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In many major cities in Indonesia, time is a luxury that continues to be eroded by traffic congestion. Millions of residents are trapped in absolute traffic—a term used by Doreen Lee (2015) in Absolute Traffic: Infrastructural Aptitude in Urban Indonesia to describe traffic conditions that are suffocating, both physically and psychologically.
Some time ago, we witnessed a long queue of trucks at Tanjung Priok Port that caused an estimated loss of IDR 120 billion in just two days. It was a clear illustration of the fragility of the national mobility architecture, which is supposed to support the country’s productivity and strategic logistics.
People lose time, energy, and productivity just to move from one place to another. Therefore, aside from technical matters, transportation becomes an institutional issue that requires government intervention, including in terms of forward-looking fiscal policy.
National Transportation Day, which falls on April 24, should serve as a significant moment for us to review the state’s commitment to resolving transportation problems. We acknowledge that the government has indeed invested in physical infrastructure such as toll roads, bridges, and airports. However, connectivity issues will not be resolved simply by increasing physical infrastructure.
As Henry Sandee (2016) reminded us in Improving Connectivity in Indonesia, the main challenge for Indonesia as an archipelagic country is not just the construction of physical infrastructure. We also face issues of coordination, regulation, and most importantly, governance.
Inefficiency
On a macro level, inefficiencies in the transportation system contribute significantly to the high cost of national logistics. The World Bank notes that our transportation costs reach 23 percent of GDP, far above the ASEAN average. In addition to burdening businesses, this cost also reduces the competitiveness of domestic products.
From a fiscal perspective, we are facing a deeply ironic situation. Instead of strengthening public transportation and improving mobility efficiency, the country is pouring large amounts of funds into energy subsidies. As a result, people are incentivized to use private vehicles. This makes the roads more congested and traffic jams unavoidable.
A study by Paul J. Burke and colleagues (2017) titled Easing the Traffic: The Effects of Indonesia’s Fuel Subsidy Reforms on Toll-Road Travel shows how fiscal instruments can change travel behavior and practically improve traffic issues. The fuel subsidy reforms carried out by Indonesia in 2013–2014 succeeded in reducing vehicle volume by up to 10 percent in 2015. This means that more realistic fuel pricing policies (not heavily subsidized) can encourage people to reduce their use of private vehicles.
From the public’s side, the demand for more accessible public transportation is becoming more apparent. Data from Statistics Indonesia (BPS) as of September 2024 shows that the number of train passengers increased by 14.28 percent year-on-year, and freight volume rose by 9.39 percent. This surge indicates an improvement in public trust in rail-based transportation.
Unfortunately, railway capacity is still limited, while investment in new networks such as LRT and MRT has not yet reached buffer zones and secondary cities that have similar needs. This means that fiscal policy for national transportation is still too centralized and does not yet support equitable access.
Fiscal incentives
Meanwhile, maritime transport, which should be the backbone of inter-island connectivity, is still less attractive than air transport. Yet for freight transport, sea transport is far more cost-efficient.
BPS data shows that the volume of goods transported by sea from January to September 2024 increased by only 0.04 percent, much smaller than the growth in rail transport. This indicates that our maritime logistics ecosystem has not received adequate attention. There is a need to provide fiscal incentives for domestic cargo ship operators or subsidies for strategic logistics routes.
Fiscal policy could become the backbone of transformation in making national transportation a tool for productivity and spatial equity. Several steps need to be considered to achieve this. First, there needs to be a reformulation of the transportation budget to increase allocations for rail and sea-based modes.
Second, incentive-based fiscal policies should be directed to encourage the use of public transportation and low-emission vehicles. For example, through tax holidays for public transport operators and VAT exemptions for the purchase of electric fleets.
Third, congestion charge policies should be implemented in city centers, with the condition that revenue from these policies is directly reinvested into improving public transportation services. Such policies have been successfully implemented in Singapore and London, and it is not impossible to apply them in major cities like Jakarta or Bandung, as long as they are supported by transparent and accountable systems.
Fourth, a performance-based budgeting model needs to be developed for the transportation sector. This means that fiscal allocations should be tied to measurable indicators, such as reduced travel time, increased number of public transport passengers, and reductions in CO₂ emissions.
Without concrete action, millions of people will continue to lose opportunities every day due to a transportation system that is also stuck in transformation. Children will be late to school, workers will be stressed on the road, and traders will suffer losses because of disrupted logistics—all of which will be normalized.
It is the state’s duty to provide public transportation that is decent, affordable, effective, and connected to even the most remote areas. Hopefully, fiscal instruments can serve as the fuel for such a transformation.
By: Ismail Khozen, S.I.A., M.A., Lecturer in Fiscal Administration, University of Indonesia
