The Government of Republic Indonesia Should End The Fuels Subsidies for Better Economic and Social Welfare

Fuel oil is one of the basic needs of many people in Indonesia. Students, teachers, doctors, salesmen, everyone, need fuel oil for their vehicle(s). Since very long time ago, Indonesian government always try to help their citizens and allocates much money to subsidize the fuels. At 2018, one-liter premium and solar fuel are charged for IDR. 6000 and IDR. 5000 (Rianto). Indonesian government hopes it could help citizens especially for those who are still in low-middle class income. However, during the implementation of fuels subsidies policy, the fuel consumption per day always exceeds the predetermined quota. It really worried government and makes them re-allocate another subsidies’ spending to fund the fuels subsidies. So far, there are so many pros and contras regarding the sustainability of fuels subsidies. Since 2014 at Mr. President Jokowi’s administration, fuel prices have been increasing as fuel subsidies decreased every year. The increase in fuel prices causes massive protests from various elements in society. That is why the decision to continue, cut, or end the fuels subsidies is always a dilemma for the Indonesian government.

A subsidy is a form of financial aid in economic sector to promote economic and social welfare. Giving subsidies generally occur in developing country where the majority of the citizens are in low-middle class income. Giving subsidies is good, however, if government allocates too much money only for fuels subsidies, it will impact negatively on another sector such as education, healthcare, and infrastructure development. Although Indonesian income per capita is low, it does not mean that fuels subsidies will help people to improve their welfare. Fuels subsidies only help people when they bought the fuel. Moreover, it also indirectly impacts people’s behavior to keep using their private vehicle. There is also a high possibility that the fuels subsidies in Indonesia are going to be mistargeted. Here, I strongly disagree if the government keeps funding the fuels subsidies for Indonesia citizens.

Indonesia economic growth and social welfare are improving, ownership of private vehicles continue to grow year by year. Mistargeted fuels subsidies could occur because everyone can buy the subsidized fuel. Low fuel prices, also make people prefer to use their private vehicles and potentially increase the traffic jams in Indonesia. Under these circumstances, Indonesia is misapplying the national budget and sacrificing another sector for useless spending. Therefore, I do believe that fuels subsidies should be ended soon by Indonesian government because it will increase the traffic jams, ruin the national budget, and lead to mistargeted government subsidies spending.

There are two possible opposite groups that would disagree if the government ends the fuels subsidies, which are ordinary citizens and Indonesia House of Representative. Ordinary citizens are people who do not understand well about economics, money allocation for subsidies, and national budgeting. The ordinary citizens will most likely protest my position as an affirmative side because by erasing the fuels subsidies it will increase the fuel price and burden the low-middle class income. Increasing prices is never popular and may lead to many social disturbances. Furthermore, it will also increase the basic needs prices because the shipping cost for those goods is also increasing. Not only ordinary citizens, the Indonesia House of Representative will also disagree if Indonesian government ends the fuels subsidies. They will explain that Indonesian government cannot completely end the subsidy for citizens because that is a part of the government responsibilities. They will also argue that the functions of government are to help and to serve its citizens by giving subsidy to keep the positive progress of economic and social welfare.

Ending fuels subsidies is purely decided by government and approved by Indonesia House of Representative. However, there is a constitution that helps both of government and Indonesia House of Representative to determine the amount of fuels subsidies. It is mentioned in Constitution No. 22 The year 2001 about Oil and Gas. The Article 28 of this constitution states that, “In determining the price of fuel, the government has a social responsibility to a certain group of people. Thus, the fuels subsidies are not for all groups.” The constitution explains that the government should make sure if the fuels subsidies are being on target. The fuels prices for each person might be different, but it will attain the main goal of fuels subsidies. Giving fuels subsidies for all people can be classified as breaking the law.

