Prabowo's proposed policy of reducing property tax by 16 percent is a significant step that reflects the determination to push for fiscal reform in Indonesia. This policy is not only intended to reduce the tax burden on the people, but is also designed to stimulate economic activity in the property sector which is often considered as one of the main pillars of the national economy. By reducing property tax, the government hopes to increase people's purchasing power, attract more domestic and foreign investment into this sector, and facilitate access to property ownership for low- to middle-income groups.
In the economic context, property tax has long been one of the stable sources of revenue for local governments in many countries, including Indonesia. However, this tax burden is also often considered regressive because it is more burdensome for groups with fixed or low incomes. As stated by Kelly (2004), the regressive nature of property tax can exacerbate social inequality and hinder the economic mobility of low-income people, especially in urban areas that experience rapid property value increases. Therefore, this policy can be seen as an effort to address these structural challenges in a direct and broad-based manner.
Fiscal economic theory supports this move through the concept of tax incentives. Reducing or eliminating property taxes is thought to increase household disposable income, which in turn encourages consumption and investment. In addition, a more dynamic property sector can create significant multiplier effects on other sectors, such as construction, building materials manufacturing, and financial services. In this regard, Prabowo's move can be considered a strategy to strengthen economic fundamentals through an incentive-based approach.
However, it is important to remember that reducing property taxes also presents challenges to fiscal sustainability, especially for local governments that are highly dependent on Local Revenue (PAD) from this sector. According to Mukti and Muhafidin (2023), PAD currently only contributes 5-15 percent of total local fiscal revenue, meaning that any significant reduction in property taxes must be offset by alternative revenue sources to avoid a fiscal deficit that could disrupt the provision of public services.
