Indonesia collected less tax than planned, widening its deficit

Indonesia ended 2025 spending more than it earned by a wider margin than planned, a warning sign for its finances. Writing in The Diplomat, James Guild explains that the budget deficit, the gap between what the government spends and what it collects, reached 2.92 percent of the economy. That is close to the legal limit of 3 percent and the biggest gap in two decades outside the pandemic.

The problem was revenue. The government collected 8 percent less than it aimed for, and even took in 3 percent less than the year before, despite the economy growing about 5 percent. Several things went wrong at once. Dividends from state-owned companies now flow to the new Danantara fund instead of the finance ministry, a planned tax rise was watered down to cover only luxury goods, and a new online tax system called Coretax ran into problems.

To stay under the legal limit, the government cut spending. But its 2026 plans assume revenue will bounce back sharply, a bet that looks risky if collection stays weak. The shortfall helps explain why investors have grown nervous about how Indonesia manages its money.

Why it matters

When the government collects less than it planned, it must borrow more or cut spending, and both can reach you through fewer services or higher costs later. A shaky tax system also worries the investors whose confidence supports the rupiah. Watch whether tax collection improves in 2026, or whether the government has to cut spending again.