As affirmative side, the first reason why I agree to end the fuels subsidies in Indonesia is that the fuels subsidies will increase the traffic jams. At the beginning of 2018, Indonesia was the second position as the most congested countries in the world (Korosec). Many people spend three until four hours on the road every day. There are several causes of traffic problems in Indonesia, such as high population and inadequate public transportations. However, fuels subsidies also play a role in contributing to traffic jams in Indonesia. In early 2013, fuels prices were only IDR. 4,500 per liter in which extremely under the production costs (Burke). The price was a result of fuels subsidies policy where the rest of needed money covered by the government. As long as the fuel prices are still low, people (Indonesian citizen) will never be interested in using public transportations because the private vehicles are more comfortable and will less expensive in fuels. At 2013 and 2014, the former president Susilo Bambang Yudhoyono and the current president Joko Widodo cut the fuels subsidies that led to an increase in fuels prices. As fuels prices increase, people are going reduce the use of their private vehicles and shift the behavior to use more public transportations. Paul Burke who is a research fellow at Australian National University and an economist working on energy, transport, environment, and developing countries found that traffic on the highway in Indonesia decreased by 10% using the projection figures if there were no fuels subsidies in 2013 and 2014. Traffic continued to increase after reducing subsidies implementation but slower than if there were no fuels subsidies cuts. The research strengthens the evidence that fuel subsidies have a positive correlation on the traffic jams in Indonesian. When the subsidies increased, the traffic will also increase. Meanwhile, when the subsidies decreased, the traffic jams will also decrease. That is why it is substantial to consider because fuels subsidies also play a role in determining the level of traffic jams in Indonesia.    

Not only increase the traffic jams, fuels subsidies also burden the Indonesia national budget. For many years, the fuels subsidies policy is difficult to decide, whether the government should continue, cut, or end this spending. At 2014, President Joko Widodo bravely cut the fuels subsidies because he observed that it ruined the national budget spending. Fuel subsidies consumed around 25% of Indonesia national budget or 137.38 trillion in Rupiah. That is a much amount of money and if it was allocated to the infrastructure sectors, the public facilities in Indonesia will develop equally. Not only in Java, but also in some rural areas like Papua, Sulawesi, or Kalimantan. In Indonesia National Budget of 2016, the fuels subsidies spending were cut around 57.6% to IDR. 121 trillion. The money was re-allocated to another subsidies spendings such as education, healthcare, and infrastructure. Education rose to 28.3% become IDR. 424.8 trillion, healthcare rose to 76.6% become IDR. 106.1 trillion, and infrastructure rose to 103.4% become IDR 313.5 trillion (Jefriando). The data shows how impactful was the fuels subsidies to another sector spending in the national budget. What government did in 2016 was only cutting the fuels subsidies, but that policy significantly increased another sector spending’s capacity. Therefore, if the government ends the fuels subsidies, the national budget spendings will be more productive. There will be more fund to build public facilities, more fund to give educational scholarships, and more fund to provide healthcare insurances, in which directly impact to the Indonesian citizens.

Lastly, fuels subsidies could lead to a mistargeted Indonesian government spending. Need to be known that fuels subsidies that are mistargeted not only occur in Indonesia. The International Monetary Fund found that from 61% of fuels subsidies in a country that implements fuels subsidies policy, 20% benefits to the rich people. Meanwhile, as much as 19% of the fuels subsidies fall to the low-middle class income (Pradiptyo). At 2012, The Ministry of Energy and Mineral Resources of Indonesia reported that about 53% of the subsidized premium and solar consumed by private vehicles and only 3% consumed by public transportations (Pradiptyo). It shows that high-class income who mostly own the private vehicles use more than a half of subsidized fuel. Fuels subsidies make premium and solar oil to be affordable, so it reduces fuels expense for low-middle class incomee. But sadly, it also allows high-class income to use the subsidized fuels. The fuels subsidies have been mistargeting since the very beginning. Government is better to allocate funds of fuels subsidies to another sector such as education, health, or infrastructure developments. Those sectors have a better system to filter the subsidies recipi, especially in education and health sector. In Indonesia, the family card, salary details, identity card, and statement of ownership will show people economic condition easily. If the government allocates the money to those sectors, there will be no more mistargeted subsidies spending. In fuels subsidies policy, there is no system that control who can or cannot buy the subsidized fuels. It enables everyone to buy the subsidized fuels even though they come from high-class income family. Therefore, by ending the fuels subsidies policy, government subsidies spending will be more effective and will benefit more to the eligible people.

The implementation of fuel subsidies in Indonesia should be ended soon by the government since it will increase traffic jams, lead to ineffective national budget, and lead to misallocation of Indonesian government subsidies spending. A large number of vehicle users and the low income per capita of Indonesian citizens makes the government provides fuels subsidies to reduce the burden on low-middle class income. However, the provision of fuels subsidies is adversely affecting other development sectors such as education, infrastructure, healthcare, etc. Fuels subsidies have drained too much money in the national budget, but it does not improve the economic and social welfare in Indonesia. If this continues to happen, Indonesia will not become a better country. Traffic will increase, public service will not improve, and subsidies will still benefit more to the rich people. The government should end the fuels subsidies by today. Not for other things, but for the economic and social welfare progress of Indonesian citizens in the future.