Analysis of Public Expenditure Strategy on Social Fund Sector for

Poverty Reduction of Indonesia Islamic Economic Perspective

Fatimatuzzahro, and Sri Herianingrum

Master of Science in Islamic Economics, Universitas Airlangga, Surabaya, Indonesia

Keywords: Public Expenditure, Strategy, Government Policy, Islamic Economy

Abstract: This paper aims to find a strategy of public expenditure on the social funds sector in poverty alleviation of

Islamic economic perspective in Indonesia. This paper uses a comprehensive descriptive analytical

methodology using data from documents sourced from the Ministry of Finance of Indonesia and the way

Islam in developing the economy under the theory of public expenditure of social funds sector, the cause of

poverty of Islamic economic perspective, the direction of policy and government strategy and Islamic

strategy in poverty alleviation. From the analysis, it is found that the Government's strategy is to direct the

fiscal policy that supports the livelihood of underprivileged people, especially public expenditure which is

targeted social assistance, while the strategy in Islamic perspective is the empowerment of Islamic

economy, the deepening of shariah financial market and the strengthening of research and education as well

as the optimization of the function of zakat. The optimization of sharia economic strategy is expected to

decrease the percentage of expenditure on the social funds sector, so that public expenditures can be

optimized in other sectors of education and health, as well as reducing the debt and can increase economic

growth in Indonesia.

1 INTRODUCTION

A developing country has a problem that is still a

homework for its government, namely the level of

poverty. One of them is Indonesia. Indonesia is one

of the developing countries that has a number of

poor people to reduce poverty.

According to the National Team for the

Acceleration and Eradication of Poverty (TNP2K),

in March 2017, the level of poverty in Indonesia was

10.64 percent of the total population of Indonesia, or

around 27.77 million people. In national

calculations, Indonesia's poverty rate in 2014-2017

continued to experience decrease.

However, when calculated on all populations that

fall into the category of almost poor and slightly

above the poverty line, the national poverty rate

actually increases. According to the Central

Statistics Agency (BPS), the population is almost

poor and a little above the poverty line is not

included in the category of poor people.

Based on the World Bank's analysis, Indonesia's

economic growth (GDP) since the last decade has

been able to reduce poverty from 2015 by 11.22

percent to 10.70 percent by 2016. But last year,

poverty reduction was so slow that only 0.16

percent. Considering these matters; the 2005-2025

Long Term Development Draft (RPJP) study, the

President's Vision and Mission, the high level of

inequality and poverty reduction trends so far, and

the problems and challenges that will be faced in the

next five years, the main target of those matters is to

reduce poverty rates to 7.0 - 8.0 percent in 2019. The

government also needs to know clearly the main

causes of population poverty and the possibility to

reduce the budget in APBD every year so as not to

cause high debt.

This phenomenon becomes interesting to be

observed and also provides important evidence that

poverty in Indonesia, is basically a problem that

must be constantly considered because the main

purpose of a country is the prosperity of its people.

Therefore, the perspective of the economic

aggregate in viewing poverty should be

complemented by other indicators, namely the

Shariah economic perspective, including the real

effort to increase the private capacity of the society

itself so as to become more independent and

productive. In addition, the Government also needs

to know clearly the main cause of the poverty of the

186

Fatimatuzzahro, . and Herianingrum, S.

Analysis of Public Expenditure Strategy on Social Fund Sector for Poverty Reduction of Indonesia Islamic Economic Perspective.

DOI: 10.5220/0007539901860191

In Proceedings of the 2nd International Conference Postgraduate School (ICPS 2018), pages 186-191

ISBN: 978-989-758-348-3

population and the possibility to reduce the budget

in APBD each year and reduce the causes of high

debt.

2 LITERATUR REVIEW

2.1 Poverty Terminology in Islam

Perspective

An expert on Islamic economics, Yusuf Qardhawi

(24: 1995) devotes considerable attention because

Islam pays attention to the poor. This problem of

poverty is considered to have some potential to be a

factor causing the disruption of social order. The

emergence of conflicts in various regions of the

world including in Indonesia today as one of the

causes of poverty is the uneven distribution of

wealth. Islamic economists provide a standard of

poverty line within the framework of Islamic

economics. Determination of this standard becomes

very important because in Islam there is an

obligation associated with the treasure, the

obligation to issue charity of the treasure. With this

clear indicator can be known to whom empowered

and obliged society to issue zakat, and it is aimed at

economically powerless people then this society is

entitled to receive zakat according to Allah in al-

Qur'an surah At-Taubah:34.

