax revenues, a 260 percent increase in export tax revenues and an 18 percent increase in land and property tax revenues.

The increase in tax revenues is expected to come from the expanding and intensifying of tax collection.

"Although tax revenues have risen quite substantially, they can and must be raised even higher," the President said. "We believe that we have not yet reached all taxpayers and that not everyone registered as a taxpayer has been paying taxes in full."

He pointed out that the tax revenue share of the state budget in Indonesia is still very low compared to the levels reached in neighboring countries.

Expenditures

The draft budget stipulates Rp 56,113 billion for recurrent expenditures, including payment of the salaries of its more than 4.5 million employees, and foreign debt servicing, as well as Rp 34,502 billion for development, representing a 12 percent hike.

Servicing the government's foreign debts will gobble up about Rp 19,936 billion ($8.66 billion) of the government's revenues, an 11.4 percent increase over the 1995-1996 figure.

Soeharto made no mention of whether civil servants would see their salaries increased this year. The matter will be discussed when the House deliberates the budget, he said.

The government's savings, or the amount of its domestic revenues left after deducting recurrent spending, are expected to increase in 1996-1997 to Rp 22,089 billion from the Rp 19,024 billion envisaged for this fiscal year.

This, together with Rp 12,413 billion in foreign aid, gives the government Rp 34,502 to spend on its development programs. The money is allocated on the basis of the government's priorities, with regional development, transmigration and transportation getting the lion's share.

The budget plans assumes an average oil price of $16.5 a barrel and that Indonesia's oil production will average 1.52 million barrels per day, while the dollar-exchange rate is projected at $1=100 yen. Changes in any of these assumptions could severely undermine the government's targets.

But while the budget appears to be aimed at sustaining economic growth, the government can be expected to resort to monetary instruments to cool down the overheating economy.

Worries

Soeharto pointed out at two worrying symptoms: inflation that has been running above 5 percent for the last three years, and the growing deficit in the current account, which measures the country's trade in merchandise and services.

"We have to watch the impact on the balance of payments of foreign commercial loans, especially short-term ones, the number of which has increased quite substantially," he said.

Current account deficit will shoot up $7.94 billion in the 1995-1996 fiscal year, compared to the $4.09 billion originally envisaged, because of a 32 percent increase in imports, particularly of consumer goods, while export growth expanded more slowly, at 19 percent.

Soeharto said the government's foreign exchange reserves, now at $15.4 billion, are adequate to finance import needs for five months.

To narrow the current account deficit, Indonesia will have to bolster its export performance, he said.

He ruled out imposing import controls, given Indonesia's commitment to an open and free market economy, but said imports should be geared to supporting Indonesia's export activities.

He appealed to the people's nationalist sentiments, urging them to give locally made products priority over imports.

"We must all close ranks -- the government, entrepreneurs and consumers -- to form a strong and unified front to face this challenge," he said.

"We must always remember the motto: `Love the Nation, Love its Products'," he said, adding that this is not contradictory to the free trade principles to which Indonesia is now committed.

The President also underlined the need to limit credit expansion which has been growing "too fast". (emb)

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