Arguing for Indonesian Basic Income

By: Mickael B. Hoelmanand & Sugeng Bahagijo*

*) The Jakarta Post, July 22, 2014

Academics, policymakers, political representatives, NGOs and interested global citizens met recently in Montreal, Canada to attend the 15th International Basic Income Earth Network (BIEN) Congress. They were hosted by the Réseau Canadien pour le revenue garanti in partnership with the McGill Faculty of Law.

BIEN was founded in 1986 with aims to serve as a link between individuals and groups committed to, or interested in, basic income. In the course of two decades, it has become somewhat of a misnomer, as scholars and activists from various continents have actively joined the network. This time, the congress selected a provocative theme: ‘re’democratizing the economy’.

In the North, the recent global economic crisis has created a vast and dominant austerity response of national and international governing bodies across the globe. Individuals and families in both the developing and developed worlds are experiencing tremendous vulnerability and powerlessness against an economy seemingly spiraling out of control. Many believe the time has now come to radically rethink our response to the crisis and its resulting precariousness, and the structural organization of the economic fabric of our societies.

The situation is fairly relevant to Indonesia. Although Indonesia has been praised for its ability to pass through the global crisis, many people in the country are still experiencing widening economic inequality, poverty, financial insecurity and social exclusion. Different to many other countries, Indonesia has always faced an acute of lack of social spending that blends together with a very weak social security scheme.

Thus, the reformasi era opened the door to market liberalization, but has not yet had any impact on the structural economy. Until today, each of the three directly-elected presidents since 2004 and their cabinets have had to grapple with the weaknesses of the state: low tax ratio; distrust in political institutions; and the lack of institutional capacity to implement programs designed to address inequality.

Inequality in Indonesia has been blamed, among other things, on a dysfunctional tax and transfer system. The country’s tax and transfer system has proven ineffective as the tax ratio (tax receipts as a percentage of gross domestic product) has remained stagnant around 12 percent, far behind Organization for Economic Cooperation and Development (OECD) countries (34 percent), other middle income states (19’26.4 percent) or even low-income countries (14.3 percent) in the developing world.

In terms of income inequality, a recent study by the Center for Economics and Development Studies (CEDS) at Padjadjaran University in Bandung revealed a shocking figure showing that the share of the wealthiest 20 percent of national income increased from 40 percent in 2002 to 49 percent in 2012, while that of the poorest 40 percent decreased from 20 percent to 16 percent in the same period.

Another cause of inequality has been the inadequate social security system, which is still far from universal. This is reflected in, among other things, the law on social welfare enacted in 2009 that provides social security programs only for the very poor and vulnerable.

Other factors that have worsened inequality are the misplaced fuel subsidy, which has increased to as much as 30 percent of central government spending this year while most of the subsidy is enjoyed by the middle-class and top income consumers, and the absence of salary caps for corporate executives.

Indonesia badly requires a re-democratization in its economy. Economic re-democratization entails fairer burden sharing between the poor, middle and top income groups.

Re-democratization also requires an significant increase in social spending for strengthening and expanding social security programs, not just confined to the provision of goods or services.

During the international conference, we strongly recommended that Indonesia considers implementing the Jaminan Tunai Indonesia (JTI), or the Indonesian Basic Income program. The JTI should be made a universal basic income guarantee scheme covering three main vulnerable segments of the population in Indonesia: very old men and women and persons with disabilities. They represent 15 percent of Indonesia’s total population of 240 million, or equivalent to 38 million people. These social groups will be the key beneficiaries and constituents.

The JTI is crucial and suitable for Indonesia to serve the following purposes: first, to strengthen Indonesia’s tax and transfer system with a view to generate significant impact in efforts to reduce inequality and, second, to scale up the coverage and benefits of Indonesia’s social security system, which has long been inadequate and futile in ensuring that the people can lead more decent lives.

In our proposed basic income scheme, three social groups will be the key beneficiaries and constituents: single mothers; the elderly; and persons with disabilities. Unlike the current Program Keluarga Harapan (PKH), the basic income guarantee scheme refers to an unconditional cash transfer scheme for individuals (not households).

In the first five years, the JTI as we propose it should cover basic income for all 12 million senior citizens, 20 million persons with disabilities and 6 million single mothers. Thus, the total population covered by the JTI would reach about 38 million people.

They will be entitled to a monthly guaranteed income of Rp 500,000 (US$43.2). This will entail annual costs amounting to Rp 72 trillion for the elderly, Rp 120 trillion for people with disabilities and Rp 36 trillion for women, including single mothers. Total annual costs would reach Rp 228 trillion.

On a macro scale, the JTI is necessary and effective for reducing inequality. It is not intended to replace the ongoing health insurance and employment benefit program implemented under the national social security system.


Mickael B. Hoelman is a life member of the Basic Income Earth Network. He is also the program manager of the Tifa Foundation/Open Society Foundation Indonesia. Sugeng Bahagijo is a life member of Basic Income Earth Network and the Director of the International NGO Forum on Indonesian Development (INFID).