2.2 Public Expenditure Industrial

Sector Issues

An important public financial study in Islam can be

found in the work of Zafar Iqbal, the Islamic

Perspective on Public Finance. This work reveals a

comprehensive public finance addressing the theory

of economic justice in economics, tax theory, budget

theory, public sector commercial finance

organizations and corruption. This paper compares

these theories with Islamic and Western

perspectives, and provides a comprehensive analysis

of poverty alleviation.

According to the 2016 Jaelani in the preparation

of the State Budget (APBN) in 2017, in addition to

considering the Basic Macroeconomic Assumptions

also based on 2017 fiscal policy, it will be directed

to support sustainable economic growth, job

creation, poverty alleviation and inequality reduction

which in turn leads to the realization of welfare for

the whole community. This paper focuses on

providing support in achieving economic growth,

while in this study is to find poverty alleviation

strategies in the perspective of Islamic economics.

M. Nejatullah Siddiqi through his work,

Teaching Public Finance in an Islamic Perspective,

explained comprehensively about Islamic public

finance and its application in the context of modern

economics in Muslim countries. This paper focuses

on finding strategies for poverty alleviation based on

public spending on the social fund sector in

Indonesia from an Islamic economic perspective.

According to the type of expenditure classification,

the realization of the central government expenditure

budget is broken down into 10 types which describe

the government's task in carrying out the services

and functions of the government in order to achieve

national development goals. The realization of

government spending and the social funds sector

always increase such as in the year 2016 percentage

of social funds as much as 8%. Another indicator is

needed that helps reduce the government budget by

still targeting the decline of poverty level.

2.3 The Cause of Poverty in The

Islamic Economic Perspective

According to Irfan Ul-Haq (1996) in the study of M.

Shabri Abd Majid (2017), at least there are four

main causes of poverty in the Islamic perspective:

1. The poverty experienced by Muslim society is

caused by their disobedience to Islamic Law.

This happens because there are a group of

people who eat the wealth of orphans (Q.S.

al-Maun: 1-7).

2. Poverty occurs because the act of human

hands itself in accordance with the Word of

Allah SWT. (Q.S. as-Shura: 30) which

explains about the calamity that befell the

man because of his own actions

3. Poverty is caused by rich people who are not

responsible for people who do not have

property (Q.S. al-Ma'arij: 18).

4. Poverty is caused by the practice of

discrimination in the allocation of natural

resources exploration by a group of

irresponsible persons (Q.S. al-Fajr: 18).

3 METODOLOGY

The method of analysis used in this research is a

type of literature study research by looking for

theoretical references that are relevant to the case or

problem found and interview with expert Islamic

economic and general chairman in National Agency

Analysis of Public Expenditure Strategy on Social Fund Sector for Poverty Reduction of Indonesia Islamic Economic Perspective

187

for Amil Zakat Institution (BAZNAZ). The

theoretical references obtained by way of literature

study research are then analyzed comprehensively

using data from documents sourced from the

Indonesian Ministry of Finance and Bank Indonesia

from 2016-2017 and ways of Islam in developing

the economy in terms of the social fund sector public

expenditure theory, causes of poverty in Islamic

economic perspective, direction of government

policies and strategies and Islamic strategies in

poverty alleviation.

4 RESULTS AND DISCUSSION

4.1 Policy Directions and Government

Strategies in Poverty Level

Derivation

According to the National Medium-Term

Development Plan (RPJMN 2015-2019) In the next

five years, the policy direction to be taken is to

improve the competitiveness of Micro Small

Medium Enterprises (SMEs) and cooperatives so as

to grow into a sustainable, upgraded or enhanced

company) to support national economic

independence. For that strategy will be implemented

are as follows: 1. Improving the quality of human

resources; 2. Increased access to financing and

expansion of financing schemes; 3. Increase value-

added products and marketing reach. Taking into

account the characteristics and needs of the less

fortunate, efforts to reduce inequalities are made

with inclusive development and more affirmative

policies in the RPJMN 2015-2019, namely: a)

Developing a comprehensive social protection

system, b) Improving basic services for inadequate

communities capable, c) Developing sustainable

livelihoods for the poor through employment and

entrepreneurship development. This activity needs to

be supported by a reliable planning database in an

integrated information system that serves as a forum

for data and information exchange for all actors,

both at the central and regional levels, and

strengthens the capacity of government apparatus at

the central and regional levels in planning and

budgeting more precisely target.

