Features of Fiscal Policy

Characteristics of Fiscal Policy – ​​Talking about fiscal policy, might remind Sinaumed’s of the news that in November 2017, the world bank provided loans to Indonesia worth US$300 million or the equivalent of Rp.4.05 trillion.

This loan was disbursed to help increase regional spending, including in terms of tax policies and revenue administration.

The World Bank Representative for Indonesia, Rodrigo A. Chaves also said that this loan was provided in order to continue the significant progress that Indonesia has achieved so far. According to him, fiscal reforms must be continued so that Indonesia can fulfill all its aspirations.

Characteristics of Fiscal Policy

1. Encouraging Investment Entry

Fiscal policy has the objective of increasing economic growth and maintaining the stability of the country’s economy. One of the things that can be obtained by enforcing fiscal policy is economic stability which can increase the trust and interest of foreign investors to invest in Indonesia. Investment by foreign investors is expected to have a positive effect on the country’s economy.

2. Encouraging the State’s Development and Economic Growth

Through fiscal policy, the government can make various adjustments to state spending and revenue in the hope of achieving development and economic stability.

In general, the government through the implementation of fiscal policy will change the amount of tax which is one of the instruments of fiscal policy and has a role as a source of state revenue to finance development.

3. Providing Better Access to Various Community Services

One of the actions that the government has taken with the aim of realizing social justice is the enactment of the National Economic Recovery Program issued by the Ministry of Finance so that people in the middle to lower and vulnerable economic categories are able to survive the COVID-19 pandemic.

This makes the realization of social justice that can be felt by all Indonesian people.

Fiscal Definition

According to Sinaumed’s Besar Bahasa Indonesia, fiscal has a relationship with state income and tax matters. The word fiscal itself comes from the Latin word fiscus which is the name of someone who had or held power over finances in ancient Rome.

Meanwhile, in English fiscal is called fisc which means regulation or treasury of incoming and outgoing money in the kingdom.

So, this fiscal is used to provide an explanation of the form of state and royal income that is collected from the public as well as by the state or royal government which is considered as income and is used for expenditure with programs to obtain national income, production, the economy, and is also used as a balancing device. in the economy.

In Indonesia, the term fiscal policy refers to government policies by directing a country’s economy through government revenues and expenditures. Then, the question arises, what is the difference between monetary policy and fiscal policy? The difference lies in the purpose.

If monetary policy has the goal of stabilizing the economy by controlling the amount of money in circulation along with the interest rate, Sinaumed’s can understand fiscal policy by reading the following points.

Fiscal Policy Objectives

Broadly speaking, the objective of fiscal policy is to influence the course of the economy with the following objectives:

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1. Increasing GDP and economic growth

Fiscal policy has the aim of increasing economic growth to the maximum because it will have a major effect on state income or income, including: customs and excise, income tax, land and building tax, foreign exchange, tourism, imports, and so on.

In addition, examples of state spending in question include:

  • Development of public facilities and infrastructure.
  • Weapon shopping.
  • Government project.
  • Aircraft and other programs for public welfare.

2. Expanding employment and reducing unemployment

As Sinaumed’s already knows, unemployment is a problem that is a scourge for a country. In Indonesia, the unemployment rate has been reduced by 140,000 people.

According to the percentage of the open unemployment rate, if in February 2017 the figure reached 5.33%, in February 2022 it would be at the level of 5.13%.

3. Stabilize the price of goods and overcome inflation.

The decline in the price of an item causes the loss of hope for profit for the private sector. However, rising prices can also result in inflation.

On the other hand, inflation can provide benefits such as creating full employment opportunities. However, inflation can also have a negative impact on groups or people who have low incomes because purchasing power decreases.

The problem of unstable inflation will have great potential to reduce public trust in the government. Through fiscal policy, it is hoped that the level of national income, employment opportunities, levels of national investment, and distribution of national income will run as expected.

Fiscal Policy Instruments

Then to find out more about fiscal policy,  Sinaumed’s must also understand some of the instruments. Fiscal policy instruments are various sectors in the economy that are used by the government to maintain the stability of the macro economy. These sectors include:

1. Taxes

An important sector in fiscal policy instruments is taxes from both the domestic and foreign sectors. In order to achieve economic goals, the government can increase or decrease people’s purchasing power through taxes.

For example, if taxes are reduced, the amount of output of goods and services will also increase so that it will affect and increase people’s purchasing power. However, the opposite also applies if taxes are increased, it will reduce the output of goods and services and can reduce people’s purchasing power.

2. Expenditures

The fiscal policy instrument that Sinaumed’s needs to understand next is state spending. This is the same as the basic concept of whatever happens, even in Sinaumed’s’ own life. For example, if family income decreases, of course, Sinaumed’s will try to save money and reduce expenses so that there is a balance between income and expenses.

