Subsidy spending accounts for the largest portion of central government spending and - by far - exceeds capital expenditures, even though the latter is needed for Indonesia's much-needed infrastructure development.

   Revised State Budget
 State Budget Draft
Total State Spending
             1,726.2            1,816.7
 - Central Government Spending
              622.0             612.7
   a. Personnel Expenditure
              233.0             276.7
   b. Goods Expenditure
              206.5             203.7
   c. Capital Expenditure
              192.6             205.8
   d. Interest Payments on Debt               112.5             119.5
   e. Subsidy Expenditure
              348.1             336.2
   f. Grant Expenditure                 2.4               3.5
   g. Social Expenditure
               82.5              55.9
 - Transfer to Regions               529.4             586.4

in trillion rupiah

Indonesia's high amount of subsidy spending, which increases almost every year, is a concern to many. In 2014, proposed subsidy spending equals 3.5 percent of Indonesia's gross domestic product (GDP). Between 2008 and 2013, realization of the subsidy budget spending increased IDR 72.8 trillion, or an average of 4.8 percent per year. This increase is due to changes in macroeconomic assumptions, such as the exchange rate, Indonesia's crude oil price and the volume of subsidized fertilizers.

Most of subsidy expenditure in 2014 is allocated for subsidized fuels and electricity. Subsidies for gasoline, LPG and bio-fuels are proposed at IDR 194.9 trillion. This amount is IDR 4.96 trillion lower (or 2.5 percent) compared to the allocation in the 2013 state budget (IDR 199.9 trillion). Since 2009, fuel subsidies have experienced a 272 percent surge, and will account for 10.7 percent of total government expenditures in 2014 according to the government's proposed budget.

    Revised State Budget
  State Budget Draft
Energy Subsidy
               299.8              284.7
 - Fuels
               199.9              194.9
 - Electricity
               100.0               89.8
Non-Energy Subsidy
                48.3               51.6
 - Food
                21.5               18.8
 - Fertilizer                 17.9               21.0
 - Seeds
                 1.5                1.6
 - Public Service Obligation                  1.5                2.2
 - Credit Programs
                 1.2                3.2
 - Tax Subsidy                  0.8                1.0

in trillion rupiah

The government uses a number of parameters to assume the fuel subsidy budget at IDR 194.9 trillion. These parameters include an Indonesian crude oil price at USD $106 per barrel, an exchange rate of IDR 9,750 per US dollar, and domestic consumption of subsidized fuels estimated at 50.5 million kilo liter (which is about 2.5 million kilo liter more than in 2013).

With an economy that is growing at a pace of about six percent, an increase in oil consumption cannot be avoided, despite the government's decision to raise prices of subsidized fuels in June 2013. Rapid economic expansion requires a greater energy supply. Nevertheless, analysts feel that too much subsidies will also weigh on the budget, particularly if these subsidies, like the fuel subsidies, are misplaced: Indonesia's middle class segment benefits more from these fuel subsidies than the poor.