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Inequality declines but country has long way to go
Indonesia’s equality ranking has improved to number 90 from 101 in 2017, pointing to a positive result of the current administration’s attempt to address the welfare gap
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span>Indonesia’s equality ranking has improved to number 90 from 101 in 2017, pointing to a positive result of the current administration’s attempt to address the welfare gap.
The Commitment to Reducing Inequality (CRI) Index, co-authored by United Kingdom-based nonprofit research institutes Development Finance International (DFI) and Oxfam, looks into progressive taxation, labor rights and social spending as indicators of a government’s seriousness in narrowing the income gap.
“For this year, South Korea and Indonesia, under their current administrations, are standing out the most for their efforts in eradicating inequality,” DFI director Matthew Martin said during a recent discussion on inequality reduction.
The index places Indonesia as the third-highest scorer in Southeast Asia, after Thailand and Malaysia. The lowest-ranking country is Laos and the second-lowest is Singapore, which the NGOs criticized for its tax policies, particularly its status as a tax haven.
“The index shows that tackling inequality is a question of political commitment and not of income,” said Matthew.
The result is in line with a plan announced by President Joko “Jokowi” Widodo in 2017 to reduce inequality by, among other measures, redistributing land and empowering small and medium enterprises. His administration has vowed to bring the country’s Gini coefficient (a figure used to measure inequality) down to 0.34 by 2019 from 0.41 in 2014. The global average index reading is around 0.38.
DFI and Oxfam say in their joint report that Indonesia ranks an impressive number 23 globally in terms of tax policy — the best in the region — because poor citizens are exempt from value-added tax, corporations are subject to fairly high taxation and the country has virtually no harmful tax practices, such as safe havens. However, Indonesia’s main weakness is poor tax collection, with mediocre revenue of US$117.9 billion, equivalent to 11 percent of the GDP.
The head of Oxfam’s inequality campaign in Asia, Mustafa Talpur, said Indonesia had the potential to collect taxes of up to 20 percent of the GDP, which was feasible considering that European countries collected up to 20 percent.
“If the government can collect more taxes, it can spend more on health, education and so on,” Mustafa told The Jakarta Post.
Finance Minister Sri Mulyani Indrawati announced last year that she planned to increase tax revenue to 15.3 percent of the GDP, which would equal Rp 14 quadrillion ($919.8 billion) at present.
In terms of social spending, Indonesia ranked 98, the fourth-highest in the region. DFI and Oxfam noted that Indonesia spent 20.63 percent of its annual budget on education — as mandated by its Constitution, 7.1 percent on health and 10.7 percent on social protection programs, such as social insurance.
“I would say increasing health spending is the policy that will have the most impact, because it, for instance, will allow women to work instead of taking care of children,” said Martin.
In terms of labor rights, Indonesia ranked 116 worldwide and sixth in the region, indicating the country’s weakest inequality eradication effort to date.
Martin said Indonesia’s national minimum wage was still low compared to GDP per capita, despite “sharp” wage increases and efforts to equalize inter-regional wages through Government Regulation No. 78/2015. The national minimum wage last year stood at Rp 40.2 million per year — 8 percent higher than in 2016 — whereas the GDP per capita was Rp 62.9 million.
“But if the minimum wage continues increasing over the next few years, it will bring its rank above Thailand and Malaysia,” he said.
Martin added that Indonesia’s parental leave of 92 days was still inadequate, because it was far below the 120-day standard set by the International Labor Organization (ILO).
Supporting Martin’s point, Smeru Institute senior researcher Athia Yumna said that, based on her research, provincial and regency administrations were responsible for limiting the inequality reduction efforts of the central government.
So far, the government had reduced the Gini coefficient to a modest 0.39, a figure that even the Office of the Coordinating Economic Minister acknowledged in a statement last year was insufficient to reduce inequality. (nor)
