Tokyo Fiscal Forum 2015 Long-Term Growth and Fiscal Sustainability in Asia: Challenges and Long-Term Prospects Discussant s Comment on Session I Dr. Rofyanto Kurniawan Director, Center of Budget Policy Ministry of Finance Indonesia 1
In response to Relevant Issues... The issues are: Fiscal Policies: Reduction of Subsidies, Enhancing investment, Infrastructure development, etc... Fiscal Sustainability Aging and social protection Contingent liabilities Financial repression The exposure of the domestic banking sector to sovereign debt The major issues for Indonesia case are subsidy, investment, infrastructure, fiscal sustainability, and social protection. 2
Risk Awareness of Fiscal Policy Fiscal policy is an important tool to balance growth and stability: Promoting growth and reducing volatility; providing tax incentives and managing debt; comtrolling budget deficit European case: Budget deficit due to social protection program Long term fiscal policy program to handle aging population: Budget expenditure risk due to the increase of aging population Subsidy reduction programs: Reallocating to productive spending Designing sufficient health insurance and pension fund: the burden of aging population Budget reform: Achieving tax collection target and increasing tax ratio; efficient and productive expenditure; structural reform Trade off between infrastructure spending, financial repression and budget deficit: Promoting invesstment and PPPs, The importance of positive primary balance and controlling inflation; fiscal responsibility 3
Government budget in Indonesia(2014 realization and 2015)...Continuing prudent fiscal policy 2014 Realization 2015 Revised Budget Description Realization up to Dec 31 (in IDR tn) % of the Revised Budget Budget (in IDR tn) % of GDP Budget (in USD bn) A. Total Revenue 1,537.2 94.0 1,761.6 15.8 140.9 Key Components 1. Taxation 2. Non-Taxation 1,143.3 390.7 91.7 101.0 1489.3 269.1 13.4 2.4 119.1 21.5 B. Total Expenditure 1,764.6 94.0 1,984.1 17.8 158.9 Key Components 1. Capital Expenditure 2. Subsidy Expenditure 3. Interest Payments 4. Village fund 145.8 390.3 133.4-90.7 96.8 98.5-275.8 212.1 155.7 20.8 2.5 1.9 1.4 0.2 22.1 17.0 12.5 1.7 C. Primary Balance (93.8) 88.7 (66.8) 0.6 (5.3) D. Deficit (227.4) 94.2 (222.5) (1.9) (17.8) E. Financing 246.4 102.0 222.5 1.9 17.8 I. Domestic II. Foreign State revenues optimization Source: Ministry of Finance. 2015 USD Budget figures based on 1 USD=12,500 IDR 261.7 (15.4) Taxation revenue to increase by IDR109.3tn Focusing on: Improving the compliance rate, especially for individual taxpayers and informal sector Closing tax leakage, especially tax refund process Expanding tax base with extensification programs Through: Profiling and mapping of taxpayer Implementing risk-based compliance management Using financial intelligence and 3rd party data management Developing information technology for intensification and extensification Strengthening enforcement function, including transfer pricing Strengthening DG Tax HR, Organization, Budget, Remuneration 102.7 114.9 Quality of spending 242.5 (20) 2.1 (0.2) 19.4 (1.6) Quality of spending Fuel subsidy is significantly reduced from IDR276T to IDR64.7T - Savings of IDR211.3T Priority programs: basic infrastructure (food security, connectivity, maritime) and social welfare For the first time, infrastructure spending would be higher than energy subsidy (IDR290.3T vs IDR137.8T) Food security spending is higher than fuel subsidy spending, showing Government commitment to improve domestic food supply and security Additional allocation for village development funds of IDR11.7T Conditional cash transfer by using cashless smart cards system Capital injection (PMN) significantly increases by IDR63.1T to boost SOEs performance and to support infrastructure development Manageable fiscal deficit Fiscal deficit decreases from 2.20% of GDP to 1.90% of GDP 4 Spacious room for maneuver to anticipate global uncertainty
Medium-term Budgetary Framework A. B. C. D. E. Budget Components (IDR Trillion) 2016 2017 2018 2019 projection projection projection projection Total Revenue 2.000,70 2.230,80 2.489,20 2.803,90 I. Domestic 2.000,10 2.230,70 2.489,10 2.803,10 1. Taxation 1.676,30 1.921,40 2.197,20 2.526,40 2. Non-Taxation 323,80 309,30 291,90 277,30 II. Grant 0,60 0,10 0,10 0,10 Total Expenditure 2.237,30 2.464,80 2.720,40 3.011,70 I. State Expenditure 1.463,70 1.592,90 1.743,80 1.911,30 1. Line Ministry 704,70 730,90 750,10 742,40 2. Non-Line Ministry 759,00 862,00 993,70 1.168,80 II. Transfer to Region and Village Fund 773,60 871,80 976,60 1.100,50 Primary Balance (67,30) (50,90) (31,80) 3,80 Surplus/Deficit (A - B) (236,60) (234,40) (231,30) 208,00 % to GDP (1,80) (1,59) (1,42) (1,14) Financing 236,60 234,00 231,30 208,00 I. Domestic 272,20 273,90 279,30 256,00 II. Foreign (35,60) (39,90) (48,10) (48,00) 5
