Well-Targeted Subsidies should Become the Government's Focus

KOMPAS/FERGANATA INDRA RIATMOKO

Dozens of trucks line up to buy diesel fuel at a gas station (SPBU) on South Ring Road, Gambut District, Banjar, South Kalimantan, Tuesday (30/8/2022). Long queues of diesel buyers are becoming increasingly common at several gas stations before the implementation of the Government's plan to increase the price of subsidized fuel.

JAKARTA, KOMPAS — Raising the subsidy spending in order to maintain the prices of subsidized fuel will further burden the 2023 state budget. To maintain the function of the state budget as an economic shock absorber in a sustainable manner, policy makers need to adjust fuel prices while making sure that subsidized fuel reaches targeted recipients.

During a plenary session to respond to the House of Representatives’ general assessment on the proposed 2023 State Budget in Jakarta on Tuesday (Aug. 30), Finance Minister Sri Mulyani reiterated that if the prices of subsidized fuel were not increased, the fuel subsidies would further burden the state budget next year.

"Taking into account the trend in world oil prices, the rupiah exchange rate and the use of Pertalite and biodiesel (both subsidized fuel) that has already exceeded the quota, if subsidized fuel prices are maintained, the amount of subsidies and compensation is estimated to swell to Rp 698 trillion (US$47 billion) by the end of the year. This will become extra spending in the 2023 state budget," said Sri Mulyani.

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> Govt to Provide Social Assistance to Maintain Buying Power

Sri Mulyani acknowledged that a larger part of the fuel subsidies were enjoyed by the well-to-do people. The low-income families and underprivileged households only enjoy 5 percent of subsidized diesel fuel and 20 percent of subsidized Pertalite gasoline. If the fuel subsidies are maintained, it will be more difficult to resolve the inequality in society.

"The government continues to improve the system so that energy subsidies reach targeted recipients and give benefits to the poor and vulnerable and those who need social assistance," he said.

Efforts to ensure the fuel subsidies reach the targeted recipients, continued Sri Mulyani, will be carried out carefully, gradually and taking into account the conditions of the national economic recovery and its impact on the entire community. This process will be carried out simultaneously with the effort to seek the best solution in protecting the poor and vulnerable, maintain economic recovery and keep a healthy state budget.

The government continues to improve the system so that energy subsidies reach targeted recipients and give benefits to the poor and vulnerable and those who need social assistance.

In a public discussion themed “Finding the right way to ensure fuel subsidy reaches targeted recipients” on Tuesday, the Director for Fuel Oil at the Downstream Oil and Gas Regulatory Agency, Patuan Alfon, said that from the results of his institution's monitoring, it was found that there were many irregularities in the distribution of subsidized fuel that led to hoarding practices.

The misuse of subsidized fuel, according to Patuan, is rising when the price disparity between industrial diesel and subsidized diesel is getting wider. Therefore, supervision must be tightened and those who are involved in the hoarding practice should be reported to law enforcers.

KOMPAS/ADITYA PUTRA PERDANA

A number of cars queue to refuel at the Green Energy Station Public Fuel Filling Station (SPBU), in Denpasar City, Bali, Tuesday (30/8/2022).

Waiting for instructions

Regarding the social assistance program to cope with the increase in fuel prices, the central government has asked local governments to use 2 percent of the general transfer funds (DTU) to support the transportation sector, such as public transportation, motorcycle taxis and fishermen, as well as provide additional social protection.

The secretary of the Central Java provincial government, Sumarno, said the province was ready to allocate part of the DTU funds for social assistance. However, Sumarno did not know what kinds of social assistance programs are to be implemented by the province. The provincial government is still waiting for technical instructions from the central government.

“We need guidance from the central (government) first, then implement the program. Don't let social assistance overlap or even miss the target," Sumarno said in Semarang on Tuesday.

While waiting for further instructions from the central government, the Central Java provincial government will list the lower middle-class people as the main target of social assistance. The Central Java provincial government will also urge the public to use public transportation modes to save on fuel supply.

Also read:

> Fuel Subsidies Mostly Enjoyed by the Rich

> Fuel Price Hike and Social Protection

The North Sumatra provincial government also stated that it was ready to distribute 2 percent of the DTU funds for social assistance as requested by President Joko “Jokowi” Widodo. Social assistance will be provided to workers in the transportation sector. The North Sumatra Regional Legislative Councils (DPRD) has supported the plan.

"The North Sumatra provincial government heeds the President's directive regarding the allocation of social assistance from general transfer funds. We are preparing the scheme," head of the North Sumatra provincial government's Economic Bureau, Naslindo Sirait, said in Medan.

Transportation sector workers in North Sumatra hope to receive social assistance amid rising prices of basic commodities. "Currently, we are worried that the price of fuel will increase, especially if there are no passengers," said Adi Manalu, 32, the driver of a public minivan serving the Unimed-Pancur Batu route. (DIM/XTI/NSA/VIO/BKY)

This article was translated by Hendarsyah Tarmizi.