Download ESCAP High-level Policy Dialogue

 ESCAP High-level Policy Dialogue
Ministry of Finance of the Republic of Indonesia International Economic Summit 2013
Eleventh Bank Indonesia Annual International Seminar
“Macroeconomic Policies for Sustainable Growth with Equity in East Asia”
15-17 May 2013, Yogyakarta, Indonesia
Jointly organized by
UN ESCAP, Ministry of Finance of the Republic of Indonesia and Bank Indonesia
Session 3 – Fiscal Policy for Development and its Budgetary Implications
Presentation
Indonesia Fiscal Policy:
Stimulus in the crisis time & long term development
by
Bambang Brodjonegoro
Head, Fiscal Office, Ministry of Finance, Indonesia
May 2013
The views expressed in the paper are those of the author(s) and should not necessarily be considered as reflecting the
views or carrying the endorsement of the United Nations. This paper has been issued without formal editing.
MINISTRY OF FINANCE
REPUBLIC OF INDONESIA
FISCAL POLICY AGENCY
Indonesia Fiscal Policy: Stimulus in the crisis time & long term development
ESCAP High Level Policy Dialogue & 11th Bank Indonesia Annual Seminar
ESCAP High Level Policy Dialogue & 11th Bank Indonesia Annual Seminar
Yogyakarta, 15 May 2013
Yogyakarta, 15 May 2013
OUTLINE
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Fiscal Stimulus:
Crisis Period 2008/2009
3
Global Economic Crisis and Stimulus Package 2009
2009 Fiscal Stimulus Package
Crisis 2008‐2009
Description
• Global crisis impacted to the deterioration of export and purchasing power in the domestic market. • Government policies focused to increase citizen’s purchasing power through fiscal stimulus.
Due to export slowdown, domestic consumption became the main driver of economic growth
A. Tax saving
1.Reducing and simplifying the personal income
tariff (35% --> 30%)
2.Increasing the income tax threshold from Rp12,6
million to Rp15,8 million
3.Reducing the corporate income tax (single tariff:
30% -> 28%) and further discount of 5% for the
listed companies
4.Fiscal tax abolishment on NPWP
5.Amendment to VAT
2009
Allocation
43.0
Realization % Real
43.0
100.0
13.5
13.5
100.0
11.0
11.0
100.0
18.5
18.5
100.0
-
-
-
B. Tax incentive
1.VAT on cooking oil
2.VAT on biofuel
3.VAT on oil and gas exploration
13.3
0.8
0.20
2.5
2.8
0.8
0.0
1.0
21.4
100.0
14.0
40.3
4.Income tax on geothermal
0.8
0.8
100.0
5.Income tax article 21
6.Facilities on import duties
6.5
2.5
0.2
0.0
3.2
0.3
17.0
2.8
1.4
12.2
14.3
2.8
1.4
10.1
84.4
100.0
100.0
83.2
73.3
60.2
82.1
C. Non tax subsidies
i.e.- Reducing diesel oil price Rp300/litre
- Discount on eletricity tariff for industries
- Stimulus expenditure package
Total
4
Countercyclical Policy has given positive impact to economic growth through fiscal stimulus
Economic Growth (%, yoy)
Economic Growth (yoy)
Poverty Rate
8
7
Unemployment Rate
6,22 6,3
6
5,28
5,27
5
4,16
4,6
4
4,18
3,1
With Stimulus
Dengan Stimulus
1
5,39
5,8
5,59
5
3,35
3,94
3
2
6,89
6,13
6,25
3,8
2,78
Without Stimulus
Tanpa Stimulus
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2008
2009
2010
• Fiscal stimulus in 2009 had a big impact when the economy experienced a slowdown. This is indicated by economic growth higher compared without stimulus, unemployment and poverty rates declined.
• Lesson Learned:
a. Tax cut policy would be more effective than expenditure policy. This matter is supported by Indonesia demographic profile which is dominated by young/productive generation and higher MPS (marginal propensity to spend).
b. Considering high infrastructure needs, government should always improve its infrastructure expenditure. 5
Indonesia economic drivers & stimulus in the current crisis
6
Global economy is still facing downside risk...
The consensus forecast of Indonesia's economic growth in 2013 by 6.2%
Global Economic Growth Forecast (%)
WEO‐IMF
2012
World
US
Europe
GDP China
India
ASEAN‐5
Indonesia
Trade Vol. World
1.
2.
3.
