JAKARTA (Yosefardi) – Inequality in Indonesia is climbing faster than in most of its East Asian neighbors, raising the concerns of many Indonesians, says a new World Bank report.
According to a 2014 survey on public perceptions of inequality, most Indonesians see ‘very unequal’ income distribution and urge government action to reduce inequality. Over the last 15 years, the Gini coefficient – a measurement of inequality – has
increased sharply in Indonesia, climbing from 30 in 2000 to 41 in 2013, where it remains now.
With the potential of creating social tensions, inequality constrains a country’s growth potential, according to the report Indonesia’s Rising Divide.
Concern about the long-term implications of inequality influenced 60 percent of survey respondents to say that they are willing to accept lower economic growth in exchange for lower inequality.
In response, the Government is targeting to lower the Gini coefficient to 36 by the year 2019, and the example of countries such as Brazil show that public policy can help reduce inequality, particularly if the policies address the main drivers of inequality in Indonesia: inequality of opportunity, inequality in the labor market, high concentration of wealth, and unequal resilience to shocks.
Specifically, social protection programs such as conditional cash transfers and education subsidies, as well as skills training for informal workers who missed out on a quality education, can help the poor and vulnerable climb out of hopeless situations.
Collecting more would also help bridge the income divide. Revenue from personal income tax currently makes up only 10% of tax revenues; a broader tax base would provide the revenue required for increasing spending on infrastructure, health and education, social assistance and social insurance.
Other options for government include improving local service delivery and promoting better jobs, through greater investments in infrastructure.