## Comments on Session II: Fiscal Space Towards SDs – How to Create Fiscal Space for Future Investment Towards SDGs and Real Income Convergence

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**Canonical URL:** [Comments on Session II: Fiscal Space Towards SDs – How to Create Fiscal Space for Future Investment Towards SDGs and Real Income Convergence](https://www.imf.org/-/media/files/news/seminars/2a2_discussant_tampubolon.pdf)

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### Fiscal Space — definitions, framework, and operational challenges
- Definitions cited:
  - Ministry of Finance (Indonesia): “Fiscal Space is defined by a ratio of income which is free from earmarked programs or activities under certain purposes including employee and interest expenses.”
  - Heller (2005): “The availability of budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of a government’s financial position”
  - IMF (Nov, 2016): “Fiscal space is a multi-dimensional concept reflecting whether a government can raise spending or lower taxes without endangering market access and debt sustainability”
  - Schick (2009, 2012): “Fiscal space is the financial resources available to the government for fiscal policy, namely growth-enhancing investment in physical and human capital that governments can finance with borrowed funds without prejudicing the long-run sustainability of its fiscal position.”
- A proposed framework to assess fiscal space is worthwhile; challenges include:
  - Operationalization constraints, such as fiscal rule (deficit-based fiscal rule)
  - Indicators/considerations that are difficult to quantify
  - Inconsistency between planning and budgeting reducing efficiency of fiscal space utilization
- Examples of difficult-to-measure items in Stage 1 of Fiscal Assessment Framework:
  - Macroeconomic conjuncture
  - Structural gaps — assessment on structural reforms and infrastructure gaps are difficult to measure
  - Public investment efficiency
- Policy/priority suggestions for emerging countries (example: Indonesia) before assessing fiscal space:
  - 1. A fiscal reform, such as: tax reform
  - 2. A planning and budgeting reform, to provide a more coherent process between planning process and budgeting process

### Universal Health Coverage in Indonesia — informality, fiscal space, and sustainable financing
- Reported BPJS Kesehatan figures (contribution revenue vs. expense health insurance):
  - 2014 Contribution Revenue: Rp40,7 T
  - 2015 Contribution Revenue: Rp52,8 T
  - 2014 Expense Health Insurance: Rp42,7 T
  - 2015 Expense Health Insurance: Rp57,1 T
  - Contribution revenue cannot cover health expenses (Rp3,1 T)
  - 2014 shortfall: (Rp6,8 T)
  - 2015 shortfall: (Rp5,8 T)
  - 2016* projected shortfall: (Rp8,3 T)
  - 2017** projected shortfall continued
- Government contingent liabilities arise when there is an additional deficit Social Security Fund (DJS) Health due to deviation between target admission fees and financing program and its realization.
- Since first implementation in 2014, the financial condition of Social Security Fund (DJS) Health is deficit and is projected to continue to 2017.
- Fiscal risk source: mismatch between revenue and payment of dues to claim social security benefits; “A Mismatch Between Premium and The Claim”
- Trends in deficit budget (Rp Trillion and % GDP), preliminary figures shown:
  - Annual series (Rp Trilion): (84), (150), (212), (227), (298), (308)
  - Corresponding % GDP series: (1.14), (1.82), (2.33), (2.15), (2.59), (2.46)
  - Years indicated: 2011 2012 2013 2014 2015 2016* (with * Preliminary Figure)
- BPJS membership and government subsidy statistics:
  - 91 billion people (52,8%) — captioned in source
  - Govt. Subsidy through APBN: Rp21 T and Rp25 T referenced
  - Premium levels: Rp19.255 (premium in 2014); Rp23.000 (premium in 2016)
  - Maximum budget deficit allowed by Law No.17/2003: 3%
  - Note: Increasing premium increases burden to government budget; “Burden on Government Budget”
- UHC sustainable-financing measures to reduce fiscal burden (legal basis and actions):
  - Legal basis: Law No 40 /2004 on the Social Security; Law No 24/2011 on BPJS (Operator for Social Security)
  - To ensure sustainability of Social Security Fund (DJS) Health financing:
    - Increasing public knowledge on insurance scheme
    - Improving health condition by health prevention and promotion -> Germas (Gerakan Masyarakat Hidup Sehat) and awareness of traditional medicine to improve wellness and well-being
    - Reducing moral hazard
    - Improving UHC management to ensure sustainable payment of the member

### Financing the SDGs, incentives, and multilevel governance — South-South examples and lessons for Indonesia
- Indonesia tax revenue context and SDG target:
  - Current tax revenue: around 10-11% of GDP
  - Indonesia SDGs target: tax revenue ≥12% of GDP in 2019
  - Time series % Tax of GDP in Indonesia (years and values shown):
    - 2010: 10.5
    - 2011: 11.2
    - 2012: 11.3
    - 2013: 11.3
    - 2014: 10.9
    - 2015: 10.7
    - 2016: 10.5
    - 2017*: 10.2
    - 2018*: 11.0
    - 2019**: 12.0
    - Note: * = Projection; **= target for SDGs
- Identified main problems in developing countries affecting revenue mobilization (adapted from Carnahan (2015) and Fakile et al. (2014)):
  - 1. Trade liberalization: cut tariff means less revenue
  - 2. Transfer pricing and Illicit Capital Flight due to Financial liberalization
  - 3. Personal income tax limited role due to political and administrative difficulties and high level of tax evasion
  - 4. Limited capacity of tax authority: tax leakage due to poor functioning tax authorities
  - 5. Large informal economy: under–taxed or completely untaxed
- Progress reported for Indonesia:
  - Removing energy subsidies: in 2017 the government will remove electricity subsidies for 450 and 900 KVA subscribers
  - Tax amnesty program is entering the third phase
- Current progress of Tax Amnesty Program in Indonesia (RpTrillion) — monthly repatriation and revenue data shown (values per month in source figure):
  - Juli: 0.0 repatriation / 0.0 revenue
  - Agustus: 2.2 repatriation / 3.0 revenue
  - September: 83.0 repatriation / 89.8 revenue
  - Oktober: 0.3 repatriation / 0.9 revenue
  - November: 1.9 repatriation / 1.1 revenue
  - Desember: 52.7 repatriation / 8.3 revenue
- Key lesson emphasized: a continued national tax reform is needed by Indonesia to support Sustainable Development

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_Source: https://www.imf.org/-/media/files/news/seminars/2a2_discussant_tampubolon.pdf_