The Dreams of Pro-Poor Budget

Entering the final year of his leadership, President Jokowi’s budget
politics are apparent and can be evaluated measurably. With the burden
of political promises for the welfare of the people (nawacita), especially
developing Indonesia from the periphery, improving the quality of life
and productivity of the people, and realizing economic independence,
since the beginning of his rise to power, President Jokowi has rushed to
reform the budget. President Jokowi’s two essential budget strategies
are increasing tax revenues to create adequate fiscal space to accelerate
infrastructure development. But both of these ambitions, increasing
fiscal capacity and infrastructure spending, failed.

Several strategic tax reform policies in the last decade, starting from
providing employee performance allowances at the Directorate General
of Taxes, Ministry of Finance, tax amnesty volume I in 2016-2017, to tax
amnesty volume II and increasing the VAT rate in 2022, failed to boost the
performance of tax revenues. In 2015, the tax ratio was 10.8 percent of
GDP. In 2024, the tax ratio is estimated only to be 10.1 percent of GDP. A
decade under President Jokowi, our fiscal capacity has stalled on
average at 9.9 percent of GDP. Instead of increasing, the tax ratio during
President Jokowi’s era was even lower than during President SBY’s era,
where the average tax ratio from 2005-2014 reached 11.7 percent of GDP.

Failure to improve tax performance directly affects the disintegration of
infrastructure development ambitions, President Jokowi’s most
enormous political promise. Capital expenditure initially jumped to 1.87
percent of GDP in 2015. However, capital expenditure continued to
decline, and 2024 is projected to be only 1.07 percent of GDP. The average
annual capital expenditure in the President Jokowi era (2015-2024) is
estimated to be only 1.33 percent of GDP, even lower than that in the
President SBY era (2005-2014), which averaged 1.49 percent of GDP. This
failure to encourage capital expenditure explains why President
Jokowi’s government relied heavily on BUMN and the private sector for
infrastructure development, including through BUMN assignment
schemes and KPBU schemes (government and business entity

President Jokowi’s failure to encourage capital spending is also mainly
due to the increasing public spending orthodoxy where non-
discretionary spending, namely personnel spending, goods spending,
and interest on government debt, increasingly dominates government spending. The burden of tied spending in President Jokowi’s era
continues to increase from 5.82 percent of GDP in 2015 to around
6.09 percent of GDP in 2024, worse than the era of President SBY,
where tied spending tended to fall from 5.36 percent of GDP in 2005
to 5.24 percent of GDP in 2014.