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Income gap widening despite development programs

Jakarta Post - August 22, 2014

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Jakarta – Economists have concluded that despite the country's intensified development program, income inequality has worsened over the past 10 years.

"A number of indicators show that the income gap is becoming wider and wider in this country," said Arief Anshory Yusuf, an economist from Padjajaran University on Thursday during the launch of Indonesia's Development Gap from Various Aspects, a book about the widening gap between the country's rich and poor.

Arief said that one of the indicators was Indonesia's Gini coefficient. The Gini coefficient is a way of portraying how income is distributed within a nation and is a measure between 0 and 1. A measure of 0 indicates a perfectly equal society, where 50 percent of the population receives 50 percent of the total income. A measure of 1 indicates the most unequal society, where 100 percent of total income is held by a single person.

Indonesia's Gini coefficient increased steadily from 0.33 to 0.41 – the country's highest-ever ratio – between 1990 to 2013, when development was booming.

Arief said that a number of issues, such as a high corruption rate and subsidies falling short of targets, were responsible for maintaining the wide gap. "There has been minimal progress on closing the income gap. Low income people are still having trouble getting formal jobs," Arief said.

Yustinus Prastowo, a tax policy consultant and one of the authors of the book, said that the government should tailor fiscal policy to address the rising income inequality. He said that short-term policies such as imposing high, progressive taxes for certain groups and redirecting budget funds from fuel subsidies to other sectors like health and education were imperative. "Very rich people who annually take in between Rp 1 billion and Rp 10 billion should pay around 40 or 45 percent in [income] tax," Yustinus said.

A study by the International NGO Forum on Indonesian Development (INFID) identified large income gaps in several regions in Indonesia in 2014. For example, the monthly minimum wage in Jakarta, which is set at Rp 2.5 million (US$213), is dwarfed by the salary of a state-owned enterprise CEO, which stands at Rp 250 million per month.

Meanwhile, Arif Budimanta, an Indonesian Democratic Party of Struggle (PDI-P) lawmaker in Commission XI overseeing the economy, said that a state intervention was needed to close the income gap.

"The upcoming government must do something about it through State Budget policy. Under current conditions, the gap will become wider if we let the market work on its own," he said.

Arif added that aside from adjusting tax and subsidized fuel policies, the government must boost development in rural and border areas rather than focusing on urban development. He said further that the government must consolidate its demographic data before making any important policy.

"Demographic data from the Central Statistics Agency [BPS] does not match with the Home Ministry's data. These figures should be consolidated and become the road map for any government policy," he said. (idb)

Source: http://www.thejakartapost.com/news/2014/08/22/income-gap-widening-despite-development-programs.html.