3.2
2.2
‐0.6
7.8
4.0
6.1
6.2
2.5
Oct'11
4.5
2.5
1.5
9.5
8.1
5.8
6.7
6.4
Jan'12
3.9
2.2
0.8
8.8
7.3
5.6
n.a.
5.4
Apr'12
4.1
2.4
0.9
8.8
7.3
6.2
6.1
5.6
2013
July'12
3.9
2.3
0.7
8.5
6.5
6.1
6.6
5.1
Oct'12
3.6
2.1
0.2
8.2
6.0
5.8
6.3
4.5
Jan'13
3.5
2.0
‐0.2
8.2
5.9
5.5
n.a.
3.8
Apr'13
3.3
1.9
‐0.3
8.0
5.7
5.9
6.3
3.6
Oct'12
4.1
2.9
1.2
8.5
6.4
5.7
n.a.
5.8
2014
Jan'13
4.1
3.0
1.0
8.5
6.4
5.7
n.a.
5.5
Apr'13
4.0
3.0
1.1
8.2
6.2
5.5
6.4
5.3
Global economy is still facing downside risk, however is expected to rebound in the 2nd semester of 2013.
•
Fiscal cliff potential impact; sluggish Europe crisis solving; China improves but still under 10%.
Global liquidity volatility potential
•
Loose monetary policies in several advance economies and Eurozone.
Global commodity prices volatility (including oil price and Indonesia’s export commodities)
Economic Forecasters
2013
ING
Danareksa Securities
Goldman Sachs Asia
Econ Intelligence Unit
BBVA
Citigroup
HSBC Economics
IHS Global Insight
Nomura
BNP Paribas
BofA ‐Merrill Lynch
JP Morgan Chase
Credit Suisse
Consensus (average)
IMF
WorldBank
ADB
OECD
Bank Indonesia
7.0
6.5
6.4
6.4
6.3
6.2
6.1
6.1
6.1
6.0
5.8
5.7
5.6
6.2
6.3
6.2
6.4
6.3
6.2‐6.6
7
Outlook of Indonesia economic growth: revised down yet still strong and stable…
Strong and consistent real GDP growth
Even stronger real sector GDP growth excluding Oil & Gas
2008‐2012 Average = 5.9%
Source: Ministry of Finance, BPS Note: Figures in % yoy; medians from S&P
Source: BPS
Stable growth rate (in the last 9 quarters has grown above 6%), keeping up with India and China
Stable and resilient growth compared to peers
5 years average growth vs. peers (%)
10.5
8.1
5.9
4.4
4.3
3.6
2.9
2.6
1.5
China
Indonesia
Source: BPS, Bloomberg
Brazil
Russia
Mexico
Source: BPS, Bloomberg
Note: India economic growth constant price at factor cost
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Private consumption is the main economic keydriver, supported by young and dynamic population...
Private consumption driving growth (% of GDP)
Dependency ratio keeps falling ‘til 2025‐2030
Brazil
India
90
China
Indonesia
Rising nominal GDP per capita (US$)
4,000
80
3,563
3,000
70
2,000
60
50
1,000
40
30
0
1980 1990 2000 2010 2020 2030 2040 2050
Source: BPS
2000
2002
2004
2006
2008
2010
2012
Source: Ministry of Finance
Source: UNPP
Of the 240 million people in Indonesia, over 60% of the population is under 39 years old, providing a dynamic workforce. Year 2010
Year 2030E
Year 2050E
Age 100+
Age 0
Source: Economic Policy Committee and European Commission, IMF, national projects
9
Investment as the second engines of growth, helping in rebalancing economic growth as external side weakens...
Direct investment (US$ bn)
Direct investment growth
(%)
Total investment (% GDP)
Brazil
Russia
India
China
South Korea
Indonesia
55
50
45
40
35
30
25
20
15
10
Source: BKPM
Note: IDR/US exchange rate of 9,000; USD values for convenience only
Source: IMF
10
Investment in manufacturing has been growing quite rapidly, attracted by potential domestic market. Investment has also been growing across regions…
FDI by Regions
Kalimantan
Bali & Nusa 2%
Tenggara
1%
Banten
7%
2005
Sulawesi
2%
Sumatera
14%
East Java
8%
West Java
29%
Jakarta Capital Territory
37%
FDI by Sectors
•Chemical & Pharmaceutical Industry 17,4%
•Metal, Machinery & Electronic Industry 14.8%
•Motor Vehicles & Other Transport Equip. Industry 11
12.3%
Source: BKPM, processed
Note: data excludes oil& gas and banking
Leason learned from 2008‐2009, tax cut is the best stimulus for a country that rely on private consumption with demographic gift...
