Gov’t Issues Fiscal Policy Regulation Amidst COVID-19 Outbreak
Date 31 Maret 2020
As part of the Government’s measures to maintain public health and to save national economy and its financial system stability amid the COVID-19 outbreak, President Joko “Jokowi” Widodo has signed Government Regulation in Lieu of Law (Perppu) on State Financial Policy and Financial System Stability.
“The regulation aims to provide legal base for the Government, banking authority, and financial authority to take extraordinary measures to maintain public health and to save national economy and its financial system stability,” the President said in an online press conference aired from the Bogor Presidential Palace, Tuesday (31/3).
Several government policies based on the Government Regulation in Lieu of Law that has been signed by President Jokowi are as follows:
First, the Government has decided to provide Rp405.1 trillion additional expenditure and financing in the 2020 State Budget for handling the ongoing COVID-19 outbreak.
“The budget allocation includes Rp75 trillion for spending in health sector, Rp10 trillion for social protection, Rp70.1 trillion for tax incentives and stimulus for micro credit program (KUR), and Rp150 trillion for financing the national economic recovery program, including credit restructuring and business financing for micro, small and medium businesses,” the President added.
Second, health sector budget will be prioritized for the protection of health professionals, especially for purchasing personal protection equipment (PPE), test kits, reagents, and ventilators, upgrading referral hospitals including the Wisma Atlet, incentives for doctors, nurses, and hospital professionals, death benefit for medical personnel, as well as handling other issues in health sector.
Third, social protection budget will be prioritized for beneficiaries of the Family Hope Program (PKH), which increase from 9.2 million families to 10 million families and for Staple Food Card beneficiaries which increase from 15.2 million to 20 million beneficiaries.
“The social protection budget will also be allocated for Pre-Employment Card. The budget for the program has increased from Rp10 trillion to Rp20 trillion and covers approximately 5.6 million people affected by layoffs, informal workers and micro and small business owners,” the President said, adding that the budget is also allocated to provide three-month free electricity for 24 million 450 VA customers and 50% discount in three months for 7 million 900 VA customers.
“The Government also provides Rp25 trillion budget for staple food supply,” President Jokowi said.
Fourth, the Government provides economic stimulus for MSMEs and businesses sector by eliminating income tax for workers in manufacturing sector with maximum income of Rp200 million and eliminating import Value-Added Tax (VAT) for taxpayers.
“The Government also provides 25% reduction of income tax for small and medium industries in 19 specific sectors,” the President said, adding that the Government will accelerate VAT refunds in 19 specific sectors to maintain business liquidity.
“The Government will cut corporate income tax rate from 25% to 22% and provide six-month postponement for principal and interest payments of all KUR debtors who are affected by COVID-19,” the President stated.
Fifth, in the non-fiscal sector, the Government will implement several policies, namely simplification of export restrictions, simplification of export limited restrictions and acceleration of services in export-import process through national logistic ecosystem.
The policies aim to guarantee the availability of goods, including raw materials for industries.
President Jokowi went on to say that the Government, central bank Bank Indonesia (BI) and the Financial Services Authority (OJK) will implement a policy mix in monetary and financial sector to support and maintain national economic stability.
“Bank Indonesia has issued a monetary stimulus policy through a triple intervention policy and has lowered reserve requirement ratio for foreign exchange in commercial banks,” the President said, adding that the central bank has also expanded underlying transactions for foreign investors and the use of global and domestic custodian banks for investment activities.
The President further said that the Financial Services Authority has issued several policies, including one-year postponement of credit or leasing payments for loan up to Rp10 billion for MSMEs and informal workers as well as postponement of credit or leasing payments without ceiling limits in accordance with the debtors’ ability to pay the credit and the agreement with banks or leasing companies.
The regulation, the President added, also aims to provide legal base for the possibility of a budget deficit that is estimated to reach 5.07%. The fiscal deficit relaxation will apply for three years until 2022, he added.
“Starting from 2023, we will return to the fiscal policy with maximum of 3% deficit,” the President stated.
The President expressed hope that the Government Regulation in Lieu of Law will be immediately approved by the House of Representatives (DPR).
“We will immediately submit the regulation to the DPR for its approval,” the President concluded. (FID/EN)
Translated by: Ridwan Ibadurrohman
Reviewed by: Muhammad Ersan Pamungkas