The Omnibus Law carte blanche: illusion it will attract investment

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

IO – Such a sad fate for the Indonesian people. Its Government sets economic policies based on trial and error instead of comprehensive and logical reviews. Such policies are only based on intuition – one that sorely misses its mark. Or…was that actually deliberately passed in order to benefit some vested interests …? 

The economic growth target for 2015-2019 was set at 7%, but the actual achievement is in fact much lower. For example, 2015 economic growth only hit 4.9%. The Government seems to be confused – all fresh policies seemed to be based on trial and error. For example, it issued staccato Economic Policy Packages (Paket Kebijakan Ekonomi – “PKE”), basically variables of tax incentive policy meant to attract investments and force economic growth to raise to the 7% target since 2015. That’s right, not one, but several packages in succession. This peaked on 16 November 2018, when the Government issued such absurd policies in the 16th PKE that had to be revised or revoked. However, none of these packages did what they were intended to achieve. Economic growth rate in 2015-2019 only averaged 5% a year, lower than the rate marked in the previous two presidential terms at an average of 5.6% and 5.8% a year in 2005-2009 and 2010-2014, respectively. 

The Government then issued a  Tax Amnesty (TA) policy, which was in force from July 2016 to March 2017. It was a “sweet nothings” policy given out by the Government and its intellectual followers who are active in social media. The propaganda for this program was so militant, that there were blatant threats leveled against people who were reluctant to join in the scheme. TA’s overreaching promises were: First, to bring in the money stashed away by our citizens abroad back to Indonesia. This was calculated in a fantastic range of IDR 4,000 trillion to IDR 11,000 trillion. Second, to leverage economic growth very strongly. Third, to drastically increase the ratio of tax income to GDP, from 11% to 14.6% in 2019. 

None of the TA promises came to fruition. Economic growth remained at an average of only 5% a year in 2015-2019. Tax income ratio to GDP in 2019 actually went down to 9.8%. Only IDR 146.6 trillion of our money was repatriated, much lower than the propaganda. TA actually victimized money already owned domestically: The reported domestic assets totaled IDR 3,633.1 trillion, which was earned by citizens who already paid their taxes but had not submitted their Annual Tax Report – as it was not mandatory before 2008. Foreign assets reported in accordance with the TA scheme only totaled IDR 1,180 trillion, much lower than the propagandized value promised. 

PKE and TA have failed, but tax evaders are already freed from the threat of imprisonment for tax evasion. The Government, which proposed the TA scheme, and the House of Representatives (Dewan Perwakilan Rakyat – “DPR”), which approved it, remain safe. They are free from any consequences of having created policies to the detriment of the people as a whole, and rather benefit the lucky few. There is no sanction for this failure, as there is no accountability mechanism for the Head of State to the people as a consequence of their failure. The people’s constitutional rights for redress have been robbed because of the implementation of a “falsified” Constitution. Before, President Soekarno resigned because the People’s Consultative Assembly (Majelis Permusyawaratan Rakyat – “MPR”) could not accept his accountability report, as did President Habibie. 

Ooh, what miseries Indonesian citizens must face now! 

After the TA, now it is time for the Job Creation Omnibus Law farce to be played before the public. The DPR has validated the Job Creation Draft Law submitted by the Government and passed into Law on 5 October 2020. This validation was met with a wave of protests from various groups in society. Those who are pro and contra took every opportunity to hit each other, as per always. Those who are against this Law claimed that it is a detriment to the welfare of the people, most specifically laborers, workers, and farmers. Some even went on to say that the Law revives slavery in Indonesia in a more insidious, hidden form. Tragic. Furthermore, 35 global investors expressed concerns of potential damage to the environment with the implementation of this Law. 

Naturally, the Government has the perfect classic excuse as for why it would insist on getting the Job Creation Law validated. It’s the same excuse that they put out for issuing the TA policy: in order to attract as much investment as possible, whether domestic or foreign. This will generate job opportunities and improve economic growth. 

But is this true or a propaganda? Will the Job Creation Law really increase investments? Or will it be an empty propaganda designed to serve as a hidden carte blanche for some “special interests” like TA was? Is it just more sweet nothings that will end up being a failure? Will the Government and DPR dare to accept responsibility for having been so insistent on getting this Law validated, despite protests and deaths and loss of property that accompanied it? For example, by resigning? 

Our weak economy is not the result of our laws. Under the existing Law, investment growth in a previous 5-year period (2010-2014) was higher than that of the last 5-year period (2015-2019). Investment growth in 2010-2014 averaged 27% a year, much higher than the 2015-2019 average of only 10.3% a year. Foreign investment growth and domestic investment growth in 2010-2014 were 21.4% and 32.8%, respectively, also much higher than in 2015-2019 at -0.23% and plus 19.9%, respectively. This, despite the fact that during President Susilo Bambang Yudhoyono (SBY)’s final term, the same Law was relied on that Jokowi’s Government referred to in the above time periods, i.e., the Laws that had not yet been replaced by the Job Creation Omnibus Law. 

Therefore, it is highly inappropriate to blame existing regulations for the stalling of investments. The correct solution is not to replace existing laws, but to replace incompetent State administrators – the useless members of the Cabinet. Furthermore, both the Government and DPR must take responsibility if this policy – one that has caused deaths and damage to property – fails in the future. 

There must be consequences. 
Do they dare to bear them?