This figure show that the social protection

budget used by the Indonesian government. There is

a social protection budget in 2018, its shown in

figure 1

Figure 1: Social Protection Budget in 2018.

60,0 T

4,1 T

145,5 T

20,8 T

10,8 T

17,1 T

25,5 T

social protection budget In 2018

Rp. 283.8 T

village funds

scholarship

subvention

food aid

Source: APBN 2018 Information.

From the diagram it can be seen that public

expenditure in the social funds sector has spent IDR

283.8 T. Public spending can be reduced if the rich

can help the less wealthy. Therefore, the National

Agency for Amil Zakat Institution (BAZNAZ)

establishes the national zakat index to measure the

value of the management of national zakat. Zakat

institutions (BAZNAS) form a chart component as a

follow:

Figure 2: National Zakat Index.

Source: Badan Amil Zakat Nasional (Baznaz), 2017.

Every Muslim must pay zakat as described in the

Qur'an and the hadith emphasizes the point of view

of Muzakki and there is a threat to those who refuse

to pay zakat. Whereas Allah Almighty has said in

Al-Baqarah: 261 that those who have given alms of

wealth in the way of Allah will be multiplied 700

times. Currently, according to National Agency for

Amil Zakat Institution (Baznaz) there has been an

increase in zakat income from 2013 to 2017 which

continues to increase as shown below:

National Zakat

Index

(Micro)

Institutional,

&The Impact

Of Zakat

(Macro)

Regulation

& Government

Support

Database

(Muzakki and

Mustahiq)

ICPS 2018 - 2nd International Conference Postgraduate School

188

2013 2014 2015 2016 2017

Rp.Miilliar (Ribu)

Baznaz Performance th.

2013-2017

Zakat Funding Poverty gap

Potential of Zakat

Figure 3: Baznaz Performance.

Source: Processed from Data BPS and Zakat Funding

(BAZNAZ)

From the graph above can be concluded that the

potential of zakat continues to increase, but

optimization needs to be improved so that the

performance of BAZNAZ can close the social gap.

According to Muhammad Rifki (2008) in his book

Sharia Financial Accounting explained that zakat

has a role for the distribution of welfare. The

function of zakat encourages productive flowing

property and zakat functions in the distribution of

income, i.e. land, property, house, gold and money

that has fulfilled the nisab of zakat hence obliged to

be issued to encourage flowing treasures. By zakat,

the redistribution of the economic resources of the

wealthy to the less prosperous will be achieved, so

that the government can allocate the public

expenditure budget to the education and health

sectors for the welfare of society.

4.2 Islamic Economic Strategy in

Poverty Reduction

Islamic economics has given new hope to the

Indonesian economy, according to chairman of the

board of commissioners of Financial Services

Authority, Wimboh Santoso said that sharia banking

assets grew by 20.65% at the end of February 2018.

This indicates that public awareness and trust

regarding sharia economy. Here is a chart on the

principles of sharia economy.

Table 4: Islamic Economic.

Source: Indonesian Council of Ulama and Bank Indonesia,

2017

According to Ahmed (2004) in Azis (2016) the

instruments in poverty alleviation is zakat.

According to him, several countries of the season

such as Libya, Malaysia, Pakistan, Saudi Arabia and

Yemen collect and spread zakat through government

initiatives. These countries have shown that good

zakat and administration structures can raise

awareness of the importance of zakat among

Muslims. Then the next development is to integrate

waqaf and zakat with Islamic microfinance which

then proves that good coordination between zakat

and waqaf institutions, government agencies, non-

government organizations, social organizations and

civic organizations is essential to create community

welfare and alleviate poverty.

The Islamic economic system with muamalat

transactions has shown its development flourish over

the last two decades not only relevant to the

empowerment of Muslims but also relevant to be

developed in the national economic recovery effort

in general. It is said that because a number of

principles which are the conclusions of the Qur'an

and Hadith it seems appropriate to be the antidote

for the acute problems in the national economic

system that has been running. The concept that all

property belongs to God is essential, and man

possesses it only in a false sense, and the belief in

accountability of its origin and future use is a matter

that significantly distinguishes between Islamic

economics and capitalist and socialist.

