Maintaining The State's Economic Stability, What Is Fiscal Policy?

Illustration (Pinterest/Slade)

YOGYAKARTA - In state life, the economy is one of the main foundations that determine people's welfare. Each country has certain instruments to keep economic conditions stable and developing. One of the most important instruments used by the government is fiscal policy.

The term fiscal policy is often used in various economic reports and public discussions. However, not everyone really understands what fiscal policy is and how its role affects people's daily lives.

The following will be discussed in full regarding fiscal policy, starting from understanding, the purpose of its application, its types, to examples of its implementation in Indonesia. By understanding this, the public will be more aware of how the government's decisions regarding state finances can affect national economic stability.

In terms of fiscal policy is a policy issued by the government to regulate state finances and income. This concept was first introduced by John Maynard Keynes after the Great Depression event in 1929. Keynes emphasized that the government has the right to regulate state spending and income by setting taxes and macroeconomic policies.

According to the Financial Services Authority (OJK), fiscal policies cover everything related to taxation, receipt, receivable debt, and government spending. The main goal is to maintain economic balance and create sustainable growth. In other words, fiscal policies help the state to regulate the flow of money so that there is no inequality that can trigger a crisis.

In Indonesia, the implementation of fiscal policies has existed since the Dutch colonial period through the 1944 Indische Comptabiliteitswet (ICW). After the 2003 reform, fiscal policy no longer refers to ICW, but is based on a national economic analysis based on the 1945 Constitution. The Indonesian Ministry of Finance and the President have full authority in its preparation.

Fiscal policy is not only regulating the income and expenditure of the state, but also has various strategic goals. First, this policy aims to maintain and develop the country's economy. With the right regulations, all economic sectors from corporations to MSMEs can grow in a balanced manner.

The second goal is to maintain the stability of goods prices in the market. Unstable prices of goods will burden the community and have the potential to cause inflation. Therefore, the government uses fiscal policies to control prices so that they remain affordable for all levels of society.

The third goal is to create a conducive investment climate. With the right fiscal policy, investors will feel more confident in investing in Indonesia. In the end, this will boost economic growth while increasing state revenue from the tax sector.

Fiscal policies can be divided into several categories. In terms of theoretical terms, fiscal policies consist of three types, namely functional, intentional, and incidental. Functional policies usually have long-term impacts, such as providing scholarships or support for start-ups.

Fiscal planning policies are generally issued to overcome crises, such as the APBN allocation for the health sector during the COVID-19 pandemic. Meanwhile, incidental policies arise without special planning, for example setting the highest retail price (HET) in order to maintain market stability.

In terms of implementation, fiscal policy is divided into expansionary and contractive. Expansive is carried out when the economy weakens, by increasing state spending and reducing taxes. On the other hand, contractive taxation is applied to reduce inflation by reducing government spending and increasing taxes.

When viewed from the balance of payments, fiscal policies are divided into four, namely balanced, surplus, deficit, and dynamic. Each has a different goal according to the country's economic conditions. For example, deficit policies are adopted when spending is greater than income, usually by doing foreign debt.

The latest example of fiscal policy in Indonesia is the step taken by the Minister of Finance Purbaya Yudhi Sadive. He poured Rp200 trillion from government funds stored in Bank Indonesia to commercial banking. The main goal is to strengthen liquidity and accelerate the pace of economic growth.

With this policy, banks have larger funds to be channeled as credit to the real sector. This has a direct impact on increasing the circulation of money in the community, thus encouraging production and consumption activities. The market also responded positively, as evidenced by the surge in state-owned bank shares on the Indonesia Stock Exchange.

From the explanation above, it can be concluded that fiscal policy is a vital instrument in maintaining the economic stability of a country. Starting from maintaining the price of goods, creating jobs, to encouraging investment, everything can be achieved through the application of the right fiscal policy.