3. Public Bonds

The last fiscal policy instrument is regarding the issuance of bonds for citizens or bonds. These debt securities are quite well known in the field of investment, where people who have funds are offered to buy debt securities from the state, and the state will repay the debt accompanied by interest on the loan.

One of the bond products is Government Securities which are traded or Retail SBN. This letter is traded as one of the investment products. If Sinaumed’s decides to buy Retail SBN, besides getting returns through interest, Sinaumed’s will also play a direct role in financing the country’s development budget, you know !

Various Kinds of Fiscal Policy

Basically, fiscal policy is categorized into two kinds, namely according to theory and according to the amount of income and expenditure. Well, here’s the explanation,

Fiscal Policy According to Theory

1. Functional fiscal policy

Functional fiscal policy is a policy that under consideration, expenditures and receipts of the government budget are determined based on looking at various indirect effects on national income especially with the aim of increasing employment opportunities.

2. Deliberate fiscal policy

Deliberate fiscal policy is a policy enacted to address current economic problems by intentionally manipulating the budget, either through changes in government spending or changes in taxation.

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There are three forms of deliberate fiscal policy. First, creating changes to government spending. Second, creating changes to the tax collection system. Third, creating changes simultaneously both in the tax collection system and in the government management system.

3. Unintentional fiscal policy

Unintentional fiscal policy is a policy enacted to control the speed of the business cycle so that it is not too volatile. Types of involuntary fiscal policies are proposals, minimum price policies, progressive taxes, and unemployment insurance.

Fiscal policy according to the amount of income and expenditure

1. Balanced fiscal policy

Balanced fiscal policy is a policy that makes spending and revenue have the same amount. There are positive and negative impacts of this one fiscal policy. The positive impact is that the state does not need to borrow a certain amount of funds, both from within the country and from abroad. The negative impact is that economic conditions will worsen if the country’s economy is in an unfavorable condition.

2. Surplus fiscal policy

In a surplus fiscal policy, the amount of income must be higher when compared to expenditure. Surplus fiscal policy is one way that can be done to avoid inflation.

3. Deficit fiscal policy

A deficit fiscal policy is a fiscal policy that is the opposite of a surplus policy. One of the advantages of this policy is that it can overcome the sluggishness and depression of economic growth. As for the drawback, the country will always be in a state of deficit.

4. Dynamic fiscal policy

The function of dynamic fiscal policy is to provide income that can be used to meet all the needs of the government which also increase over time.

Examples of Fiscal Policy Applicable in Indonesia

There are several examples of fiscal policies that have been implemented by the Indonesian government. Among them:

1. The first fiscal policy was when President Joko Widodo announced the Tax Amnesty program in 2017. This program was launched because there were many cases of tax arrears reports and many people did not report the amount of wealth they owned. Therefore, finally President Joko Widodo decided to implement the Tax Amnesty program.

The Tax Amnesty Program is a program for the elimination of taxes owed as well as countless criminal sanctions in the field of tax administration sanctions. With this amnesty, many political parties are competing to immediately settle tax arrears as well as many individuals who immediately report the amount of their wealth to the authorities. This program can increase Indonesia’s national income against rupiah and it is proven that national income can increase up to 15.22 trillion rupiah.

2. The second is the tax relaxation that will take place from 2020 to early 2021. This tax relaxation program aims to increase people’s purchasing power.

3. An example of the last fiscal policy is gas and fuel subsidies. The purpose of this fiscal policy in the fuel sector is to facilitate mobility and economic transactions in society.

Differences between Monetary Policy and Fiscal Policy

In order to maintain the stability of the country’s economy, the government can implement two policies, namely monetary policy and fiscal policy. These two economic policies are equally important for increasing economic growth and maintaining the stability of the country.

The first difference between monetary policy and fiscal policy is in terms of different decision making. If fiscal policy is to be managed and decided by the Ministry of Finance, then the decision on monetary policy is absolutely in the hands of Bank Indonesia (BI).

The second difference can be seen from the objectives of implementing monetary policy and fiscal policy. The objective of monetary policy is to maintain the amount of money circulating in society. While the purpose of implementing fiscal policy is to maintain state revenues and expenditures in order to create economic stability.

Also read:

  • Definition of Balanced Budget: Policy to Method
  • Monetary Policy Instruments: Definition, Types
  • Macroeconomics: Definition, Purpose, Scope
  • Monetary Policy: Definition, Types, Purpose
  • Macroeconomic Theory: Definition and Key Issues
  • What is Economic Growth Theory
  • Understand the Definition, Purpose, and Scope of the Economy