Progressive Fiscal Policy

Fiscal stimulus must be focused, targeted and temporary. However, in a difficult situation full of uncertainties, the stimulus funds cannot be immediately stopped.

KOMPAS/SHARON PATRICIA

Opposition Leaders Economic Forum bertemakan “Selamatkan Ekonomi Indonesia di Tengah Krisis Covid-19” di Auditorium Perpustakaan Nasional Republik Indonesia, Jakarta Pusat, Jumat (13/3/2020).

A progressive fiscal policy is the antithesis of a conservative policy. Since the start of the COVID-19 pandemic, fiscal policies in almost all countries have become more progressive. Fiscal stimulus has played a key role in supporting the economy, particularly through increased spending on health and social protection.

McKinsey published a report in June 2020 on the government\'s response to the COVID-19 pandemic. In just a few months, the stimulus funds had reached a total of US$10 trillion, far larger than those provided during the 2008-2009 financial crisis. Even in some developed countries, the amount was dozens of times higher. Germany, which only provided stimulus funds amounting to 3.5 percent of gross domestic product (GDP) during the 2008 financial crisis, allocated stimulus funds equivalent to 33 percent of GDP in 2020. In Japan, the stimulus funds accounted for 2.2 percent of GDP in 2008 and 21 percent of GDP in 2020. While in the United States, the amount was equivalent to 4.9 percent of GDP in 2008 and it jumped to 12.1 percent of GDP in 2020.