INTRODUCTION

Tax reform has been a major challenge for Indonesia which has struggled for many decades to strengthen its capacity to collect taxation revenue. The adverse impact of reduced taxation revenue has adversely impacted the Indonesian government's ability to finance needed social services. This is evident in the tax-to-GDP ratio in Indonesia when compared to similar income group countries. As a result, tax reform has been a continuing challenge for the government, including strengthening revenue collection capabilities.

Most recently, the Ministry of Finance (MoF) initiated tax reforms in 2017 which were a comprehensive revamp of Indonesia's current tax policy and administration landscape. Initially, the government expected to finalize the reform agenda by 2024 with the roll-out of the new core tax system. However, the pandemic hit midway through the reform and, expectedly, shifted the focus of the tax authorities to respond to the COVID-19 disruption.

The unprecedented and extraordinary challenges of the pandemic created a health and economic catastrophe on a global scale. For the government, the immediate priority was to minimize the risk of a health crisis. Nevertheless, the attempts to curb the pandemic through containment and outbreak preventative measures triggered both supply and demand shocks and created social and economic challenges. The government faced the additional challenge of cushioning and protecting impacted households and businesses.

From the perspective of an economic crisis, the COVID-19 challenge was (at a minimum) twofold: the government needed to address the immediate crisis and also provide necessary support during the post-pandemic recovery phase. As a result, the government devised a comprehensive support package through discretionary fiscal responses: additional spending and forgone revenue—to supplement and strengthen the existing automatic stabilizers. The government structured and consolidated the broad economic recovery agenda under the National Economic Recovery (Pemulihan Ekonomi Nasional, or PEN) Programme.

As one of the available fiscal instruments, the role of tax is to raise revenue to fund the services and income supports the community's needs and is not only about collecting revenue. The government has provided a set of fiscal incentives to support the economy and has been reporting tax expenditures since 2018.

INTRODUCTION

Rapid and frantic spread of the coronavirus disease at the beginning of 2020 has sent the world into chaos. Most countries were grappling with the deadly virus. Indonesia was no exception. Worse, it happened just as the government started to roll out that year's financial plans and prepare the 2019 accountability report.

Most government agencies were appalled and had no idea how to deal with the situation. Communities and business players too faltered because they had no experience in dealing with pandemics.

It was devastating, as the number of coronavirus patients continued to increase in some major cities, but government agencies could not respond immediately. One of the issues was budget constraints. The 2020 national and regional budgets were designed for a normal situation, not for the pandemic. Government officials were silent and reluctant to divert the existing budgets (APBN/APBD) to deal with the pandemic or for economic recovery. There was a growing fear that if such a condition is left unsettled, it could trigger a nationwide disaster.

The above situation indeed required the government's presence. But it failed to do so because government agencies were facing various constraints and obstacles. These include the absence of a legal framework for actions, regulations, programmes, budgets and business processes related to budget implementation in an emergency situation.

It was also not clear either which agency should be responsible for the matter. These were aggravated by invalid population data, ill-prepared human resources and inadequate digital information system, restrictions on people's movement, and the high number of employees and their family members who were exposed to COVID-19 (Chon and Kim 2022; Sundqvist-Andberg and Åkerman 2022).

The discussion also revolved around the role of Indonesia's National Disaster Management Authority (BNPB) which has mostly been dealing with natural disasters. On contrary, what the people facing was a pandemic that did not only impact health, but incurring social and economic problems. There was doubt whether BNPB is able to handle these issues. Also, existing laws only encompass natural disasters, and none are on nonnatural disasters. It prompted the Indonesian government to establish a Task Force led by the BNPB chief and its membership consists of ministries and government agencies.

Economic growth since the Second World War may be divided into two periods. During the first stage, from the recovery of the Great Depression in the 1930s to the end of the oil boom and the crash of 1982, Mexico experienced a very rapid rate of growth. GDP growth averaged 5.8 per cent a year in real terms and 3.3 per cent per capita. It was a long period characterized by swift population growth and urbanization, that permitted the creation of a middle class and a more cultured citizenship. Growth rates were not evenly distributed across the country and regional polarization was coupled with high but decreasing social inequality.

