It’s not too difficult for outsiders to get the gist of Indonesian economics. That’s because terms, like ‘administrasi, deficit, bangkrut, fiskal’ and others have been pinched from English and tweaked.
The latest is ‘omnibus law’, a favourite with President Joko Widodo in a bid to slash and compost the vines of red tape that strangle the business landscape. The problem is few understand the meaning so use their default setting – suspicion.
Labour unions are opposing government reforms designed to make investors feel easier about leaving their deposits in Southeast Asia’s biggest economy. Consolidating legislation would certainly help, though only if the public servants agree to implement.
As changes could lead to a reduction of stamping and photocopying tasks among the Republic’s almost five million bureaucrats, Widodo’s enthusiasm isn’t widely shared.
He reportedly said it would take half a century to revise each law individually, so why not make a bundle, call it an omnibus and drive it through the Parliament?
There are more than 1,200 articles in 80 laws the President thinks need to be bashed aside by the bullbar. “Start now,’ he said. ‘It could all be done in 100 working days.’
He’s about the only person who thinks that timetable practical. Workers fearing lower wages and loss of entitlements have been protesting, disbelieving government claims of more jobs through foreign investments.
Around 70 per cent of the nation’s workforce is informal; insecurity is widespread along with its twin, distrust.
The big end of town is being offered cut price tickets to jump on the omnibus. In exchange for a comfy seat business tax will drop from 25 per cent to 20 per cent within three years.
That sounds fair enough – though only till it’s remembered that many entrepreneurs have refined the art of keeping their duties, fiscal and moral, to a minimum by sending profits overseas. A lower rate on next to nothing is not a big inducement.
According to the OECD ‘tax revenues are low relative to other emerging economies … (and) compliance remains a major challenge.’ Indonesia’s tax-to-GDP ratio is 12 per cent, less than half that of Australia’s.
VAT is applied where a business keeps records. For a meal in McDonald’s, or any chrome and plastic eatery with a till, expect a tax and service charge of 21 per cent. Use a streetfood stall or local café and there are no additions. Cash still reigns – many shops won’t accept credit cards.
The omnibus bill is the latest bid to boost the tax take while reducing costs. An earlier attempt thumped the nationalism drum, appealing to the megarich to repatriate the earnings they’d parked abroad in return for dropping tax avoidance prosecutions.
As patriotism is not a relative of capitalism the results were unimpressive. At the time (2017) it was reported that only 32 million were registered taxpayers and less than nine million submitted returns. The Republic’s population is 270 million.
The government reckoned it could collect about one thousand trillion rupiah (US$ 74 billion) from two million rich listers, but got run down by reality. Less than 150 trillion rupiah was recovered from just one million citizens.
These measures, though fine in intent, don’t tackle the key issue that’s wounding the nation’s economy and international reputation.
Last year Phil Turtle, National President of the Australia-Indonesia Business Council, had the courage to be blunt. He told the Australian Parliamentary Joint Standing Committee on Treaties:
“When I’m talking to Australian businesses about contemplating Indonesia, it’s a bit like the real estate saying —location, location, location — it’s corruption, corruption, corruption.”
Indonesia ranks 89 in Transparency International’s corruption perception index. Australia is in 13th place.
Despite these flaws there’s no outward evidence of a looming financial crisis. Widodo’s first five-year term (2014-2019) was marked by huge infrastructure projects largely funded by loans from China and Japan.
Toll roads, railways, ports and airports have been built at astonishing speed. A new US $31 billion capital in Kalimantan, the Indonesian province on BorneoIsland, is being planned to replace polluted, overcrowded and sinking Jakarta. Almost 70 people have died in city floods this wet season.
Last year the nation owed US $383 billion in foreign debt, a rise of 7.2 percent on the previous year. Bank Indonesia appeared unworried, claiming the increase came from government borrowings.
This year the United Arab Emirates offered US $23 billion for more infrastructure and energy projects. The money will go into a new sovereign wealth fund, also part of the proposed omnibus laws.
Inflation seems to be under control. The government forecast three per cent last year but the figure was 2.72. Sudden food and fuel price jumps have triggered mass protests in the past so keeping the economy stable is a political necessity.
While the Anglosphere has been obsessed with the trivial doings of the regal Brits, Indonesians have been gripped by tales of oligarchs steering luxury cars around taxation roadblocks.
They’ve allegedly been hiding their Mercedes and BMWs ownerships by registering them in the names of lowly employees. Most couldn’t raise the down payment on a motor scooter yet on paper they’re proud owners of Ferraris.
Bemused foreigners might ask how these vehicles could get into the country without owners paying duty, and then escape detection when driven around Jakarta. One who didn’t was Ari Askhara, president director of the government-owned airline Garuda Indonesia.
He was sacked after allegedly smuggling a disassembled Harley Davidson motorcycle and Brompton folding bicycles on a new Airbus A330-900 being delivered to the airline. The manifest apparently listed the parts in the names of employees, but someone dobbed in the boss.
Revenge or conscience? If the latter then things are looking up.
Duncan Graham is an Australian journalist writing from Indonesia.