Indonesia may let budget deficit widen for higher spending, tax cut -official

Credit: REUTERS/JORGE SILVA

Indonesia will be open to letting its budget deficit widen in the medium term if needed to meet its commitments for infrastructure and other priority spending while cutting the corporate tax rate, a senior finance ministry official said.

By Gayatri Suroyo and Maikel Jefriando

JAKARTA, July 29 (Reuters) - Indonesia will be open to letting its budget deficit widen in the medium term if needed to meet its commitments for infrastructure and other priority spending while cutting the corporate tax rate, a senior finance ministry official said.

President Joko Widodo, who will begin a second five-year term in October after being re-elected, has pledged to trim corporate tax rate to 20% from 25%, starting in 2021.

But he also promised faster infrastructure development, and the planning ministry has said $460 billion in infrastructure investment is needed in the next five years.

Suahasil Nazara, who leads the finance ministry's fiscal policy department, said his office has finalised a draft for the bill backing the planned tax cut and is finishing a study on its impact on state revenue.

Whatever the impact of the cut, the government may allow for a wider fiscal deficit, rather than reduce spending on infrastructure or education, Nazara said.

"If (the deficit) is needed because we are sure we want to build many infrastructure projects, and we can be efficient, optimal and those are what we really need, then we're fine with it," Nazara told Reuters.

However, Nazara said the government will seek to control the gap in its primary budget balance, reflecting that before interest payments, by increasing efficiency of other spending.

By law, Indonesia's budget deficit cannot exceed 3% of gross domestic product.

The finance ministry's latest estimate for this year's gap is 1.93%, wider than the 1.2% Widodo had targeted at the start of his first term.

Nazara said the government aimed to keep 2020's deficit to 1.6%-1.7% of GDP.

Over the next five years, the government aims for a deficit within 2.0-2.2%, according to a medium-term policy proposal by planning ministry.

The ministry document also projected up to a 3,542.1 trillion rupiah ($252.74 billion) budget at the end of Widodo's second term, representing up to 10% growth each year in the next five years.

Indonesia's ratio of tax collection to GDP is expected to be 11.7-12.% over the next five years, according to the document.

The government says the 2018 ratio was 10.3%. The Organisation for Economic Cooperation and Development (OECD) says Indonesia has the lower ratio in Asia-Pacific.

($1 = 14,015 rupiah)

(Reporting by Gayatri Suroyo and Maikel Jefriando; Editing by Ed Davies and Richard Borsuk)

((gayatri.suroyo@thomsonreuters.com; +622129927609; Reuters Messaging: gayatri.suroyo.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Reuters

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV.

Learn More