The second period stretches from the debt crisis of 1982 to the present and is characterized by sluggish economic performance. GDP only augmented at a rate of 2.2 per cent a year, and only 0.6 per cent in per capita terms. The first part of the period was marked by the transition from a close to an open economy, which lasted until the end of the 1980s, with almost zero growth from 1982 to 1989. As the economy became increasingly open and liberalized during the 1990s, its economic performance improved but never reached the pre-crisis levels. Mexico’s economy has gradually converged to the (lower) growth of the US economy and has yet to develop a proper platform for more rapid growth that would close the gap with the more developed and emerging nations.

PRODUCTION AND PRODUCTIVITY

Like in most nations, the primary sector’s share of GDP declined gradually but uninterruptedly throughout the twentieth century. Agriculture, cattle, and forestry showed higher rates of growth than population and Mexico supplied most of its foodstuffs needs from domestic production until the 1960s. With the growing urban population, approximately 3.1 per cent in the 1960s, domestic production became insufficient, and some staple goods began to be imported. At the same time, industrial growth and urban infrastructure transformed the nature of GDP. Industry became the engine of economic growth through most of the rapid expansion stage, along with the development of energy supply, roads, ports, urban public works, and transport.

The Covid-19 pandemic has challenged governments and institutions and uncovered structural problems in all countries of the world. It is clear that its impact and consequences will be long-lasting, and more so in those countries, like Mexico, that were especially reckless in their response and who were slow to modify their initial policies despite the evidence. The effects will be felt for many years to come since the crisis has impacted life trajectories for millions of households. Thus, a consideration of the future of the economy needs first to address those public policies implemented to meet the Covid crisis.

In Mexico, the pandemic has been a human, social and economic tragedy. Like in the rest of the world, the crisis forced extreme actions and policies on many fronts. In Mexico, unfortunately, the government’s reaction was slow, insufficient and ineffective. The government’s first response to the Covid-19 pandemic was to downplay it, which meant a lack of preparation on behalf of the population and of the health institutions, in spite of the fact that the first case arrived in Mexico at the end of February 2020. Not surprisingly, the first victims were healthcare workers, who did not have either the appropriate personal protection equipment, or the medical preparation to treat the incoming patients. Mexico’s death rate of healthcare personnel became one of the highest of the world. By June 2020 their reported death rate was 2.6 per cent out of the total deaths in Mexico, more than double than Brazil, triple than Peru and five times more than China or the UK at that time (IGHS 2021).

In spite of much rhetoric, the government did not employ its full institutional capabilities to confront the crisis. The Sanitary National Commission, the body legally responsible, was sidelined and the government’s efforts were determined by the undersecretary Hugo Lopez-Gatell (Chertorivsky et al. 2020). As a result, many of the health measures were improvised and poorly designed owing to the lack of budgetary support, or the necessary policies for effective coordination between federal government entities and those of state governments.

Mexico witnessed a profound transformation from the 1930s onwards that changed its social and economic structure. It became a more urban, increasingly educated society and with longer life expectancy. The economy grew more sophisticated and eventually became a major trading partner in the North American region. This chapter will chart the stages through this long process beginning with the period of rapid growth stimulated by domestic demand and import substitution. The shortcomings of this development model began to falter in the 1960s and created a series of contradictions that were not possible to overcome immediately and not without major structural change. Until that eventually happened, Mexico relied on foreign debt and oil revenues to maintain its rapid rate of growth, but that only made the contradictions more profound so when the debt crisis exploded in the early 1980s, the fall was even deeper. The structural reforms of the 1980s and 1990s that followed a decade of stagnation, further changed Mexico’s economy and society. Some sectors and regions developed much more than others, the successful ones linked to foreign trade and the US economy, while others more isolated remained less developed and lagged behind. There were no effective policies to ensure a more balanced growth. Those changes were accompanied by an incipient and slow democratization process, that is still on its way today.