Tax revenue and Tax Ratio (Including Projection from 2015-2019) 18 Tax ratio (on Central Govt) 16 Tax ratio (Central Govt+ Oil&Gas+ Mineral &Renewable Energy) Tax ratio (Central Govt+ Oil&Gas+ Mineral &Renewable Energy+ Tax on Region) 15.06 15.91 15.87 16.08 16.35 Percent 14 12 13.77 12.95 14.85 15.05 15.14 14.38 13.84 13.95 13.89 13.14 11.16 11.38 11.31 13.69 14.49 14.40 12.73 13.15 13.28 14.55 14.76 13.63 14.02 10.54 10.88 10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Government has been excercise its tax policy to maximized the nation s revenue by increasing the tax based, enforcement on punishment and reward, increasing the tax system. Tax revenue is projected to increased in medium term. Tax Revenue Optimization through extra effort. Increasing Tax ratio. Tax policy improvement, through: - Bureaucracy reforms - Organization and Structural changes - Intensification on Personal Income Tax 6
Strengthening the quality spending...to improve eficiency and spending productivity. IDR TRillion Central Gov. Expenditure Transfer to Region State Expenditure 2400,0 1984,1 1900,0 1650,4 1755,8 1491,2 1295,0 1319,5 1400,0 1137,2 1182,1 1042,1 1010,6 883,7 900,0 697,4 664,6 480,6 513,3 573,7 344,7 411,3 400,0-100,0 2010 2011 2012 2013 2014 2015 APBNP Subsidy has been becoming more efficient and capital expenditure s increased significantly Infrastructure expenditure increases from Rp177.9 T (2014) to Rp290.3 T (2015) due to energy subsidy efficiency 7
Demographic dividend in Indonesia Approximately more than 60% Indonesia s population has age below 35 Age 100+ Year 2010 Year 2030E Year 2050E 8 Age 0 Source: World Bank, UNPP Dependency ratio will likely to decrease up until 2025 90 Indonesia Brazil China India Russia 80 70 60 50 40 30 1980 1990 2000 2010 2020 2030 2040 2050 Source: UNPP Source: World Bank, UNPP 8 8
Aging population and social protection Indonesia has started social protection program, known as National Social Security System, consists of health program and employment programs. Health program for all citizens has started in January 1,2014 with a goal of universal health coverage in 2019. The employment programs will be started in July 1, 2015 consists of 4 programs: work accident, term insurance, old age saving, and pension. The design of employment program is still being formulated, emphasized on pension. Since pension program can create a long term fiscal sustainability risk, it needs to be carefully designed considering these factors sustainability, adequacy, and coverage/affordability. The proposed design of pension program Defined Benefit Index career Average (DB ICA) with accrual rate 1% The benefit is indexed to inflation rate. Increased pension age to 58 and gradually up to 60-62 The implementation of social protection has just started and there are things need to be improved. Risk awareness. The GoI runs the social protection program carefully and ensure the risk mitigation is well addressed. 9
Challenges in Implementing Health Program 1 Membership and premium payment 1. Insurance effect; Increasing number of informal sector, mostly the sick ones. 2. Enrolling the healthy informal sector; 3. Improve collectability ratio of premium collection Provide various method of payment, including electronic payment. Managed Care System 1. Coordination between public and private recourses (coordination of benefit) 2. Service quality of health care provider a. Quality of providers vary b. Access to health care in remote area 3. Best practices on procurement and payment systems (fee-for-services/capitation/salary) 4. Inequality in utilization High utilization in urban area 2 Deficit in Health Fund (Contribution < Benefit payment) Affect the effectivity and sustainability of the program Revised State Budget 2015 Financing BPJS Rp3,46T & Financing Reserve Health Fund (Rp1,5T) 3 Cost Containment 1.How to manage adverse selection 2.Developing a robust referral system (Primary care as gatekeeper) 3.Fraud prevention 4.Claim verification a. Lack of qualified claim verificator b. Exposed to fraud 5.Prevention and health promotion Regulation 1. Grace period (3 month for formal & 6 month for informal ) 2. Calculation of technical reserve 3. Maximum wage 4 Data Accuracy 1.The data of the poor is set on 2011; need to be updated to improve the accuracy. 2.Need of a good database of supply side, health care providers, doctors, and medicines. 5 10
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