Recently, the current finance minister, Agus Martowardojo is planning (via the latest UU Perimbangan Keuangan - Budget Transfer Balancing Act) to cut down local government spending for civil servant wages. He argues that some regions take too much proportions on their budget for this (up to 80%), hence unnecessary, and he plans to curb it into 30-ish% by using outsourced workers and Information Technology optimization.
While sounds flowery on the top, and I have to admit that yes, too much (how much is too much? Why is 15% deemed too much?) government officials are on administrative tasks, but it begs the question, is it good plan anyway to cut the spending?
Firstly, let's take it on economic principle, is spending necessarily bad that it should be cut? Not really. Government spending for government officers' wages increases society purchasing power quite significantly, and that purchasing power drives consumption, which is very essential in creating demand-side economy. Aside from that, some civil servants who take loans from banks provide steady cash supply to banks, because loan payments are deduced from payrolls, it's not so risky for banks to get their money back. But one might argue that it would cost us so much that in the end we turn into Greece 2.0 because of some ballooning debts.
Greece never end up being so suffered because of paying government officials' payroll. It ends up broken like that because Greece pushed itself to join Euro while actually its deficits were never as low as 3%. Add to that fiscal irresponsibility and the lacking of other resources (tourism is not significant), it never had the money to back up their bonds. When their bonds finally graded as junk and danger of default lurks behind, the result is disaster. And far be it from Indonesia as Indonesia debt to GDP ratio is on the level of 27%, contrary to Greece that is 150%. Our bond rating is good as it is on investment grade BBB+ just like India, and our fiscal space in 2010 accounted for 4,87%, 1,87% surplus from the allowed maximum deficit of 3% of GDP.
Secondly, how Agus Marto proposes more capital expenditure meanwhile never explains 1) why on the era of regional autonomy central government is justified to meddle on the right and responsibility of local government to manage their proportion of budget, 2) why capital expenditure is generally more important than operational expenditure, 3) why take drastic measure in reducing it to 30% meanwhile the needs of every local government is different. Maybe some governments indeed need 80% budget to maximize their service, perhaps due to their wide areas thus need wide coverage as well, hence their big number of government officers.
Thirdly, if you're gonna replace civil servants with the outsourced ones in the area of jobs that doesn't need a lot of skill, how can it significantly reduce the budget? Low level civil servants have small payrolls as well (with small amount of allowance). Replacing it with outsourced workers requires you to pay according to regional minimum wages (and some mandatory allowances like healthcare, etc, etc), the differences aren't that big.
Some says the danger of outsourcing in regards of handling classified documents, but yeah, I don't quite know on that. I suggest the measure that can be taken if indeed the budget isn't that optimum, is by giving payrolls in accordance to individual performance, by giving them grades and targets that if they're not fulfilled, affects individual take home pay. But by the constantly replacing nature of outsourcing, it will not be that good because it gives people unsustainable job fields, which is, in my opinion, against the very nature of a country to provide welfare.
Some says that this is policy reflects what Agus Martowardojo's traits in treating employees. Apparently, there were some fiascoes between him per his position in Mandiri bank management against Mandiri bank worker union back then, but I don't want to give comment on that. I don't want to sound too political.
Addendum: He also plans to give civil servants of age 50 years old and older to have early retirement. I will post comment again if the plan is finalized
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