Tackling yawning income gap in Indonesia

Tackling yawning income gap in Indonesia

For the last 10 years, poverty reduction has been considered one of the most pertinent issues in Indonesia's development policies. This is in line with the commitment to fulfil the Millennium Development Goals, which aim to halve the number of people living on less than US$1 a day, according to the UNDP.

In its 2011 report, the National Development Planning Board (Bappenas) claimed that this particular goal had been accomplished.

And while such an achievement deserves credit, it is high time to push the boundaries one step further by addressing the issue of inequality.

A study published by the Institute for Public Policy Research pointed to two pivotal reasons why we need to broaden our development agenda through incorporating the notion of inequality. The first is intertwined with inequality in terms of income disparity.

In the last 10 years, Indonesia's economic growth has accelerated to over 4-6 per cent, a GlobalEdge study reported. One of the tangible impacts of such growth is a significant increase in gross domestic product (GDP), which in 2012 amounted to approximately $878 billion, the World Bank reported.

This positive trend should not make us complacent because the ugly truth is that our society is becoming more unequal. Based on the latest report, our Gini index - which reflects income disparities, with 0 indicating perfect equality and 1 showing perfect inequality - has been steadily rising from 0.37 in 2012 to 0.41 in 2013 (The Jakarta Post, Feb. 7, 2014).

A recent study by the International NGO Forum on Indonesian Development (INFID) in some regions found a sheer gap in income. For example, the monthly minimum wage in Jakarta, which is set at about 2.5 million rupiah (S$275), is highly incomparable to the salary of a CEO of a state-owned enterprise, who earns 250 million rupiah per month.

Such a condition is exacerbated by our tax system, which hurts not only the poor but also the middle class. In 2010, revenue collected from income tax (PPh, Article 21) nationwide was 55.3 trillion rupiah. This figure stands in contrast to the revenue collected from the private income of non-employee/entrepreneurs (PPh articles 25/29), which only stood at 3.6 trillion rupiah, according to a 2012 study by the Prakarsa research centre.

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