This includes increased spending of US$231.5 billion and a fiscal deficit of 2.68%
[JAKARTA] Indonesia’s parliament on Tuesday (Sep 23) approved President Prabowo Subianto’s 2026 budget, which includes increased spending of US$231.5 billion and a fiscal deficit of 2.68 per cent, as the leader moves to accelerate growth in South-east Asia’s largest economy.
While the economy has expanded at around 5 per cent annually in recent years, Indonesian governments have struggled to boost expansion. Prabowo, an ex-military commander, has pledged to take growth up to 8 per cent.
“For high economic growth, the state budget acts as a catalyst driving the private sector as the main driving force,” finance minister Purbaya Yudhi Sadewa said in his speech following the parliamentary approval.
Prabowo appointed Purbaya this month to replace Sri Mulyani Indrawati, who was seen as fiscally conservative and risk averse even as the US$1.5 trillion economy remained reliably stable.
The budget, the first underwritten by Prabowo’s administration, assumes economic growth of 5.4 per cent, compared with a 2025 target of 5.2 per cent, and targets revenue of US$189.29 billion, about 10 per cent higher than in 2025.
Spending for 2026 was expected to be 9 per cent higher than the estimated total spending for 2025 as Prabowo nearly doubled spending for free-meals to 335 trillion rupiah (S$25.7 billion) as well as an estimated 30 per cent increase in defence spending.
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“The state budget will be optimised for social justice, it must be effective in maintaining purchasing power, creating jobs, and growth should be more evenly distributed,” Purbaya said.
He added that the government would step up tax collection, taking action against tax evasion and to collect taxes from major debtors.
“I will achieve a faster economic growth and higher tax revenues. So I shouldn’t have to take too much debt,” he told reporters at a press conference later.
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Purbaya estimated a percentage point increase in economic growth would lead to around 220 trillion rupiah or more in additional government income.
The budget deficit for 2026, which in nominal terms is 689.15 trillion rupiah, is higher than the original proposal in August of 2.48 per cent of gross domestic product when Sri Mulyani still had the finance minister’s job.
The rise is due to higher spending for regional governments. However, it would still be lower than this year’s forecast of 2.78 per cent.
Teuku Riefky, an economist from the University of Indonesia, said a widening deficit would not pose a problem as long as it remained below the 3 per cent legal limit and was used for productive spending.
“The problem is now a lot of spending is being used for populist and non-productive programmes, such as free-meals and red-and-white cooperatives … these kinds of spending often have no positive impact on tax revenue,” he said.
The parliament also approved a list of priority Bills for 2025 and 2026, which includes Bills on a tax amnesty, patriot bonds, and state finances.
There was no further detail on the Bills as discussions were only due to start after Tuesday’s budget approval. REUTERS
