State coffers busted, wonder why?

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Anthony Budiawan Managing Director of Political Economy and Policy Studies (PEPS)

IO – Are “bankrupt state finances” only a figure of speech? In fact, many are of the opinion that a state cannot go bust by definition, because it has two capabilities that the private sector (companies) does not possess. First, a state is able to freely print money; and secondly, a state can “seize” wealth from the public, through taxation. 

From a different perspective, the opposite is also true: if state finances are healthy, then the state does not in fact need to take either of the above two measures to an extreme. It doesn’t need to ask Bank Indonesia to print money. In fact, this is the central bank’s prerogative as an independent institution in carrying out its duties in the monetary field. 

It also does not need to impose burdensome taxes on the public as it sees fit, let alone do so on shaky grounds, targeting communities that it is in fact supposed to be helping. 

Conversely, if state finances are effectively bankrupt, then an inept government will certainly panic and decide it has no alternative to executing the two extreme measures detailed above: printing more money and / or imposing higher taxes. That is in fact precisely what’s happening at the moment, which explains why I state the country’s state finances are effectively bankrupt. 

First, the government has asked for the help of – or perhaps more accurately commanded ¬Bank Indonesia to take part in absorbing the country’s debt interest. That is, Bank Indonesia is expected to provide interest-free loans to the government, meaning that in order to do this our central bank must “print money”. Not physically, of course, but electronically. 

This clearly reveals how state finances are in a shambles, aka bankrupt. Sound state finances, on the other hand, can fund all government expenditures, including debt interest payments. 

Meanwhile, the government continues to jack up tax and excise revenues. Ironically, these moneys are mostly taken from the pockets of a low-income public, a euphemism for poor and near-poor people. The objects sought to be taxed are also often conjured out of thin air, and often contrary to what is normally taxed in a normal country. 

Amid these financial conundra, we must salute the government’s ever-creative efforts, one being its plan to impose a bicycle tax. The whole world was astonished at this, unable to fathom why bicycles need to be taxed, considering that they emit zero carbon emissions which pollute the air. And cycling is a healthy exercise, as it boosts the immune system to fight the coronavirus. It left us wonder whether indoor stationary bicycles at fitness centers will be next. This also shows how the government is in fact panicking about the country’s bankrupt state finances. 

Furthermore, there is a plan to impose excise duty on exhaust pipes. The reason being, emissions coming out of the exhaust pipes pollute the air. So one must also pay up. 

Living in this banana republic is indeed dilemmatic. Cycling is taxed, riding a motorbike is also subject to excise. It’s like between a rock and a hard place. What more does the government want? One would ask in bewilderment. 

There is no escaping it. We already pay tax to ride a motor vehicle in the form of motor vehicle fuel tax (PBBKB) which is set at 5%. 

One reason for the imposition of this tax is because burning fossil fuels emit polluting carbon emissions. And now the carbon emission released through the exhaust pipe also sought to be taxed. So the fuel that goes into the tank is taxed, and the smoke that goes out of the exhaust pipe will also be taxed. 

To use smoking as an analogy, the cigarette is already subject to excise and the smoker will also taxed for the smoke he spews out. The reason being to protect the passive smokers and the environment from air pollution. 

Cigarette tax continues to rise every year. This year’s excise tax has almost doubled compared to 2014. This is borne by the smokers, the majority of whom are poor and near poor people. 

The question is, why should the poor victims of the cigarette industry bear it alone? Why doesn’t tobacco industry also take part in bearing the government’s financial burden? They are the culprits why many people smoke. Ironically, the cigarette companies receive income tax cuts. 

Welcome to the banana republic! Banana being one of Indonesia’s leading export commodities.