Social Protection System Review of Indonesia

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Indonesia has made impressive progress in reducing income inequality and improving living standards since the Asian Financial Crisis but the decline in poverty has slowed in recent years while inequality has risen and a large part of the population remains vulnerable. The Government of Indonesia has recognised the potential of social protection to address these challenges and to underpin a long-term development strategy based on more inclusive economic growth. As a consequence, social assistance programmes have grown significantly in recent years while social insurance has undergone major reforms. The Government is gradually realising its vision of a system of social protection, based on comprehensive and coherent coverage for all age groups.The Social Protection System Review of Indonesia charts the evolution of social protection. It explores the current context for social protection and how this is likely to evolve in the future, analyses the extent to which existing programmes are aligned to those needs and how effective these programmes are at reducing poverty. It also examines the financing of social protection. Finally, it proposes policies to enhance the social protection system across a number of dimensions, including programmes, institutions, financing and information architecture.



Financing social protection

Indonesia’s spending on social protection is low for a country at its income level but it has risen significantly in recent years and is emerging as a budgetary priority. This chapter locates social protection spending within broader Government of Indonesia expenditure and identifies how it fits into the intergovernmental budgetary system. It analyses spending on key social protection programmes as well as the spending dynamics of various programmes. It assesses the potential to scale up social protection, particularly the scope for higher levels of tax financing, and concludes by examining the fiscal incidence of taxes and transfers to understand their combined impact on poverty and inequality.


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