By KUSNANDAR & CO., Attorneys at Law – Jakarta, INDONESIA
The Indonesian
government’s decision to raise the projected budget deficit to 2.68 percent of
GDP in the 2026 state budget marks a deliberate shift toward a more progressive
yet disciplined fiscal posture. This move reflects an important transition—from
a conservative, risk-averse approach to a more assertive use of fiscal
instruments to drive economic recovery and transformation.
In the face of a
complex global environment—marked by economic slowdown, geopolitical
volatility, and persistent energy shocks—Indonesia can no longer rely solely on
fiscal prudence. The state budget must serve not just as a stabilizer, but as a
strategic driver of structural change. The recent stimulus packages, amounting
to over Rp16 trillion, along with the Rp200 trillion allocated to the “Koperasi
Merah Putih” program for grassroots cooperative financing, illustrate this
intention. These initiatives target underserved sectors, aiming to unlock
inclusive growth through accessible, low-interest financing.
However, ambition
alone does not guarantee success. The impact of such interventions will
ultimately depend on the quality of implementation. Weak distribution mechanisms,
bureaucratic inefficiencies, and local institutional gaps could distort
intended outcomes, leaving communities behind and amplifying inequality. A
stimulus that fails to reach its target not only wastes fiscal space, but also
erodes public trust in government spending.
Meanwhile, efforts
to modernize the tax system signal Indonesia’s alignment with evolving global
standards. The adoption of a 15 percent global minimum tax on multinational
corporations, alongside tighter regulations on digital and crypto transactions,
is commendable. These measures aim to broaden the national tax base and secure
fair contributions from sectors that have historically operated beyond the
reach of conventional taxation. Still, these policies must be supported by
stronger tax administration, enhanced digital infrastructure, and improved
regulatory enforcement. Without these institutional foundations, the potential
for increased revenue could be compromised by loopholes and non-compliance.
Monetary-fiscal
coordination remains a critical dimension of macroeconomic management. As the
government steps up public spending to stimulate domestic demand, Bank
Indonesia faces mounting pressure to maintain inflation control and currency
stability—particularly in an era of high global interest rates and volatile
capital flows. Policy coherence between fiscal expansion and monetary restraint
must be carefully calibrated. This requires not only technical coordination,
but also a unified strategic vision to sustain macroeconomic resilience.
Equally important
is transparency. A progressive fiscal agenda cannot succeed without public
accountability. Citizens have the right to know not just how much is being
spent, but what outcomes are achieved. Transparent budgeting, open-access data
platforms, and independent oversight must become the norm, not the exception.
Public confidence is a crucial factor in ensuring the legitimacy and
effectiveness of fiscal policy—especially when that policy involves a widening
deficit.
The government’s
current fiscal stance signals a readiness to move beyond the short-term goal of
economic recovery and toward the longer-term objective of economic
transformation. This is a necessary pivot. Yet fiscal courage must be matched
by institutional reform. Spending must shift from routine consumption to
productivity-enhancing investment: in education, innovation, infrastructure,
and the green economy. Budgetary ambition must be backed by governance
capacity.
What lies ahead is
not merely a test of technical soundness, but a test of political will. Will
the government stay the course and deliver fiscal reform that empowers rather
than pacifies? Will the stimulus be channeled toward real productivity, or will
it be captured by inefficiencies and elite interests? These questions are not
just fiscal—they are political, and they demand honest answers.
The move toward a
more active and progressive fiscal policy is a welcome development. But its
ultimate value will be measured not by the size of the deficit, but by the
quality of its execution and the sustainability of its impact. In this,
Indonesia is not just spending more—it is making a statement about the kind of
economy it wants to build.
K&Co. - September 22, 2025
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