We are relatively slow in making a response, perhaps because of too much and ineffective bureaucracy. This pandemic also raises the urgency of reforming bureaucracy as part of the post-pandemic economic transformation.
By
A PRASETYANTOKO
·6 minutes read
Like in a war, the state budget is a bullet in our hands that has not been optimally used, while the enemy\'s attacks are getting fiercer. The COVID-19 pandemic is continuing.
Although the infection rate has decreased from its record high of 54,000 cases a day on July 16, the average death rate is still above 1,000 people per day. On Friday, 1,566 people died. The government needs to consistently view the death rate and use it as a barometer; not just the daily infection rate, which relies much on the number of tests.
Meanwhile, the extension of emergency public activity restrictions (PPKM Darurat) has further worsened the country’s economic condition, so the government needs to further increase social assistance to minimize its impacts. In facing this condition, the government has increased the state budget allocation for the National Economic Recovery (PEN) program by another Rp 54 trillion (US$ 3.73 billion). However, the policy was made amid slow state budget realization.
As of July 12, only 37 percent of the total PEN funds had been disbursed, most of which were in the hands of local governments. For this reason, it is necessary to improve the disbursement of the state budget in regions with the central government’s intervention to strengthen our fight against the pandemic.
In the April 2021 edition of the World Economic Outlook of the International Monetary Fund (IMF), it is estimated that the United States’ economy will grow impressively this year by 6.4 percent or higher than the global average growth of 6 percent.
The phenomenon of developed countries having higher than the global growth is rare. The key is the ability to control the pandemic through mass vaccinations, supported by very large fiscal spending. As of July, 187 million or about 57 percent of the US population has been vaccinated.
The IMF in the report also raised its economic growth forecast for the United Kingdom from 4.5 percent to 5.3 percent, thanks to the success in vaccination programs that have enabled the country to reach heard immunity relatively quickly so that the economy can be reopened. On July 19, the country officially lifted all protocols related to COVID-19, such as bans on gatherings and mandatory mask-wearing in public places. Authorities are very confident as the vaccination rate has reached almost 70 percent of the population.
Data from the Health Ministry shows that as of Sunday, the number of Indonesians who had received the first dose of the vaccine totaled 44.4 million people, equivalent to 21.35 percent. There is still a long way to go to reach herd immunity, although efforts have been implemented to speed up the vaccination program.
Meanwhile, the only way to break the chain of COVID-19 transmission and minimize the death rate is to increase social restrictions. For that, more social spending is needed.
Compared to developed countries, such as the US and Japan, which have increased their fiscal spending in the face of the pandemic by about 15 percent of their economies, our state budget increase is relatively small at just 2.5 percent. However, our problem does not only concern the budget but also the level of its realization.
Facing the second wave of the COVID-19 pandemic, the central government has actually reacted quickly by increasing the National Economic Recovery funds from Rp 699.43 trillion to Rp. 744.75 trillion. Two sectors, namely health and social protection, received substantial injections.
Ironically, the additional spending was made in a situation where the budget realization was still relatively low. Only 25.2 percent of the funds allocated for health have been disbursed, while 43.8 percent of the social protection funds have been realized. In fact, these two sectors are the key to recovery, both in terms of health and welfare. The realization of the health budget also determines the acceleration of the vaccination program.
In supporting the extension of the emergency restriction measures, the government has allocated more funds for social protection. Among them are the addition of the Staple Food Card program, State Logistics Agency (Bulog) rice assistance program, expansion of cash social assistance, electricity discounts ( relief scheme), internet data package subsidy, additional spending for the Preemployment Cards, as well as Wage Subsidy Assistance.
The business world will also receive fiscal incentives worth Rp 62.83 trillion, in the form of reductions for income tax (PPh) 25; corporate income tax; micro, small and medium enterprises (MSME) final income tax; sales tax on luxury goods (PPnBM) for vehicles; and value added tax (VAT) for housing . Actually, the fiscal incentive instrument is quite extensive. If its implementation can be accelerated, it will certainly have a significant impact.
The increase in government spending will only be relevant if the funds can be disbursed quickly. Moreover, the fiscal space is already narrow. The state budget deficit, which should have dropped to 4 percent of gross domestic product (GDP), should be further lowered to 3.6 percent by 2022 and 2.7 percent by 2024, as stipulated in Law No. 2/2020.
Even though the fiscal space is so narrow, the size of the deficit is a (political) commitment. If indeed it is not possible to bring the level back to below 3 percent, the government needs only to make an agreement with legislators to issue a new law to revise the deficit target.
At this stage, the most important thing is the central government’s determination to speed up its budget realization. Data on the state budget realization in each region and ministry should be disclosed to the public so that open monitoring can be held, accompanied by a mechanism for sanctions on those who cannot meet the specified target. In addition, a task force that is coordinated by the central government is needed to provide assistance to regions that are given the authority to exercise administrative discretion and make the disbursement procedures more flexible.
In almost all cases, we are relatively slow in making a response, perhaps because of too much and ineffective bureaucracy. Therefore, this pandemic also raises the urgency of reforming bureaucracy as part of the post-pandemic economic transformation.
A Prasetyantoko, Rector of Atma Jaya Catholic University.
This article was translated by Hendarsyah Tarmizi.