Realistic budget
Realistic budget
The 1995-1996 state budget plan is realistic when viewed both from the assumptions used to estimate revenues and from the way in which the limited financial resources are allocated. The government apparently prefers a conservative spending plan to minimize the risk of having to adopt bitter, contingency measures whenever the estimates err.
The US$16.50 average oil price used for estimating oil and gas tax receipts that account for 17 percent of total revenues is realistic in that the risk of an overestimate is minimum. It is obviously more convenient to cope with the impact of under- estimates.
The 12.2 percent increase envisaged in tax revenues from the non-oil sectors, which will contribute 57.3 percent of total revenues, is also pragmatic, especially because the largest portion of the increase is expected from the value added tax (VAT). Since the new tax laws lower income tax to a range of 10 percent to 30 percent from 15 percent to 35 percent previously it is indeed difficult to expect a significant rise in receipts from this direct tax. It will take some time to significantly broaden the tax base. But because almost all indicators point to robust economic growth again this year, the 25.8 percent rise expected in VAT receipts is not too ambitious a target. Differing from income tax, VAT collection is based on transactions and not on accrued incomes or profits.
The most encouraging trend, we think, is the 51.2 percent increase envisaged in non-tax receipts, consisting mostly of dividends from state companies and service fees collected by the various ministries. They are expected to contribute Rp 6.5 trillion ($2.95 billion) or 8.3 percent, up from 6.3 percent, of total revenues. This development indicates significant results in the restructuring of state companies and the better management of service fees collected by the various government offices. Hopefully, all other fees or levies, such as reforestation funds, will eventually be included and accounted for in the state budget.
The 17.4 percent rise expected in receipts from foreign loans is encouraging as well because that increase will not be generated by larger new borrowings but by smoother implementation of foreign aid. That development certainly results from much more expedient budgetary procedures. That is another benefit from speedier implementation of foreign loans which are mostly tied to specific projects. The commitment fees (usually amounting to 0.75 percent) on the undisbursed loans that have to be paid by the government every year will be reduced.
The government decision to raise the salaries and pensions of the civil servants and Armed Forces members by 10 percent, in spite of the tight budget, is very wise. Even though the nominal increase is rather insignificant, given the 9.24 percent inflation last year, that measure will at least prevent further worsening of the living conditions of the government personnel. The official pledge to develop a clean and credible administration will sound a joke if the government personnel become poorer amid the steady economic expansion.
The mere 1.4 percent increase in foreign debt installments and service payments is another impressive trend. This welcome development results from the wise government measure to amortize $800 million of its foreign debts to the World Bank and the Asian Development Bank ahead of their maturity dates. Although the amount of the repayment seems rather negligible compared to the $59 billion the government now owes to foreign creditors, it is still significant because the two multilateral agencies charge annual interest rates of six to seven percent, as against less than three percent charged by government creditors. The more encouraging is the trend because the $800 million fund was derived from the public offering of 35 percent of state-owned PT Indosat's shares on the domestic capital market and the New York Stock Exchange. More such funds are expected from the public listing of several other state companies, including PT Telkom, PT Jasa Marga (freeway development) and PT PLN (electricity) within the near future.
So all in all, we are impressed by the budget proposal because: We are assured that the budget will not necessitate tougher fiscal and monetary measures; it shows better administration and management of government service fees and levies; its structure is much stronger as it relies increasingly on tax receipts from the non-oil sectors; and state companies not only become more efficient but turn increasingly from cost into profit centers.