Subsidy Reform Towards Strengthening Social Protection and Increasing Productivity on Target

Subsidy, according to Law No. 18/2016 on the National Budget (APBN), is defined as a budget to state companies, government agencies, or third parties based on applicable laws and regulations to provide goods or services that are strategic or control the lives of many people according to the state's financial capacity. 

Subsidies are payments made by the government to companies or households to achieve certain objectives that enable them to produce or consume a product in greater quantity or at a lower price.
The government provides nine types of assistance/subsidies aimed at the poor, including food, education, health, energy, economic and social, agriculture, housing, fisheries and marine, and village funds. The energy subsidy programme consists of 4 (four) types, consisting of electricity subsidies, LPG 3 Kg assistance, fuel subsidies, and energy-efficient solar lamps (LTSHE).

However, subsidies have a negative externality in that the provision of subsidies that are not transparent and have unclear targets will cause new distortions in the economy, create inefficiencies, and subsidies are not enjoyed by the right people. Not to mention that the relatively low prices of subsidised goods have an impact on the behaviour of people who are less frugal in consumption. This results in a waste of resources used to produce these goods. Factual findings in the field show that various government subsidy programmes still experience many obstacles that cause many subsidy programmes so far not to be on target. Some of the obstacles that often occur are inclusion error, which means that people who are not entitled to receive subsidies, but instead receive the benefits of the subsidy and exclusion error obstacles where many people who should be entitled to receive subsidies are not included as beneficiaries of subsidies.
These findings, which show that subsidies are still being enjoyed more by those who are not entitled to them, have prompted the need for subsidy reform. Removing energy subsidies will not be easy, especially for Indonesia, which has enjoyed energy subsidies for many years. If energy subsidies are simply removed, there will be public upheaval. Therefore, subsidy reform can be carried out in stages while educating people about the benefits, objectives and steps of reform. This will ensure that subsidy beneficiaries are better targeted.