Economic growth is to be achieved by a country due to the benefits it brings to the country. Economic growth can be achieved by a number of ways, such as the development of natural resources, improvement of education and training, net immigration, advancement in technology and the improvement in the number and skill of labour. However, whichever factor causes economic growth, it is important for it to be sustainable. The rise in real GDP must not be at the expense of using up raw materials or cause environmental damage.
?Economic growth brings forth benefits and drawbacks. Some advantages of economic growth include the increase in income of citizens and standard of living in a country, a rise in employment since jobs are easier to find, increase in the government’s tax revenue which can be used to build infrastructure, a rise in export and consumer confidence. However, with a rise in AD will come inflation, which may cause prices to increase, hence decreasing the purchasing power parity of consumers. People will work more hours, this sacrifices their quality of life, as they will not have as much leisure time. As productivity increases, so does the usage of natural resources. This means that they will be used up faster, and when industrial processes are involved, pollution also increases. Indonesia’s Real GDP (Base Period of 2010)YearsReal GDP (Billion, USDChange in RGDP (%)2010755.
0946.2242011801.6826.172012850.0246.03Table 1, Source: The World Bank ?Table 1 shows Indonesia’s real GDP in the years 2010-2012 and the percentage change between the current year and the year prior. As economic growth is defined as the increase in real GDP, the positive percentage change shown in the table signifies that over this period of time, Indonesia experienced continuous and positive economic growth.
Government Expenditure in Economic GrowthGovernment policies such as fiscal, monetary and supply-side policy are often implemented in order to achieve increased economic growth. Fiscal policy refers to the use of government spending and taxes. It aims to stabilise prices, the level of output and employment and stimulate economic growth.
Government revenue is often in the form of taxes, hence by increasing taxes, the government will have more money to spend, contributing in a rise in AD, hence economic growth. Monetary policy involves interest rates and money supply, this influence the aggregate expenditure which then again will affect growth. Supply side policies aim to increase productivity, competition and innovation which maintain lower prices.Government expenditure is a part of fiscal policy and refers to the public expenditure on goods and services, which includes the public consumption and investment as well as transfer payments which could be differentiated into capital payments and income payments such as social and pension benefits.
Government revenue will be made up of taxes and will be utilised in a way that is deemed most effective for the country. Examples of this would be to invest in projects to improve the country’s infrastructure and other public facilities such as roadwork, implementation of supply side policy to improve education and training for the people especially the labour forces, giving benefits to the unemployed and those retired as well as providing financial support to start-up firms as well as those who require financial aid. Indonesia Government ExpenditureYearsGovernment Expenditure (Billion in USD)Change in Government Expenditure (%)20106831.43201180.8918.
96201284.894.94Table 2, Source: The Global Economy?Table 2 displays information on government expenditure in Indonesia between 2010 and 2012. Similar to the trend in Table 1, government expenditure increases in this period of time, the change more apparent from 2010 to 2011, with an 18.96% increase. Seeing that both government spending and real GDP increased in these few years, there seems to be a positive correlation between higher spending and economic growth. Government spending in Indonesia mainly consists of personnel expenditure, expenditure on goods and services, capital expenditure, interest payments for both domestic and foreign debts, subsidies for electricity, grants, and aid for natural disaster reliefs (Bank Indonesia).
Policies set by the government are reflected by government expenditure. If the government has set a policy to purchase goods and services, government expenditures should reflect the costs incurred by the government to implement these policies (Maipita 2012). Government expenditure can also be used as an indicator of the size of government activities which are funded through government expenditure, meaning the larger the activity, the higher the finances concerned. As of 2009, a clear priority of the government seems to be improving the quality and availability of infrastructure in Indonesia.
The budget allocation in 2009 was twice that of 2005 (OECD 2010). Although infrastructure is the main driving factor of economic growth in Indonesia (Nurlina 2015), it may be in the interest of the government to increase their subsidies and grants towards education, so the sectors which make up the total expenditure will be balanced, as well as to gain more benefits and a larger increase in the future economic growth. Conclusion?Indonesia has been experiencing positive and relatively stable economic growth over the years, as supported by the change in real GDP between years 2010-2012. Data from 2010-2012 government expenditure correlated to that of real GDP have strongly suggested that government expenditure has a positive impact on economic growth in Indonesia. It shows that government spending, whether in the form of subsidies, grants, building of infrastructure, is very important, as fiscal policies contribute to the growth of the national economy. However, misallocation of resources and expenditure must be given attention, so the benefits gained from expenditure will go to areas that require it most, so that the sectors that contribute to economic growth will develop equally.