Each expert is not the same in providing an understanding of what is meant by fiscal policy. According to Samuelson (2009), fiscal policy is the process of determining taxes and government spending in order to help reduce fluctuations in the economic cycle and help to maintain economic growth, high employment opportunities, and free the economy from high or volatile inflation. Meanwhile, according to Parkin (2012), fiscal policy is the use of the state budget to achieve several macroeconomic goals, such as full employment opportunities, sustainable long-term economic growth, and price level stability. From several definitions of fiscal policy from experts, it can be seen several important aspects that normally must be present in a fiscal policy, namely: 1) resource mobilization; 2) accelerated economic growth; 3) increasing employment opportunities; 4) minimizing inequality; and 5) price stability.
If we pay attention, the definition of fiscal policy contains the tasks and functions that should be carried out by a country (government) with the people as the main target of the policy. Thus, fiscal policy is an important instrument for most countries in the world to protect and improve the welfare of their people. For the majority of countries, both developed and developing countries, the five aspects of fiscal policy mentioned above have become routine tasks with a different focus of attention according to the conditions of the country. In developed countries, whose economies and administrative systems have been established, fiscal policy has become the main instrument for mobilizing resources and increasing employment opportunities. In this group of countries, economic growth has generally been stagnant (mature), income inequality has been resolved, and price volatility is almost non-existent. Meanwhile, in developing or poor countries, fiscal policy is still focused on instruments to pursue economic growth, reduce income inequality, and overcome price volatility as a priority. Generally, the most dominant source for funding various programs and projects for implementing fiscal policy is the state budget (APBN). It can even be said that the APBN is the main motor of fiscal policy. Without the APBN, the state cannot do much to achieve goals in the fiscal field. The bigger the budget, the greater the government’s ability to implement its fiscal policies.
The term fiscal policy was created to distinguish it from the term monetary policy. Both are state policy duo that run in parallel (simultaneously) because each has a different regulatory domain or area. Monetary policy has a regulatory domain related to the financial system that can affect a country’s macroeconomic conditions. The economic variables that are of concern to this policy are generally: money supply, domestic currency exchange rates, interest rates, inflation rates, foreign exchange flows, and supervision of the banking industry. Meanwhile, outside these variables are generally the domain of fiscal policy. If fiscal policy pivots on the state budget which is managed by the government, then monetary policy relies heavily on foreign exchange and public funds in the financial system. Monetary policy drivers are in practice run by the central bank.
Furthermore, this paper will discuss the practice of fiscal policy applied in Indonesia, especially during the Corona Virus Disease 2019 (Covid-19) pandemic. We both know that the virus outbreak that hit the world began in China around the end of 2019. Nobody expected that this virus would spread so quickly throughout the world, including Indonesia. In Indonesia, cases of positive Covid-19 sufferers were first discovered in Jakarta in March 2020. Since then, slowly but surely, the number of cases of Covid-19 sufferers in Indonesia has continued to creep up. Because this virus spreads rapidly from human to human, of course the safety of the human soul is of utmost importance. Therefore, the Government of Indonesia responded to this situation by implementing a Large-Scale Social Restriction (PSBB) policy, in which meeting activities between citizens were limited. The health protocol must be obeyed by all citizens with the threat of sanctions for not heeding it. As a result, the intensity of transactions and interactions between citizens has been greatly reduced. The impact is of course on the economic side of the residents. Initially, the effects of the deteriorating economic life of the residents were felt locally. However, gradually the negative impact of the pandemic began to spread to the national economy. If the Government does not take drastic recovery steps quickly, our country may be able to repeat the economic crisis that hit more than two decades ago. In fact, the current potential crisis could be even more severe than in 1997 because it concerns the safety of the human soul (health).
The Indonesian government does not seem to stand idle by seeing the country’s situation which is getting worse day by day. The government views that the spread of the Covid-19 pandemic could have an impact and threaten Indonesia’s economic growth, among others due to reduced state revenues and global economic uncertainty. This requires extraordinary policies and measures in the field of state finance, including in the areas of taxation and regional finance, as well as the financial sector. No need to wait long, 31 March 2020 The government issued Government Regulation in lieu of Law (Perppu) No.1 of 2020 concerning State Financial Policy and Financial System Stability for Handling the Covid-19 Pandemic and or in the Context of Facing Threats Endanger the National Economy and or Financial System Stability, (hereinafter referred to as Perppu 1/2020). The Perppu takes effect immediately at the time it is issued. The purpose of Perppu 1/2020 is to regulate as well as provide a sufficient legal basis for the actions of the Government and related institutions to overcome urgent conditions in the context of saving health and the national economy due to the Covid-19 pandemic, with a focus on health spending, social safety nets, as well as the restoration of the affected business world.
