Urip Hudiono and Adianto P. Simamora, Jakarta – The House of Representatives on Tuesday approved the 2008 budget, which envisages a wider deficit due to higher government expenditure as part of the effort to spur growth next year.
All of the House's ten factions approved the budget by acclamation during a plenary session, although their seals of approval were not without provisos: 115 cross-faction legislators – and a group of student protesters – issued a stern reprimand to the government for its failure to allocate 20 percent of total budget expenditure to education, as required by the Constitution.
The Indonesian Democratic Party of Struggle (PDI-P) faction, meanwhile, criticized yet again the government's "ambitious" budget expansion and growth targets, and perceived lack of concern for public welfare.
The government and the House budget commission have been deliberating the 2008 draft budget since President Susilo Bambang Yudhoyono submitted it to the House during his Aug. 16 state address. It is the administration's third budget of its five-year term, which runs until 2009, and promises higher growth, and lower unemployment and poverty levels.
Overall, the 2008 budget envisages total expenditure of Rp 854.7 trillion (US$95 billion), a rise of more than Rp 100 trillion over this year's revised budget.
Most of the additional spending will go on the procurement of capital goods, rather than routine spending, in line with the government's stated intention of "optimizing expenditure".
Local governments will receive Rp 4.2 trillion more in central government development transfers, giving them a total of Rp 271.8 trillion. Allocations to central government ministries have been increased by Rp 2 trillion, while another Rp 1 trillion has been earmarked for a contingency fund to cover any shortfalls arising from failures to achieve budget assumptions.
The budget also increases the cooking oil subsidy for poor households to Rp 600 billion from Rp 325 billion this year. Fuel and power subsidies are respectively penciled in at Rp 45.8 trillion and Rp 28.5 trillion, lower than last year's figures on savings accruing from the gas and coal conversion programs.
Meanwhile, the government has allocated 12 percent of total expenditure to education, arguing that this is as much as the treasury can afford for the time being.
With anticipated revenues of Rp 781.4 trillion next year, the 2008 budget deficit will be higher at Rp 73.3 trillion, or 1.7 percent of gross domestic product (GDP). The additional revenues will mainly come from intensified tax collection, and an increase in dividends from state firms to Rp 23.4 trillion.
Next year's deficit is expected to be financed mostly through government bond sales, which it is hoped will raise some Rp 91.6 trillion.
The government said the 2008 budget was expected to help support Indonesia's economy expand by 6.8 percent next year, so as to give the country a GDP of Rp 4,306 trillion.
Meanwhile, inflation is expected to continue at 6 percent, the rupiah to weaken slightly to Rp 9,100 against the US dollar, and the central bank benchmark interest rate to fall to 7.5 percent. Indonesia's daily oil production is estimated at 1.034 million barrels, on an oil price of $60 per barrel.
Speaking for the government after the budget's approval, Finance Minister Sri Mulyani Indrawati said that while next year's budget was more expansive in its assumptions, the various constraints on achieving them had already been factored in.
"Experience has shown us that shortfalls in oil production are particularly effective in upping the deficit. That is why we have included additional funds as a contingency measure to address any discrepancies between budget assumptions and outcomes," she said.
"We will also address concerns regarding the optimizing of tax collection, while still providing incentives for the real sector."