Indonesia benefits from a well diversified economy
2013 economic growth key drivers:
Q1 2013 GDP by sector (% of total)
Q1 2013 GDP by expenditure (% of total)
Source: BPS
Investment and domestic consumption remain as the two main engines of growth.
Domestic consumption boosters: stimulus policy by increasing Non‐taxable income threshold by 54%, general election, demographic dividend.
Investment boosters: infrastructure programs and continued investment climate improvement (national logistic system/NSW, Special Economic Zones/KEK), employment improvement. International Trade boosters: global demand recovery, Rupiah depreciation impact, and competitiveness improvement.
Growth
Share to Growth
2013
2012
2013
2012
Q1
Q2
Q3
Q4
Q1
GDP
6.3%
6.4%
6.2%
6.1%
6.0%
Private Consumption
4.9%
5.2%
5.6%
5.4%
5.2%
2.8%
2.9%
3.0%
2.9%
Govt Consumption
6.4%
8.6%
‐2.8%
‐3.3%
0.4%
0.4%
0.6% ‐0.2% ‐0.4%
0.0%
Investment
Q1
Q2
Q3
Q4
Q1
6.3% 6.4% 6.2% 6.1% 6.0%
3.1%
10.0%
12.5%
9.8%
7.3%
5.9%
2.3%
3.0%
2.4%
1.9%
1.4%
Export
8.2%
2.6%
‐2.6%
0.5%
3.4%
3.9%
1.3% ‐1.3%
0.3%
1.6%
Import
8.9%
11.3%
‐0.2%
6.8%
‐0.4%
3.3%
4.3% ‐0.1%
2.8%
‐0.2%
Source: BPS
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Fiscal Incentives Policy to support investment…
Tax Holiday
Investment Allowance (Tax Allowance)
 Tax Holiday is a tax facility provided for new capital invested in Pioneer Industry. It is aiming to support the development and growth accelleration of the Pioneer Industry.
 Investment Allowance is a tax facility provided for capital investment in high priority business sectors in national scale. It is aiming to support the development and growth acceleration of the selected business sectors and/or the selected locations.  The Corporate Income Tax Facilities comprise of the followings:
1) Corporate income tax relief, which is provided for a minimum period of 5 to the maximum period of 10 years, commencing from the beginning of the fiscal year of commercial production.
2) Additional reduction of 50% on the corporate income tax payable for the period of 2 years commencing from the end of year the tax relief ended. This additional facility is provided as transition period’s facility towards the implementation of full tax obligation period.  The Pioneer Industries are: 1) Base metal industries; 2) Oil refinery and/or oil and gas sourced chemical organic industries; 3) Machinery industries; 4) Renewable resources industries; and/or 5) Telecommunication equipment industries.
 From 6 companies that have applied for the facilities, 2 companies have been granted..
 The Facilities consist of the following:
1) Reduction of taxable income, amounting 30% of investment value
2) Accelerated depreciation (50% of normal case) 3) Lower tax rate of Dividend (from 20% to 10%) 4) Extended Loss Carry Forward Period (up to 10 years)  Development of sectors receiving facilities:
TaxAllowance
BusinessSectors
Business Sectorsin Certain Areas
Total
GR1/2007 GR 62/2008 GR 52/2011
53
67
52
19
34
77
72
101
129
 77 corporations have received the facility
Government Support on Infrastructure Development:
1.
Master Plan for Indonesia Economic Development and Acceleration 4.
Land Revolving Fund
2.
Infrastructure Guarantees
5.
Land Acquisition Fund
3.
Land Capping Fund
6.
