The Indonesian government released another policy package called the “Economic Justice Policy” aimed at improving welfare and reducing inequality in the country on Tuesday (31/01).
The package contains policy reforms in three areas, including the land and agriculture sector, access to capital for micro, small and medium-sized enterprises. The package is also aimed at improving job opportunities for individuals, by improving vocational education, entrepreneurship opportunities in order to provide equal access to the labor market, to secure jobs.
“This policy is an effort to increase low-income earners equity so they can have an opportunity to improve their quality of life,” Coordinating Minister for Economic Affairs Darmin Nasution said.
Policies in the land and agriculture sector, Darmin said, will give farmers without land, poor people in both cities and villages, and fishermen, access to acquire land.
The government will start collecting data on land ownership, verify land permits and make a record of land which has been cultivated for the use of planting sugarcane, tea, rubber, coconut, cacao, coffee and clove, which are Indonesia’s main commodities.
“The role of the private sector, is especially to provide quality improvements,” Darmin said.
The minister also said that one of the most effective tools to reduce inequality is the taxation system. The Indonesian government is mulling a plan to impose a progressive tax for those who have assets, strong capital and big profits to compensate those who are less fortunate in terms of their wealth.
Previously, the Ministry of Finance and Ministry of Agrarian Affairs and Spatial Planning said that both ministries are working together to draft legislation to impose a tax to discourage people buying land to be sold later to spur land prices.
The government also plans to impose a capital gain tax on land sales, as part of its efforts to better use taxation to distribute wealth more evenly across the population. Currently, income tax of 2.5 percent of the land is imposed, and the rate is rarely reviewed to match market value.
Yustinus Prastowo, the executive director of local policy think-tank Center for Indonesian Taxation Analysis (CITA), said this is the “right way of thinking,” but there are consequences.
“We must consider the technical problems related to the progressive tax on unproductive land, even if it’s good and worth supporting,” Yustinus said.
Yustinus referred to regional autonomy that allows local government to set the tariffs for certain tax objects such as the duty on land and building right acquisition. That may complicate how the reform could be implemented, Yustinus said.
The government’s latest policy package also aims to match the education system and the needs of the job market.
Separately, the Minister of Industry Airlangga Hartanto said the government is pushing forward programs to increase the number of competent industrial workers. The ministry will support vocational education, competency-based training, apprentice programs and push people to become adequately certified in their chosen profession.
Darmin’s comments came after President Joko “Jokowi” Widodo held a meeting with Vice President Jusuf Kalla, ministers and Thomas Trikasih Lembong at the State Palace in Bogor, West Java.
Indonesia’s Gini ratio — which measures the degree of inequality in income distribution — was at 0.40 last year, up from 0.36 in according to the Central Statistics Agency (BPS). The numbers reflect a widening gap between those living in poverty and those who do not.