"After doing some recalculations, we don"t think it"s possible (to achieve the target). We have to be realistic."
Jokowi, Sri Mulyani
Cahyo | Biro Pers Sekretariat Kepresidenan

President Joko Widodo (Jokowi) backs and agrees with the Finance Minister’s suggestion to cut spending in the 2016 Revised State Budget. The decision was made because Jokowi is starting to realise that this year’s tax revenue is unrealistic.

“It has to be done, because we need a credible state budget,” Jokowi said in a statement following an information event about the tax amnesty at the Intercontinental Hotel, Bandung, Monday (8/8).

He said that countries worldwide were suffering an economic slump. The economic growth of some countries economy has dropped to 4 percent. Several even recorded negative growth of up to minus 3 percent. In many of Indonesia’s neighbouring countries, economic growth is down to 1–1.5 percent.

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He said that under current global economic conditions, the government should take realistic measures to revise the State Budget. He is pessimistic about achieving this year’s revenue target in the 2016 Revised State Budget.

“After doing some recalculations, we don’t think it’s possible (to achieve the target). We have to be realistic. What the Minister of Finance did is a very logical and wise move; I agree,” he said. (Read: Minister of Finance: 2017 Tax Revenue Only Up IDR 30 Trillion)

Jokowi said that ministerial and institutional budgets were being cut, including operational costs and business travel. He said that he would ask Minister Sri to what other cuts were being made.

Sri Mulyani, Coordinating Minister of Economic Affairs Darmin Nasution and the Minister of National Development Planning/Head of the National Development Planning Agency Bambang Brodjonegoro will continue look for ways to cut ministerial spending.

Earlier, following her appointment as Minister of Finance on 26 July, Sri Mulyani said that this year’s state revenue target was quite ambitious. She said that the IDR 1,539 trillion tax revenue target set in this year’s State Budget was overstated and unrealistic.

She estimates that by the end of the year, actual tax revenue will only be IDR 1,320 trillion. And that means a budget deficit of IDR 219 trillion, which will happen despite the government’s tax amnesty program, introduced mid-July. (Read: Darmin: Even with Tax Amnesty, Revenue Remains Tough Issue)

So, adjustments need to be to spending to create a credible 2016 Revised State Budget. The deficit can be managed and that will avoid a crisis of confidence in the state budget.

The former World Bank Director suggested cutting spending in the 2016 Revised State Budget by IDR 133.8 trillion, with IDR 65 trillion cuts in ministerial spending of IDR 68.8 trillion in regional transfer funds .

“So credibility, confidence and trust must be maintained, starting with State Budget figures that reflect the economic reality we are facing,” Sri said.

In the Revised State Budget, the tax revenue target was reduced by IDR 76 trillion and ministerial spending was cut by IDR 50 trillion. But the target is still too high, the government may still submit another revision to the 2016 revised state budget to the House of Representatives.

“The government will do what it can,” Sri said. (Read: Budget Deficit Increases, Adding IDR 17 Trillion to Government Debt)

Coordinating Minister of Economic Affairs Darmin Nasution although the State Budget has already been revised, changes can still be made. This does not breach any rules. Changes can still be made revising the Law on the State Budget.

He was reluctant to comment on the possibility of issuing a Government Regulation in Lieu of a Law to change the state budget law because currently the government is still reviewing the potential state revenue. “I do not want to make any conclusions yet. The government is still exploring its actual revenue capacity,” Darmin said.