Prabowo's 2025 State Budget

WE can be optimistic looking at the financial policies of Prabowo Subianto, at least for the first year of his administration. The way the president-elect plans to run the state’s finances through his economic team, which is included in the cabinet of President Joko Widodo, is reflected in the 2025 State Budget’s Financial Note.

This report states that the government is targeting tax revenues of Rp2,198 trillion, an increase of 10 percent compared to the 2024 budget. This is the highest target in history. Total revenues could increase to Rp2,490 trillion if duties are included.

With assumed economic growth of 5.2 percent and inflation at 2.5 percent, plus or minus 1 percent, this target is fairly conservative. This means that on paper, it can be achieved. This is providing the policies of Prabowo’s administration to support economic growth.

The plan to increase value-added tax (VAT) to its previous value of 12 percent, for example, could be counterproductive given that it will reduce people’s buying power. Another example is Prabowo’s ambitious promise to increase the tax ratio to 23 percent of gross domestic product (GDP)—at present it is 10 percent.

This is because there are only two ways to increase tax revenues, namely either increase the range of goods and services subject to tax and the number of taxpayers, or increase tax rates. High tax rates will automatically reduce the income that taxpayers—both individuals and organizations—can spend. This eventually has a negative impact on the economy.

Regarding state spending, the Financial Note states that central government spending will be Rp2,693 trillion in 2025. This is the second highest figure in the last five years, after 2022, when the government ramped up spending to bring about economic recovery after the Covid-19 pandemic.

Prabowo is proposing eight programs with fast results, including free nutritional meal for school children, nutritional assistance for under-fives and pregnant women, and an increase in salaries for civil servants, Indonesian military and police personnel and state officials. These are clearly high spending programs. Therefore, some are concerned that the state budget will be entirely used up.

The fact is that although it was an icon of Prabowo’s campaign in the 2024 election, the free nutritional meal program will only cost Rp71 trillion. This is far less than the original desired figure of Rp450 trillion. There is an increase in defense and security spending of 12.3 percent, equivalent to Rp40 trillion—in previous years it was less than 5 percent. But this funding is not all being used to buy major weapon systems.

The details of government spending based on function in the Financial Note show that defense and security spending will be Rp372.2 trillion. This is the combined allocation from the Ministry of Defense and the Indonesian National Police at Rp291.1 trillion. This means there is around Rp81 trillion of defense and security spending spread around other ministries or state institutions. This is also true of spending on education—at 20 percent of the state budget—which is spread around all the ministries, and includes the free nutritional meal program.

Another important point in the Financial Note is the deficit. The 2025 Draft State Budget deficit will be Rp61 trillion, or 2.53 percent of GDP. With this relatively small deficit, the government plans to acquire new loans of Rp775.9 trillion, especially to refinance loans due for repayment—totaling Rp899 trillion in 2025.

With this financial posture, providing Prabowo is consistent and disciplined in implementing it, we can hope that the economy will have a brighter outlook compared to that during the Jokowi administration.