Indonesia parliamentary body approves higher spending for incoming govt

By Stefanno Sulaiman

JAKARTA (Reuters) -Indonesia's key parliamentary budget committee approved on Tuesday increased spending for the incoming government of President-elect Prabowo Subianto, who is set to take office next month.

The committee approved a 6% rise in spending to 3,621.31 trillion rupiah ($236.2 billion), versus an estimate of 3,412.2 trillion rupiah in 2024, its chair said.

The budget accommodates key programmes of the new government, including a free meal policy for kids which will cost 71 trillion rupiah, free health check-ups, building hospitals and renovating schools, and food security initiatives.

Prabowo sees these programmes as necessary to help meet his target of lifting economic growth to 8% from 5%.

"The 2025 budget was designed to support an effective government transition," Said Abdullah told a parliamentary meeting.

A wider parliamentary vote scheduled for Thursday, Sept. 19 to approve the committee's decision is still needed, though it usually endorses the decision.

The country's 2025 fiscal deficit was maintained at 2.53% of GDP, smaller than this year's outlook at 2.70%, as revenues are expected to rise by 7.2% to 3,005.1 trillion rupiah next year.

Prabowo aims to increase Indonesia's tax to GDP ratio to 18% from around 10% through the establishment of a specialised body, or state revenue agency.

In his maiden budget, the revenue target from taxes, customs and excises, was set at 2,490.91 trillion rupiah in 2025, 12.3% more than the 2,218.4 trillion rupiah expected to be raised this year.

The revenue target does not factor in a potential value-added tax rate increase to 12% from the current year at 11%, the committee chair said, adding the hike will be discussed again between the state and parliament next year.

BMI, a unit of Fitch Solutions, said in its Sept. 5 report that Prabowo's fiscal targets are too ambitious, saying the deficit forecast might widen to 2.8% or near the legal ceiling at 3% due to potentially higher spending.

The approved budget assumes the economy will grow 5.2% next year, just above 5.1% in the current year's outlook, while inflation is expected to be maintained at 2.5% for 2025.

Prabowo will start his five-year term on Oct. 20.

($1 = 15,330.0000 rupiah)

(Additional reporting by Ananda Teresia; Editing by John Mair and Jacqueline Wong)