Islamic

Econo

mic

The function of

Islamic Economics

➢ Control of

individual

property to

flow

productively,

income

distribution to

ensure the

inclusiveness

of the whole

community

➢ Social

participation

for social

purposes

➢ Financial

transactions

are closely

related to the

real sector

(there are

underlying

transactions,

prohibiting

unproductive

speculation

➢ Business

optimization

(buying and

selling) and

risk sharing

princip

les of

Islamic

economics

Zakat.,I

SWAF

(Infaq,

Shodaqoh,

wakaf), No

Maysir, No

Riba, No

Gharar and

Dharar

Analysis of Public Expenditure Strategy on Social Fund Sector for Poverty Reduction of Indonesia Islamic Economic Perspective

189

From the results of the interview with Abd.

Salam Nawawi as an expert of Islamic economic and

general chairman of East Java in Baznaz explains

that the management of zakat funds in alleviating

poverty is by providing zakat funds for distribution

and utilization. That the distribution of zakat is

defined as the distribution of zakat to mustahik in a

consumptive way, namely assistance that is directly

consumed in daily life, for example food, clothing,

and so on. While the utilization of zakat is defined as

the distribution of zakat to mustahik oriented to

productive aspects, namely the distribution in the

form of productive goods, such as sewing machines,

business capital assistance, and so forth. He also said

that with the assistance given to mustahik, it could

not fully reduce the poverty rate in one of the cities

in Indonesia, namely East Java, but it was very

beneficial and could reduce the burden on the lives

of the mustahik. This fact is caused by zakat

distribution programs which are more directed to

consumptive matters. In addition, the value of

assistance provided is also relatively small because

the funds collected are still limited, while the

number of people who need help is very large. Why

is this said, because it depends on the mustahik how

to manage or utilize the assistance. Then by the

Zakat Amil Agency (BAZ) the zakat fund is realized

in the form of giving skills and capital to be given to

the mustahik after the eight basic needs are fulfilled.

So from the results of interviews it can be

suggested that zakat management by the government

is logical, due to several considerations, namely: 1.

To guarantee certainty and discipline in paying

zakat. 2. Maintain the inferiority complex of the

zakat mustahik when dealing directly with the

obligatory zakat (muzakki). 3. To achieve efficiency,

effectiveness and the right target in collecting zakat

assets according to priorities in a place.

4.3 The Special Strategy of Islamic

Economic Development

The development of a sustainable economy and

Islamic finance of Indonesia that is sustainable in

accordance with the values of sharia. According to

Bank Indonesia 2016, a special strategy is needed in

the development of sharia economy with the

achievement of the target to increase sharia business

assets. These strategies include:

1. Empowerment of Sharia Economics in local

policy, by preparing human resources that are

human, polite and humble, so required

supporting infrastructure, institutional and also

halal supply.

2. The deepening of sharia financial market which

is a national policy with the target of high level

of financial market achievement, supported by

instrument, infrastructure, regulation and investor

base which expert in their respective fields.

3. After the national policy is established, it is also

necessary to strengthen the assessment and

education research that has covered international

coordination and cooperation.

With the growth of Sharia asset that has grown

20.65% by the end of February 2018 has contributed

to the empowerment of sharia economy. If this

continues to increase then the optimization of the

strategy successfully executed, so as to reduce the

percentage of spending on the social funds sector.

Therefore, public expenditures can be optimized in

other sectors of education and health as well as

reduce debt and can increase economic growth and

welfare of the people of Indonesia.

5 CONCLUSION

The government's strategy in directing fiscal policy

that supports the livelihoods of disadvantaged

people, especially public spending is the target of

social assistance. Improve protection, productivity

and fulfillment of basic rights for the

underprivileged and the strategy in the perspective

of Islam are the function of zakat to encourage

property that flows productively and the function of

zakat in the distribution of income in Islamic

economics. These two things should get great

attention. Production does not accumulate a group of

people. The strategy to increase zakat income by

conducting zakat management is carried out by the

government because it is proven to help reduce

poverty. For specific strategy is that the Government

must improve the empowerment of Islamic

economics by deepening the Islamic Financial

Market. The Government must strengthen education

assessment and research. Well-managed

optimization makes public spending optimized for

other education and health sectors as well as

reducing debt and increasing Indonesia's economic

growth.

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