Comment on “Fiscal Sustainability in Indonesia: Policies and Progress”

Abstract

Adrison (2024) has written an interesting paper on fiscal sustainability in Indonesia. This work is very useful to readers. Adrison goes into great detail about Indonesia's fiscal situation, both on the revenue and expenditure fronts. Aside from this, Adrison covers economic policies during COVID-19, particularly fiscal policy. In this study, Adrison discusses the fiscal challenges that Indonesia faces, particularly the low tax-to-GDP ratio. According to Adrison, low tax revenue is caused by a number of problems, including low compliance and difficulties in taxing informal micro, small, and medium firms, forcing the Indonesian government to impose presumptive taxation. Adrison also demonstrates that tobacco goods account for around 97% of Indonesia's excise tax income. Other products' contributions to excise tax revenue are minimal. On the expenditure side, Adrison demonstrates that capital spending is not the major component of government spending. Energy subsidies and interest payments are two major government expenses. There was a decline in the allocation for interest payments from 2003 to 2013; however, the increase in the debt-to-GDP ratio over the last 10 years has meant that interest payments have climbed dramatically. Adrison also discusses other expenditure issues, such as intergovernmental transfers and budget absorption. As previously stated, this document is quite helpful; nevertheless, it would be more fascinating and beneficial if Adrison chose one or a few relevant themes from the ones to be discussed later rather than simply explaining Indonesia's revenue and expenditure structure in a nutshell. To enhance and refine this work, I recommend focusing on one or more of the concerns listed below, so that it is more in-depth and not just a general summary.

First, Adrison explains how fluctuations in energy and commodity prices affect Indonesia's tax income significantly. It would be quite fascinating to examine this subject from the standpoint of how terms of trade affect the Indonesian economy, particularly Indonesian fiscal policy. According to Basri and Rahardja (2011), Indonesia's fiscal policy is pro-cyclical since fluctuations in energy and commodity prices affect its revenue side while affecting its expenditure side. It will be fascinating to see if Indonesia's fiscal policy shifts away from being pro-cyclical. This debate is essential and interesting because it examines the extent to which fiscal policy can influence macroeconomic policy in Indonesia, particularly in a period where terms of trade is also influenced by geopolitical tension.

Second, Adrison analyzes the challenges associated with tax revenue. It would be fascinating if Adrison gave us an analysis of how to enhance tax revenue. It would be fascinating if Adrison investigated the influence of administrative reform in improving tax revenues in Indonesia. According to Basri et al. (2021), administrative reform can increase tax revenue in Indonesia and other developing countries. Is there anything else that can be done within the framework of administrative reform to boost tax income, given the rise in tax revenue through administrative reform? Increasing the tax rate is a difficult political decision. Aside from that, further analysis can be done about the effectiveness of tax expenditure or the prospect of instituting an excise tax on fossil fuels, which, of course, has a good influence on revenue as well as climate change.

Third, in this paper, Adrison analyzes fiscal measures taken during the COVID-19 outbreak. The COVID-19 outbreak may result in a more inclusive economic policy design, with increased spending on health, education, climate change, and social protection. However, as the Adrison points out, there are challenges for tax revenue. How can this problem be solved? So far, the Indonesian government has constantly kept the budget deficit around 3%. What role does quality spending play in this stamp? Will Indonesia's budgetary target of a 3% budget deficit remain relevant in the future?

Fourth, one of the major issues confronting many rising and developing economies is contingent liabilities, which arise as a result of the relatively dominating role of state-owned firms. True, Indonesia's budget deficit is consistently kept at 3% on an annual basis, but what about when contingent liabilities are factored in? Is Indonesia's fiscal status, as outlined by Adrison, still sustainable? It would be interesting if Adrison's discussion addressed this topic as well.

Fifth, Adrison does not address the role of fiscal policy in the issue of climate change. It would be interesting if this research also discussed how reallocating energy subsidies could be used as a tool to maintain fiscal sustainability, make subsidies more targeted, and green fiscal policy in Indonesia, as mentioned by Adrison.

In summary, this article is fascinating and helpful, although from my perspective it could be more detailed and convey fiscal situation in a nutshell. It would be very interesting if Adrison concentrated on one or more of the points I have raised making this study more in-depth.