Beware of inflation due to transportation subsidy cuts

This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Antara News - Waspada inflasi imbas pemangkasan subsidi transportasi

13 February 2025

By Heru Febrianto

The government's policy to reduce state expenditure for efficiency might affect transportation subsidies, potentially leading to increased public transportation tariffs and inflation.

President Prabowo's administration has issued Presidential Instruction Number 1 of 2025 on Budget Efficiency in the Implementation of the State Budget and Regional Budget for Fiscal Year 2025. The budget reduction amounts to Rp306 trillion, consisting of Rp256.1 trillion from ministry/agency budgets and Rp50.59 trillion from funds for transfers to regions.

The Transportation Ministry is one of the ministries facing a budget reduction this year. The budget cut in the transportation sector amounts to Rp17.9 trillion, down from Rp31.5 trillion. This budget efficiency could potentially decrease transportation subsidies in the country.

Indonesian Transportation Society (MTI) Regional Empowerment and Development Deputy Djoko Setijowarno stated that the reduction of the budget for the transportation sector in the Transportation Ministry from Rp17.9 trillion to Rp5.7 trillion means that civil servants in the Transportation Ministry could only be paid for the next year, while temporary staff must be terminated.

"All of the budget for transportation subsidies has been eliminated. Meanwhile, transportation subsidies are an effort to increase public welfare, boost local economic growth, reduce living costs, ensure the transportation of goods, reduce the price disparity of basic needs and commodities, and decrease air pollution. They also open up isolated and border areas," Djoko stated in Jakarta on Wednesday (12/2/2025).

The budget cut amounts to Rp17.5 trillion, which includes transportation subsidies for various sectors. These sectors include land transportation such as roads, intermodal transportation, goods transportation, pioneer ferry services, roll-on/roll-off long-distance ferries, urban transportation, and urban transportation in Nusantara Capital City (IKN). Air transportation subsidies cover pioneer cargo transportation, pioneer passenger transportation, fuel subsidies for passenger transportation, and fuel subsidies for cargo transportation. Railway transportation subsidies include support for pioneer trains on six routes. Sea transportation subsidies encompass maritime highway transportation, pioneer sea transportation, and cattle ships.

According to Djoko, public transportation not only alleviates congestion but is also closely related to poverty. Poor regions typically have poor transportation access. "It is unfortunate that the budget was cut to support the free nutritious meal programme, creating another issue as the public transportation budget must be sacrificed. The implementation of public transportation must focus on the lower class," he explained.

He explained that poorly managed public transportation can have numerous impacts on public life. In various areas in Central Java, several children have had to drop out of school due to the unavailability of public transportation. The increasing dropout rate affects the number of early marriages and the stunting rate.

"Reduced transportation subsidies have the potential to boost inflation. Without a subsidy, the alternative is the Regional State Budget (APBD). If the APBD is insufficient, then tariffs will be increased. This will result in inflation that burdens the people. Ultimately, it will increase poverty as it raises spending amid stagnant revenue in the current economic growth condition," Djoko stated.

Mandatory

Furthermore, Djoko explained that the public transportation budget must be made mandatory in the proposed revision to Law Number 22 of 2009 on Road Traffic and Transportation, similar to the provisions for education and health.

"Mandatory comes from the word 'mandate,' which means to give authority to act. It is also a noun for an official order. According to the Great Dictionary of the Indonesian Language (KBBI), 'mandatory' refers to an individual or a government body mandated to work on something," he stated.

He also stated that there are four obligations regarding the provision of public transportation in Article 139 of the Road Traffic and Transportation Law. First, the government must ensure the availability of public transportation for passengers and goods between cities, provinces, and countries. Second, regional governments must ensure the availability of public transportation for passengers and goods within a province.

Third, regional governments, regency governments, and local governments must ensure the availability of public transportation for passengers or goods within a regency or city. Fourth, public transportation services provided by state-owned enterprises, regional state-owned enterprises, or other legal entities must comply with applicable laws and regulations.

"Out of the 514 regional governments in Indonesia, less than 5% have allocated APBD to finance public transportation in their region. The political interest of regional heads is still lacking amid the low fiscal condition. Public transportation is a basic need, alongside food, clothing, housing, education, and health," Djoko stated.

Still prioritised

Previously, Transportation Minister Dudy Purwagandhi stated that his ministry would monitor budget efficiency following the issuance of Presidential Instruction Number 1 of 2025 on Budget Efficiency in the Implementation of the State Budget and Regional Budget for the Fiscal Year 2025.

"Subsidies for pioneer transportation will remain the main priority to ensure accessibility for the people and sustainable public mobility that is affordable and inclusive," he stated in Jakarta on Tuesday (4/2).

The Transportation Minister explained that, for instance, the land transportation sector must continue to receive subsidies for the Buy the Service programme in six cities. Meanwhile, in the sea transportation sector, subsidies are provided for pioneer ships, maritime highway cargo ships, cattle ships, rede ships, and public service obligation (PSO) of economy class ships.

Next, in the air transportation sector, there are subsidies for pioneer passenger transportation, pioneer cargo transportation, and jet fuel for cargo transportation. In the railway sector, subsidies are provided for pioneer railway services, PSO of economy class trains for long-distance trains, medium-distance trains, Eid trains, short-distance trains, diesel trains, the Greater Jakarta Commuter Line, and the Yogyakarta Commuter Line.

"We will ensure and have a discussion with the Finance Ministry, as the holder of the budget, about how transportation is vital for the people, especially those in remote areas," the Transportation Minister stated.

The Transportation Ministry will also seek approval from the Finance Ministry to utilise the public service agency (BLU) budget to maximise its operations. "Budget reductions occur in almost all ministries. However, we will ensure which programmes directly affect the people so that they can be supported with the BLU budget," he revealed.

Transportation Minister Dudy added that the budget for business trips and other non-essential activities will be reduced in accordance with the directive and instruction from the President. "So, programmes that do not directly affect the people will be made more efficient. However, programmes that directly affect the people, such as transportation subsidies, will be maintained," he added.

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