Worsening Inequality and Pro-Investor Policies

Worsening Inequality and Pro-Investor Policies
By Gede Sandra, economic analyst at Universitas Bung Karno

IO – Expenditure inequality, described by Statistics Indonesia (BPS) as a Gini ratio, has increased from 0.381 (March 2020) to 0.384 (March 2021). In urban areas, this has spiked from 0.392 (March 2020) to 0.401 (March 2021). This means that people are spending less of their income.

The Gini ratio mostly applies to the poor, who do not have savings, but not to the über rich, upper- or middle-class consumers.

Why? Because for the rich, reducing their expenditures does not mean they are getting poorer. It may in fact mean that they are saving more. This can be confirmed by third-party funds (DPK) which during the pandemic actually increased by 6.5 percent year-onyear. This suggests that the actual
inequality rate may be an undercount.

The fact is, poverty is rising, while at the same time the wealthy are becoming richer. According to BPS, the number of poor in March 2021 increased by 1.1 million over the previous year’s number. The total poor population stands at 27.5 million citizens (based on a poverty line set at Rp472,525/capita/month).

On the other hand, the “rich population” has also increased. According to Credit Suisse, the number of Indonesians with a net worth of $1 million jumped 61.7 percent in 2020, to 171,740 individuals. Meanwhile, the über-rich, with a net worth exceeding $100 million, are recorded at 417 individuals, up by 22.3 percent from 2019.

What really takes place in society is a refection of government policies. So, if inequality is getting worse, the poor are getting poorer and the rich are getting richer, this is a natural consequence of the Government’s own policymaking.

The main cause of inequality is the fiscal policy undertaken by the Indonesian government, in this case Finance Minister Sri Mulyani, who is too pro-investor, rather than pro-people. My term for this is NKRI or the Unitary State of the Republic of Investors.

For example, the government is mulling a second round of tax amnesty, even though we can clearly see which side won the first round– investors and tax-evading big conglomerates. If this is to be repeated, what mind-boggling nonsense!

For investors, the Government also dished out various fscal stimuluses: coal royalty waiver (for downstream), a luxury tax exemption for car purchase and yachts, lower corporate income tax rate (from 25% to 20% for non-publicly listed companies and from 20% to 17% for publicly-listed companies), relaxation of import income tax and corporate income tax payments. These are all the Finance Minister’s policies.

In the banking sector, Government policies are also tilted toward
investors and entrepreneurs. According to the Financial Services
Authority (OJK), as of July 2021, Rp779 trillion in loans had been
restructured. Meanwhile, the National Economic Recovery (PEN)
funds, mostly allocated to support businesses, increased to Rp699.4
trillion in 2021, from Rp575.8 trillion in 2020.

Furthermore, in the Job Creation Law, investors and entrepreneurs
also received multiple incentives. The “meat” of the law is an automatic contract extension for mining companies, the decision of which is supposedly determined by the state. The “fat” is relaxed requirements for
food importers; while the “entrails” is the abolition of workers’ rights, which will only beneft factory owners.

Taken all together, the government has afforded plenty of facilities to investors and the rich. Meanwhile, for ordinary people, there are only higher tax and service charges: a plan to increase Value-Added Tax (VAT) from 10% to 12%, cigarette excise tax to 12.5%, plans to impose VAT for educational services, electricity price increase, fuel price hike, plan to tax basic foodstuffs. All these, piled up, even though we know the lives of many people have severely impacted by the Covid-19 pandemic. So, we should not be surprised if the poverty rate continues to climb alarmingly. (Gede Sandra)