The government has parameters that if it is estimated that a decline in economic growth reaches 4 percent or lower, depending on how long and severely the spread of the Covid-19 pandemic affects or even cripples people’s activities and economic activities, then it is time for extraordinary steps to be taken to save state finances and the financial system. According to the Government, disruption of economic activity will have implications for changes in the posture of the 2020 State Budget, both in terms of state revenue, on the side of state expenditures, and on the side of financing. Less than two months since Perppu 1/2020 came into effect, the Government together with the DPR agreed to ratify the Perppu into Law Number 2 of 2020 which took effect May 18, 2020. With the status upgrade from Perppu to Law, of course the Government’s efforts to save state finances and the financial system has become easier because it has received strong political support from the parliament.
Law Number 2 of 2020 actually contains two policy domains in the economic sector, namely fiscal and monetary policies. This shows that there is good synergy and coordination between the fiscal and monetary authorities in the country. Both have the same view that the Covid-19 pandemic has the potential to threaten the country’s economy so that it must be faced together and mutually support one policy with another. Fiscal policy concerning the sector of state finance as regulated in the Law includes: state revenue policy including policies in the field of taxation, state expenditure policies including policies in the field of regional finance, and financing policies. Meanwhile, monetary policy related to financial system stability includes policies to address financial institution problems that endanger the national economy and or financial system stability.
In the fiscal sector, there are many policies that can be carried out by the Government through stipulation under the legal umbrella of Law Number 2 of 2020. All of these policies are focused on handling the impact of the Covid-19 pandemic. In the state financial sector, the Government with the authority in the field of budgeting and financing, among others: can set a limit for the budget deficit to be larger than what was applicable during normal situations, adjust the amount of expenditure and shift the budget to be more flexible, issue government bonds specifically for handling Covid-19 , determining sources of budget financing, and prioritizing budget allocation for specific activities (refocusing). For policies in the field of taxation, the Government can do several things: adjust the income tax rates for domestic entities and permanent establishments, determine tax treatment in trading activities through an electronic system (PMSE), extend the time for exercising rights and fulfilling tax obligations, and providing customs facilities. in the context of handling emergency conditions as well as restoring and strengthening the national economy.
In accordance with the mandate of the law, the government is given the task of making efforts to restore the national economy. This task is implemented in the form of the issuance of Government Regulation (PP) 23/2020 which is also the basis for the Government to run the National Economic Recovery Program (PEN). Among other things, the PP regulates that the Government can carry out an economic recovery program through the allocation of state expenditures, one of which is by providing interest subsidies for groups of ultra-micro, micro, small and medium business actors affected by Covid-19 and have restructured their credit at banks, banks rural banks (BPR) and finance companies. PEN program funding can be sourced from the APBN and / or other sources. The PEN program basically aims to protect, maintain and improve the economic capacity of business actors in the real sector and the financial sector, including the micro, small and medium enterprises (MSMEs).
At the level of government management, in order to ensure that the PEN program runs according to its objectives, the principles for implementing the PEN program in Government Regulation 23/2020 consist of: the principle of social justice, as much as possible for the prosperity of the people, supporting business actors, implementing policy principles full of prudence, as well as good governance, transparent, accelerated, fair and accountable, not creating moral hazard, and sharing risks and costs among stakeholders. It also stipulates that in the interest of accountability, the Minister of Finance reports the implementation of the PEN Program periodically to the President. Meanwhile, for supervision and evaluation of the implementation of the PEN Program, the Financial and Development Supervisory Agency (BPKP) is assigned the task of carrying out internal oversight of the implementation of the PEN Program in accordance with its duties and functions. (Ministry of Finance Press Release)
Until now, the Government has prepared a budget of 695.2 trillion rupiahs specifically for the PEN Program (Liputan6.com, 29 September 2020). There are six main programs that are funded by PEN funds, namely: health, social protection, sectoral Ministries / Institutions and Local Governments, business incentives, MSME support, and corporate financing. From the explanation above, it can be seen that in the practice of implementing fiscal policy in Indonesia, the role of the budget (APBN) is very dominant. It is inconceivable that if there is no APBN funding support, it is certain that fiscal policy will be paralyzed, aka it cannot be implemented. Moreover, in the current situation of handling the impact of the Covid-19 pandemic, where it can be said that the economic sector is dying, the most nutritious intake to increase people’s purchasing power is through direct cash assistance and people’s business capital. Again, this assistance requires fresh money, which inevitably relies heavily on the state treasury from the state budget. So it can be concluded that the role of the budget in implementing fiscal policy is very important.