The Indonesian government spins the country’s economic wheel with two types of policies: monetary policy and fiscal policy. In this article, the authors will only discuss the second type of policy and its details.
understand monetary policy
Fiscal policy is an economic policy that deals with how governments manage income and expenditure. as well as economic actors in general. The government has income and expenditure as well. in indonesia This policy is managed by the Ministry of Finance.
Government income is tax revenue, non-tax income. subsidies and other sources, while government expenditures such as government officials Domestic and foreign debt payments, subsidies, etc. These incomes and expenditures must be regulated in such a way that they can achieve government program goals without destabilizing state finances. in the case of Indonesia Details of these incomes and expenditures are written in the State Income and Expenditure Budget (APBN) and the Regional Revenue and Expenditure Budget (APBD).
The theory of fiscal policy was first proposed by British economist John Maynard Keynes during the Great Depression of 1929. Keynes argued that, to some extent, Governments need to stabilize the economy. Keynes’ comments contradicted the opinions of economists at the time. Most experts argued that the national economy should be based on market freedom with little government contribution.
fiscal policy objectives
1. Overcome the country’s economic problems
The country’s economic problems may vary. From stagnant economic growth to inequality, poverty and unemployment. One of the objectives of fiscal policy is to address these issues.
For example, the Indonesian government has adopted labor-intensive policies such as infrastructure development during the COVID-19 pandemic. The goal is that Indonesians can still be employed and stress-free during times of high disease and unemployment.
2. Human Resources (HR) Quality Improvement
Indonesia is one of the most populous countries in the world. And this country’s population is dominated by the working-age population (15-65), meaning it is the government’s obligation to improve the quality of this country’s human resources. with quality human resources We sincerely hope that the new generation will become the country’s economic wheel in the future. On the other hand, if human resources are poor. The new generation will become the burden of the state.
Therefore, it is not surprising that the government will implement various policies. related to human resource development, for example, pre-employment cards during the pandemic Scholarships such as Bidikmisi and LPDP for highly accomplished or disadvantaged children, and many more.
3. Price stability control
Heard of surprise checks (sidak) at traditional markets Or the first oil price policy? One price audit and policy are examples of fiscal policies implemented by governments to control the prices of goods in a country.
4. Increase economic growth
Economic growth is an indicator of a country’s economic development. This growth is generally measured by public consumption levels (C), investment levels (I), government spending (G), and net exports (exports-imports).
Usually, the higher the rate of economic growth. The better the country’s economic development, however, in general. The economic growth of developed countries tends to be less than developing countries.
Fiscal Policy Instrument
There are many tools (tools) that governments can use to implement fiscal policy. Among these tools are:
Taxes are contributions payable by a person or business entity that are included in a tax object. There are different types of taxes such as Income Tax (PPh), Value Added Tax (VAT and PPnBM), etc. Some of the taxes go into the federal treasury. Some of the taxes go into the pockets of the local government. The size of tax contributions is regulated by law. by amending the applicable law Governments can determine the size of taxes that citizens have to pay.
Taxes are the most important source of state income. In addition to taxes Governments can also find money from other sources, such as grants. taxation Payment of customs and excise duties, income from SOE, etc.
The above income tax and other sources must be remitted to the various expenditure pillars. that can support federal and regional projects This item of expenditure can be in the form of salaries for civil servants and ASNs, various infrastructure development projects, special allocation funds (DAK), general allocation funds (DAUs), coupon payments. state bondsDebt settlement of the state, etc.
Types of Fiscal Policy
1. Neutral monetary policy
A neutral fiscal policy often occurs when a country is not in a period of development or recession. In this manner, governments often make sure that the state’s income and expenditures are balanced. to avoid surpluses or deficits
2. Extensive monetary policy
Extensive fiscal policy occurs when government spending is theoretically greater than income (deficit). This type of policy should occur when a country’s economy is in repair after a recession. but in reality Almost every country in the world is implementing this policy. including Indonesia
Extensive fiscal policies are typically implemented by reducing tax revenue or increasing state spending. The logic is that if the tax is reduced There will be more money in people’s pockets that are ready to spend for business, investment and consumption purposes.
On the plus side, the country’s government can implement necessary projects such as building schools. fuel subsidies Vaccination against Covid-19, but on the negative side, foreign debt can expand. and if the control is not correct This debt could cause a crisis similar to the 1998 financial crisis.
3. Contractual Fiscal Policy
Contract fiscal policy is a type of policy that occurs when a government increases tax revenues and reduces spending. This policy is usually used when economic growth is considered too fast or the state of the country’s economy is improving. The government therefore needs to raise taxes to avoid inflation.
The logic is increased taxation or lower subsidies. People’s pocket money will be reduced. So people will reduce their consumption and investment. As a result, can suppress inflation.
Fiscal Policy Example
Here are some examples of fiscal policies:
- Tax Amnesty Policy or tax amnesty for some people reporting all their wealth.
- tax discount. Governments often use tax rebate policies. (besides tax amnesty) to revive the Indonesian economy
- Pre-Employment Direct Cash Assistance (BLT) Card Policy and other grants distributed directly in the form of cash
- reduce the cost of gas.
- Assignment Policy Regional Minimum Wage (UMR).
- Policies for purchasing goods and services for the government sector