State budget deficit is likely to swell

JAKARTA.  Indonesia’s economic growth will be lower than the government's target. This will cause the 2014 State Budget (APBN) deficit more bloated.

State revenue from the tax sector fumbles away from the target, while the state budget is still huge. In this year’s budget, the government set a target of 6% economic growth.

But, because the economic conditions are not as good as previous projections, the government will have to revise its growth target to 5.8 % -6 %. As a result, businesses will reduce their expansion plan, which led to reduced corporate income and lower tax payments.

The shrinking tax revenues combined with fixed spending budget would make the deficit widened. In Budget 2014, the deficit is set at 1.69 % of gross domestic product (GDP),  Rp 175.4 trillion. In order to minimize the deficit, “The government's efforts is focus on anticipating inflation so as not to add the subsidy spending and poverty rate , " said Minister for National Development Planning  Armida Alisjahbana, last weekend.

With shrinking tax revenues, a spike in poverty and subsidies will boost the budget deficit. This year, the total budget subsidy reached Rp 333.68 trillion, Rp 282.10 trillion of them for energy subsidies.

Boost export

A. Prasetyantoko, BTN economist, says, the budget deficit is likely to swell. But, surely the government would strive to match the target.  The government will have to exercise various policies such as fiscal tightening with budget reductions.

But, before that happens, the government should seek to boost exports, so that tax revenues can reach the target, at least near the target. The ongoing improvement of the global economy provides opportunities to increase foreign trade. The government also can optimize spending by absorbing budget faster so they can boost economic growth earlier this year.