THE GOLDEN AGE OF IMPORT-SUBSTITUTION INDUSTRIALIZATION

For many countries the Second World War was the starting point of a long-lasting policy of import-substitution industrialization. The isolation of those economies forced them to look inwards and promote domestic industry with protection and sometimes subsidies. That was not the case of Mexico. Owing to its geographic location, Mexico continued to trade with the United States throughout the war and was able to grow at a rapid pace. As the world conflict ended, the Latin American economies, despite further isolation succeeded in growing fairly rapidly during the postwar period (Bulmer-Thomas 2014: ch. 8). Mexico implemented a policy of import substitution industrialization late in the 1940s, which fuelled its continued growth.

The National Council for the Social Development Policy Evaluation (CONEVAL) identifies and calibrates various social deprivation indicators to measure poverty in Mexico. Educational backwardness in 2020 affected 19.2 per cent of the population (24.4 million people). And 28.2 per cent of the population do not have access to health services and 52 per cent of the population (66 million people) receive social security benefits. According to CONEVAL, 22.5 per cent (28.6 million people) have insufficient access to food, 9.3 per cent (11.8 million people) have poor housing, and 17.9 per cent (22.7 million people) have limited services within the home. According to the National Income Survey of 2020, 8.5 per cent (10.8 million people) were in extreme poverty and 43.9 per cent of the total population was in poverty, which represents 55.7 million people. Although in 2008 the poverty rate was higher, 44.4 per cent of the population, the absolute number was lower, 49.5 million people. Only 23.5 per cent of the population were neither poor nor vulnerable (29.8 million people), which clearly shows the immense extent of the vulnerability under which most Mexicans live.

However, one should highlight that this methodology represents only one of many ways poverty can be measured and analysed: “Social vulnerability is the result of the impacts caused by the current development pattern, but it also expresses the incapacity of the weakest groups in society to confront, neutralize or obtain benefits from them” (Pizarro 2001: 25).

THE FIGHT AGAINST POVERTY

Since the 1990s, government strategy to tackle poverty was to identify the lowest-income groups in society and implement policies that would allow optimal public spending. The first programme as a strategy to fight poverty was the Education, Health and Food Program (PROGRESA), whose main objective was to improve the nutrition and diet of the poorest in the country (Cárdenas 2015: 803). The government based the initiative on health and education actions to ensure the delivery of a food basket, directed especially for women and children in extreme poverty conditions in rural areas. With the initial coverage of 300,000 families, the programme expanded to reach up to 2.4 million families (Levy & Rodríguez 2005).

With the accession to the Spanish throne of the House of Bourbon, a slow but profound transformation of the philosophy and purpose of the new ruling monarchy got underway. The so-called Bourbon Reforms that began to take shape in the Americas by the 1770s had a political component, to secure the political and economic supremacy of the Crown over its colonies around the world, and economic, to increase the Crown’s revenues for the benefit of the metropolis in Spain at the expense of the colonies. The consequences for New Spain, which would become Mexico, were many in both respects (Pérez Herrero 1992). Criollos, children of Spaniards or of pure European origin, which had played an active role in political affairs for centuries under the Habsburgs, lost much of their access to power and influence on public matters. Even the Viceroy lost much of its power as the administrative structure shifted towards “intendancies”, whose head reported directly to the king. On the economy, taxes were raised from all contributors, including the “Indian republics” and some subsidies were provided for the mining sector. Most monopolies were abolished, and “free” trade was declared, although some state “estancos” or monopolies were reinforced, in particular the tobacco monopoly, which at the beginning of the nineteenth century hired 15 per cent of the economically active population, produced 130 million cigarettes and 6 million cigars a year, and generated between 3–4 million pesos of income to the Crown, a figure similar to that of mining (Deans Smith 1992).

All these measures expanded production and trade, especially silver mining which reached 21.6 million pesos a year on average (Soetbeer 1879), increased taxes and the tithe for the Catholic Church, and prompted rural migration to the major cities, which grew in size and complexity. Inequality, however, continued and was evident in terms of wages and a divide of social classes. It was a nation of paradoxes at that time: it saw a larger increase in population than in Europe, but less prosperity for most; an increase in commercial food production, but starvation in some rural regions; great palaces and urban development in the cities, but low wages for workers (Van Young 1985).