High noon for Jokowi’s social welfare ambitions
Developing social welfare appears to be President Joko “Jokowi” Widodo’s resolution for 2017. In his first Cabinet meeting of the year, Jokowi urged his ministers to “work as hard as we can” to narrow the country’s widening inequality.
Indonesia’s inequality has risen sharply in the past 15 years, from a Gini coefficient of 0.33 in 2002 to 0.41 in 2016 (zero means perfect equality and 1 perfect inequality).
Indonesia’s level of inequality is now considered to be relatively high and climbing faster than most of its neighbours, according to the World Bank. Between 2003 and 2010, the richest 10 per cent of Indonesians saw their spending grow 6 per cent per year. But for the poorest 40 per cent, consumption grew by less than 2 per cent per year.
President Jokowi has tried to address the issue by eliminating a multibillion-dollar fuel subsidy a couple of months after he stepped into office, redirecting the funds into job-producing infrastructure projects, as well as social programmes.
The president introduced free healthcare services via the Indonesia Health Card as well as government subsidies for student fees.
Those were on top of existing social programmes such as the National Social Security System (SJSN), which encompasses health, pension and anti-poverty insurance for all – a major boost to Indonesia’s welfare state – the full implementation of which is slated for 2019.
Meanwhile, rice subsidies from the 1990s and conditional cash transfers for the very poor households in the bottom 10 per cent of society still operate.
Jokowi’s social welfare drive has been prominent since his 2014 campaign and will likely remain so if he seeks re-election two years from now.
However, the devil is in the realisation of these promises. There are three structural stumbling blocks that may hinder social welfare improvement, none of which can be solved overnight, or even during a single five-year term presidency.
First, raising state revenues to boost social spending is problematic. Indonesia has been struggling to boost its stubbornly low tax ratio which, at about 11 per cent of gross domestic product, is among the lowest in the region.
To make matters worse, the government has in past years failed to meet its tax collection target to cover its regular spending, let alone to pay for new social programmes. Of course, new programmes to help those in poverty would not require massive budget commitments, but most of our state spending goes on routine expenses, such as civil servant salaries, limiting the funds room for extra social spending.
Second, Indonesia’s social spending is very low by international standards and catching up would require a total overhaul of the state budget.
State spending for social protection reached 150.8 trillion rupiah (Bt400 billion) in 2016, up from only 5.1 trillion rupiah in 2012. This compares with the more than 1 quadrillion the state spent overall each year during this period.
Indonesia’s public social expenditure as a percentage of GDP is among the lowest worldwide, at less than 5 per cent in 2012, compared with an average of 22 per cent for developing countries.
Data on social spending for Indonesia is limited and may distort this point, but considering the low state budget contributions to GDP, we can expect social spending to also account for a small portion of the overall economy.
Third, the huge human-capital gap between rural and urban Indonesia slows down efforts to push for social programmes outside cities.
The ongoing exodus of workers to Jakarta and Java indicates low work opportunities in outlying regions. Poverty rates in villages are also much higher than in cities, although inequality is narrower.
Another case in point is the government’s requirement that regional governments allocate 25 per cent of their budgets for infrastructure spending. Many regions are still finding difficulties meeting the target, saying the concept is too abstract to be realistic.
The good news is that the government’s strong will in addressing social welfare, coupled with Jokowi’s “work, work, work” and “mental revolution” attitude, is shedding light on the social policy breakthroughs required to enlarge the welfare state so that it acts as a safety net – and perhaps trampoline – for the poorest Indonesians.
After all, it is the government’s duty to protect the poor.
