JAKARTA - Economist Center of Reform on Economics (CORE) Yusuf Rendy Manilet encourages the government not only to focus on labor-intensive investment in reforming fiscal incentives, but also to maintain the attractiveness of technology-based investment.
According to Yusuf, technology investment is important for long-term growth.
"If we focus too much on labor-intensive work, we could fall behind in attracting high technology investments which are actually the engines of future growth," he said as quoted by ANTARA, Saturday, April 25.
The statement was made in response to the government's policy to shift the priority of fiscal incentives from large investment value to labor absorption.
Yusuf assessed that the shift in incentives to the basis of labor absorption was appropriate in the midst of the phenomenon of jobless growth - when economic growth is not followed by labor absorption - and the continued increase in the labor force.
However, he said the policy was not enough if it was not accompanied by a strategy to increase productivity.
"If you just shift to labor intensive without a strategy to increase productivity, we risk locking the economy at a low level," he said.
He assessed that so far investment policies have emphasized the value of large projects, but it is not comparable to job creation.
In many cases, he continued, capital-intensive projects require very large investments to create one job, while the agro-based sector is able to absorb much more labor with smaller investments.
He added that many labor-intensive sectors are currently also facing global pressure, so policy approaches must be more selective and not just pursue the number of workers.
For this reason, he emphasized the importance of incentive design that touches the cost and risk of business, such as interest subsidies, labor burden relief, and support to maintain purchasing power.
However, he underlined that non-fiscal incentives such as accelerated licensing, land certainty, and infrastructure are often more decisive for investors than tax incentives.
On top of that, incentives for transformation are key, including workforce training, technology adoption, and productivity improvements.
"Without it, incentives will only be a short-term cushion," he said.
Yusuf also reminded of a number of risks from this policy, ranging from the potential for slowing down capital-intensive investments, corporate moral hazard that only pursues the number of workers, to fiscal burdens if incentives are not strictly evaluated.
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