DIGIVESTASI - Tauhid Ahmad, an economist from the Institute for Development Economics and Finance (Indef), believes that a maximum fiscal deficit limit of 3% of GDP is the most ideal figure for a developing country like Indonesia. He argues that even though the government has the authority to amend the fiscal deficit rule under Law No. 17/2003 on State Finance, maintaining a deficit below the 3% maximum limit should be upheld and continued.

"This law can be amended by the government. However, for a developing country like ours, not a developed country, that limit is the most rational considering the economic capacity to pay off debts," he said at the Parliament Complex on Wednesday (10/7/2024). Tauhid explained that this is crucial because Indonesia's tax ratio to GDP is still very low, below 11%.

If the state budget deficit is widened, there is concern that the government would end up paying principal and interest on debts by adding more principal and interest debts. Expanding the fiscal deficit without increasing the tax ratio could lead to a surge in government debt withdrawals.

"[The deficit] can be increased above 3%, but can the tax ratio be increased as well? If the tax ratio remains the same while the deficit is increased, then the debt ratio will explode. Maybe in 1-2 years [the debt ratio] will be above 40% of GDP, and it could surpass 60% in 5 years because there is no effort to increase the tax ratio," he explained. It is known that the upcoming administration team plans to consider removing the 3% budget deficit limit of GDP. According to Bloomberg, the plan to remove the 3% budget deficit limit emerged as the incoming administration seeks greater flexibility for spending.

In a different occasion, Chairman of the House of Representatives Budget Committee (Banggar) Said Abdullah stated that the upcoming government or President-elect Prabowo remains committed to keeping the state budget deficit level below the 3% GDP limit. "As far as I know from Mr. Prabowo's team, as the President-elect, specifically for the State Finance Law, the deficit commitment remains at 3%, there have been no changes, and this is based on my interactions with Mr. Prabowo," he said. He emphasized that the maximum state budget deficit limit of 3% of GDP is important to maintain fiscal health and sustainability, given the increasingly heavy challenges facing the state budget in the future.