Six days after her appointment as the new Finance Minister, Sri Mulyani immediately proposed a revision on the 2016 Revised State Budget (APBN-P). Sri asserted that revenue targets set in the APBN-P 2016 is not credible and is very unrealistic.
The unrealistic target was a result of the basis used to calculate tax revenue. The APBN-P 2016 still refers to high economic values, which is the revenue target set in the past two years. Whereas, the realization of state revenue, especially tax revenue, often fail to meet its predetermined target.
“Calculation of the tax revenue was based on planned values, not realization values,” Sri said after a cabinet plenary meeting at the President’s office in Jakarta on Wednesday, August 3, 2016, as quoted from the Cabinet Secretary website.
(Also read: After Q1 of Tax Amnesty, Sri Mulyani Studies Options to Secure State Budget)
The calculation puts high pressure on this year’s budget because the values used as a reference to several calculations have exceeded its realization; as a result, revenue target for 2016 continues to climb higher.
Back in 2014, tax revenue fall short of IDR 102.8 trillion, or was only 92 percent of the target set in the APBN-P 2014. Meanwhile in 2015, the gap expands to IDR 248.9 trillion, or only 83 percent of the target set in the APBN-P 2015.
In the past two years, tax revenue has been experiencing heavy pressure, mainly caused by declining commodity prices. Contributions from commodities such as oil and gas, coal, oil palm, and mining products remain large. Therefore, as commodity prices fall, state revenue inevitably drops.
Economic activities in sectors such as trade, construction, also experienced pressure. This condition can be seen from decreasing volume of operational activities. Until today, Sri said, growth in the aforementioned sectors is slowing down to only half of the growth percentage recorded in previous years.
(Also read: Sri Mulyani Focuses on State Budget as Economic Stimulant)
On the other hand, global economic condition also experienced a slow down. Consequently, international trade experienced several contractions. This condition can be seen since Q1 of 2015 and continues to occur until the first half of 2016.
Despite the projected additional revenue from the tax amnesty program, tax revenue realization for 2016 is still having difficulties to achieve the overly high target. In addition, Indonesia’s economic condition has not fully recovered.
Minister Sri predicted that state tax revenue for 2016 will experience up to IDR 219 trillion deficit.
Therefore, expenditures must be adjusted to allow the APBN-P 2016 to remain credible, and to control the current deficit, and to prevent crisis of confidence in the state budget. Sri had also delivered her proposal to President Joko Widodo, Vice President Jusuf Kalla, and during the cabinet plenary session.
“Credibility, confidence, and trust must be established, starting from the numbers in the APBN that can reflects the reality of the economic conditions that we are facing,” Sri said.
(Also read: Government Confident on Good Economic Growth despite Spending Cut Back)
In a cabinet plenary session yesterday, Sri suggested that the government should trim down IDR 65 trillion on ministry and institutional spending budget, and another IDR 68.8 trillion on regional funds. The budget spending is specifically aimed at low priority ministry or institutional activities. Meanwhile for the regional budget, cut backs will be applied by reducing regional profit sharing funds.
“In principle, the President and the Vice President agreed [to the proposal], and the decision is binding to all ministry and other government institution,” Cabinet Secretary Pramono Anung said.