Geothermal Fund facility
13
The Economists Wiggle Room Index: Indonesia has the second highest flexibility and cushion in terms of fiscal and monetary front compared to developing countries Room to Ease Fiscal and Monetary Policy*
Egypt
India
Poland
Brazil
Vietnam
Pakistan
Turkey
Argentina
Hungary
South Africa
Taiwan
Venezuela
Czech Republic
Mexico
Colombia
Malaysia
Thailand
Philippines
Hong Kong
Peru
Russia
Singapore
South Korea
Chile
China
Indonesia
Saudi Arabia
•In The Economist analysis towards 27 developing nations, Indonesia is placed second after Saudi Arabia as the nation with the highest flexibility and cushion on fiscal and monetary front. Indonesia’s position are even above the other ASEAN countries such as Philippines, Thailand and Malaysia
85
85
85
78
78
75
75
70
70
65
62
62
60
60
•Inflation, foreign exchange rates, current account, deficit as well as a well managed debt are the factors that contribute to the conclusion
55
52
50
45
•China, Chile, S Korea, Singapore, Russia and Peru are also amongst the best in the wiggle room factor
38
35
30
30
25
20
18
15
15
0
10
20
Source: The Economist, January2012
•While Egypt, India, Poland, Brazil and Vietnam are considered to have limited wiggle room
30
40
50
60
70
80
90
100
14
Policies to Address and Mitigate Crisis
Pre-emptive measures
Implementing Bond Stabilization Framework
Purchase of government
bonds by the Treasury
office and Indonesia
Investment Agency
Enhancing coordination between government
institutions and continuous dialogue with
market participants
Potential purchase of
government bonds by
State Owned
Enterprises
Purchase of government
bonds by the DMO from
accumulated cash
surplus
Implementing Crisis Management Protocol
2
3
4
Swap facility arrangements based on
international cooperation
5
Chiang Mai Initiative Multilateralization
Fiscal Buffers to prevent and
mitigate crisis
1
2
Bond Stabilization Framework
Buyback of
government bonds by
the DMO from the
state budget
1
Deferred Drawdown Option facility
Specific articles in the 2013 State Budget
Law that provide flexibility for Government
to take quick mitigation action if necessary,
with Parliament approval that has to be
given within 24 hours
Financial System Stability Coordination Forum
(FKSSK)
Financial System Stability Coordination Forum (FKSSK) will
closely monitor developments in the financial sector to prevent
and mitigate crisis possibility. FKSSK is consisted Minister of
Finance (coordinator), Governor of Bank Indonesia, Chairman of
the Board Commissioners Indonesia Financial services Agency
(OJK) and Chairman of the Board of Commissioner Indonesia
Deposit Insurance (LPS). FKSSK activities:
1.Exchange of data and information whether conducted on a
regular basis or for special needs.
2.Evaluation,
surveillance/general
analysis,
policy
recommendation in order to maintain financial system stability as
well as follow-up monitoring.
3.Simulation and Evaluation of the National Crisis Management
Protocol.
4.Human Resource Capacity Development in collaboration with
several international agencies for several areas of knowledge /
skills related to Financial Stability System.
15
Fiscal Policy to Promote Sustainable & Inclusive Development
16
Prudent and sustainable fiscal policy management...
2012E deficit comparison (% GDP)
Indonesia Fiscal Deficit (%)
0
-0.2
-0.4
-0.6
-0.8
-1
-1.2
-1.4
-1.6
-1.8
-2
-0.1
-0.5
8 years average 0.99%
-0.7
-0.9
-1.1
-1.3
-1.6
-1.7
-1.8
2005
2006
2007
2008
2009
2010
2011
2012
2013
Budget
Indonesia Debt to GDP ratio
Debt to GDP ratio comparison (%)
17
Source: Ministry of Finance, IMF
State budget is directed to improve priority areas to unleash the optimum potential of demographic dividend..
70
Education
(Rp billion)
Food Security (Rp billion)
60
50
39.7
40
46.7
54.6
60.2 65.2
47.9
30
20
23.3
10
0
2007
2008
2009
2010
Infrastructure Budget (Rp billion)
2011
2012
2013
Poverty Reduction Budget (Rp billion)
18
Social assistance program target enhances significantly...
2013
2013
Jamkesmas (Health care program)
2007
86,4 mil
of
people
2007
76,4 mil
of
people
PNPM (Community empowerment program) Rural
752 Regencies
10.922 Regencies
2013
2008
2007
2.4 mn
of very
poor
HH
720 thds
of very
poor HH
Scholarship for poor students
3,6 mn
2013
PKH (conditional cash transfer for poor households)
14,2 mn
19
Budget has been contributing in lifting up people wellbeing..
Poverty Level
Unemployment Rate
• State budget is designed under the framework of pro growth, pro job and pro poor..
• Poverty and unemployment rates have been consistently declining ...
20
The challenge is.... room for further expansion is still huge as
mandatory spending and subsidy remain high...
Central Government Expenditures (Rp Trillion, 2005 – 2013)
Social
Other
Grants
Interest Payment
Capital
Material
Personnel
184.4
200.7
Increased allocation of central government expenditure towards more productive uses
2005
2005
2013
2013
Budget
Budget
21
Source: Ministry of Finance
Thank You
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