Indonesian Public Spending on Education

The Indonesian Constitution stipulated that at least 20% of the government’s expenditure should be allocated to the education budget. How are we doing so far and is this rule feasible to be implemented?


The Indonesian Constitution stipulated that at least 20% of the government’s expenditure should be allocated to the education budget. How are we doing so far and is this rule feasible to be implemented?


I had a macroeconomic assignment a few months ago whereby I analyzed data from the World Bank’s World Development Indicators on Australia and South Korea (1970-2009) to see whether their labor productivity is indeed affected by capital accumulation, which may include physical capital and human capital.

Based from my economics textbook (Frank and Bernanke – very basic) the key to economic growth – indicated by the rise of living standards – is a continuing increase in average labor productivity. Simply put, as the working population become more productive, equipped with the right skills and knowledge, the higher the economic growth would be.

I used several proxies for physical capital and human capital accumulation and one of the proxies that I used for human capital is public spending on education, measured by the total % of government expenditure.

The definition of public expenditure on education, according to the World Bank, consists of current and capital public expenditure on education which includes government spending on educational institutions (both public and private), education administration as well as subsidies for private entities (students/households and other privates entities).

My assumption is that as the percentage of government spending on education increases, so does the the average labor productivity and hence, an increase in their economic growth.

I did a multiple regression on both Australia and South Korea and then I find out that the relationship was not significant, meaning my assumption is false. I suspect that the lack of data might contribute to this result, but the possible explanation arriving from this result would be, it’s not the percentage that matters because an increase in public spending on education doesn’t necessarily mean that education is improved right away.

If there are inefficiencies in the system, any increased spending would be wasteful, and on the other side, if the system is efficient (i.e. the correct education policies are in place) keeping a sustainable level of public spending on education is enough to keep the ball rolling.

Now look at the graphs on Australia, South Korea and Singapore below.

Public Spending on Education; Total (% of Government Expenditure) - AustraliaPublic Spending on Education; Total (% of Government Expenditure) - South KoreaPublic Spending on Education; Total (% of Government Expenditure) - SingaporeSeveral data are missing, but we can see that Australia never allocated their education budget to reach 20%, while South Korea and Singapore did not maintain a 20% education budget throughout the time but they did invest more than 20% of their government expenditure on education at some points.

Why is my benchmark 20%? Because in Article 31 (4) of the Indonesian Constitution it says:

The state shall give priority to the education budget by allocating at least twenty percent of the state’s as well as of the regional budgets to meet the requirements of implementing national education

This was included in the Constitution after 2002 through its fourth amendment. But how are we doing so far?

Public Spending on Education; Total (% of Government Expenditure) - IndonesiaWell, the 20% rule was never achieved. That’s why people protest (repeatedly almost each year like a broken record) that the government’s budget is unconstitutional.

I would argue, however, rather than focusing on the 20% debate and keep saying the argument that the government’s budget is unconstitutional, Indonesian citizens should demand more transparency in the education budget. Therefore, you monitor how much portion of the education budget is used for building or renovating schools, teacher’s salaries, curriculum improvement, the implementation of national exams, in order to scrutinize how much money is actually being used for education.

It would be naive to think that the education budget is simply the amount of money given to the Ministry of Education, when in fact, there are other ministries involved, such as the Ministry of Religious Affairs (i.e. for madrasah schools, if I’m not mistaken) and 13 other ministries (this I need to research further). That is why transparency on the education budget is important because it goes into so many government pockets – for public spending or their own private spending, we don’t know for sure.

Another important aspect other than the education budget transparency, is the evaluation of the various education programs implemented in Indonesia. How much money is spent for doing evaluation of education programs, we also don’t know for sure, but this is as important of the policy or program itself. Make the findings of the evaluation public, figure out which ones are effective and which are not, and focus on the programs that bring out concrete impact.

My next point is to ask, why is the 20% number was put into the Constitution in the first place? When the government is unable to allocate 20% of its budget for education, by law, the Constitutional Court have the right to say that the budget approved through the legislative bill is not legally binding because it is unconstitutional.

Why would you insist that 20% is compulsory when there’s no telling that the amount of money spent is indeed making progress for the quality of education in Indonesia? This rule in the Constitution, although noble in its intentions, practically screams for a fifth amendment because it is impractical.

It is unfortunate that data on public spending on education in Indonesia prior to 2002 is not available, because it is important to know how much did the government actually spent on education throughout our period of economic development. Apparently as other countries really spent their resources on their human capital through education, Indonesia is left behind.

If the government is really serious in investing on education, let’s try to see whether they intend to make data on the education budget transparent and whether they are able to conduct evaluation of these education programs and make the data available for public in the end.

1 thought on “Indonesian Public Spending on Education”

  1. You might want to talk to Blaine Lewis. One study he carried out for the World Bank is that increased expenditure is not expected to improve outcomes. In fact, it may even in some cases worsen them. A key problem in Indonesia is efficiency. The relatively little money that is spent is not used well. Finally, another of Blaine’s studies revealed that when asked Indonesians are generally satisfied with the quality of public education. The implication is that one reason education does not improve is that people are generally blissfully ignorant of how poor it is.

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