By Stefanno Sulaiman
JAKARTA (Reuters) – Indonesia might allocate more funds from its proposed 2026 budget to its provinces and districts to calm fears about the likelihood of local tax hikes, its new finance minister said on Thursday.
Indonesia’s parliament is currently discussing next year’s $236 billion budget proposal, which forecasts a deficit of 2.48% of GDP and regional transfers of 650 trillion rupiah ($39.50 billion), down about 25% from 2025 and the smallest in a decade.
Local leaders have criticised the cuts and warned of the potential for worsening public anger, as the funding reduction would likely force them to raise local taxes.
Southeast Asia’s largest economy has been rocked by widespread protests and unrest since late August, initially over bonuses for legislators but which later grew to include calls for a fairer tax system.
“There was uproar recently because of the (budget) cuts that led to excessive increase in land tax. We don’t want that,” Purbaya Yudhi Sadewa, who became finance minister this week, told an economic forum on Thursday, referring to the 2025 budget.
Next year’s budget proposal was prepared by the previous finance minister, Sri Mulyani Indrawati, who was sacked on Monday.
With parliament’s permission, Purbaya said he wanted to increase the regional transfer budget in 2026 to bring calm and help grow the local economy.
Purbaya told Indonesia’s president that changes to the budget proposal remain “very possible” because parliament has yet to pass it, according to a statement from the president’s office late on Wednesday.
The changes could result in a “small tweak” for 2026’s budget deficit, he said, without providing more details.
Mukhamad Misbakhun, the head of a parliamentary commission overseeing finance affairs, told Reuters lawmakers would support any potential changes in the proposal.
President Prabowo Subianto’s coalition controls around 80% of seats in parliament.
The sacking of Sri Mulyani, one of Indonesia’s longest-serving finance ministers who had won the trust of investors both at home and overseas, has revived concerns in financial markets about the potential erosion of prudent fiscal policy amid populist and costly spending plans under Prabowo.
Purbaya has said he would follow existing rules, including keeping annual fiscal gaps under the legal deficit ceiling of 3% of GDP.
($1 = 16,455.0000 rupiah)
(Reporting by Stefanno Sulaiman; Editing by David Stanway, Alexandra Hudson)
