New RI social security law: A blessing or curse for workers?
New RI social security law: A blessing or curse for workers?
Alex Arifianto, Jakarta
On Sept. 28, 2004, the House of Representatives (DPR) endorsed
the bill on the National Social Security System (popularly called
the RUU SJSN). With its endorsement, the bill is scheduled to
become law within a month.
Among key features of the new law is that it mandates the
creation of several social security schemes for citizens: Old-age
pension, old-age savings, national health insurance, work-injury
insurance, death benefits, and severance payments for laid off
workers.
The law also mandates that, within the next decade or so,
social security coverage should be expanded to cover all
citizens, including the informal sector, the unemployed, and the
poor.
The schemes above would be largely financed by payroll taxes
imposed on employers and workers, mostly in the formal sector. In
addition, the government will subsidize the contributions of the
poorest citizens.
However, while the new law seems to be a very good law on
paper, especially given that Indonesia had no comprehensive
social security policy until the law was enacted, it was opposed
by most stakeholders related to social security issues --
including employers' associations, labor unions, pension and
health care companies, and independent experts. Why is this the
case?
First of all, stakeholders believe that the drafting process
of the law was not open and transparent. Many felt they were
excluded from the deliberation of the draft law, and even when
the drafters consulted them, they did not incorporate their
views.
More importantly, stakeholders believe that the payroll tax
required to finance the various social security schemes is set at
a very high rate. While exact figures are not available, it is
estimated that the total amount of the tax rate would be between
20 to 25 percent of workers' payroll. This is a considerable
amount for many Indonesian workers, especially those in the
lower-middle income category.
In comparison, the social security tax rate in Thailand is
only about 5 percent of workers' payroll, and in the Philippines,
it is about 13 percent of workers' payroll.
Since Indonesia's tax rate is much higher than that of
neighboring countries, it is feared that Indonesia would continue
to lose its business competitiveness in relations with our
neighbors, driving more companies to relocate to these countries
and leaving more of our workers jobless.
In addition, many questioned whether the social security
scheme would be sustainable in the long run, that is, it is able
to pay its promised benefits to all participants in full. In
order to be considered financially sustainable, a social security
scheme should be able to pay all promised benefits for up to the
next 75 years.
Additionally, given that demographers have estimated that, by
the year 2050, about one-third of all Indonesian citizens would
be aged 60 years old, or older, there would be a great demand for
social security benefits from this population within the next few
decades.
Unfortunately, we cannot determine whether the Indonesian
scheme would be financially sustainable, since no actuarial cost-
benefit analysis has been performed for the Indonesian plan.
Thus, no one knows for sure whether the proposed contribution
would be adequate to fully finance these benefits once many
Indonesians reach old age or retire.
Many social security schemes throughout the world are in
danger of becoming insolvent due to the population aging
phenomena that have occurred in most countries in the world. For
instance, in the Philippines, the number of new retirees eligible
for pension benefits more than doubled in the 1990s. This caused
the funds accumulated in the country's social security trust fund
to decline significantly, so that it is now predicted that the
fund will be completely depleted by the year 2015.
It is also estimated that the hidden public pension debt in
the Philippines is about US$21 billion (Rp 200 trillion). We
could predict that, should the Indonesian scheme becomes
insolvent, the Indonesian government, and eventually Indonesian
citizens, would be obliged to pay a substantial number of new
debts that could amount to be up to three times larger than the
debt incurred by the Philippines' social security system (around
$63 billion or about Rp 598 trillion).
Since Indonesia already has a large amount of public debt
(estimated at $136 billion or around Rp 1,292 trillion) as of
March 2004, this country cannot afford an extra Rp 598 trillion
in additional debt.
Finally, stakeholders were concerned because, according to the
law, social security provisions would continue to become the
monopoly of social security state enterprises, such as PT
Jamsostek, PT Taspen, PT Askes, and PT Asabri. Given that many of
these enterprises have significant governance problems in their
management, stakeholders were concerned that their social
security contribution would not be well managed by these
companies.
Instead, they prefer a more competitive system in which all
companies, both government and privately owned ones, could
provide social security coverage for all Indonesians, after they
have met selected criteria set up by the government.
In conclusion, while the new social security law is the first
step in providing adequate social security benefits for all
Indonesians, it needs to be amended further, so that the schemes
proposed by the law are more transparent and financially
sustainable. If this law is revised, the views of all
stakeholders involved should be heard and incorporated into the
amended law, including their demands for a more accountable,
affordable, sustainable, and competitive social security system.
The writer (aarifianto@smeru.or.id) is an economist with the
SMERU Research Institute, a Jakarta-based public policy think
tank. The views expressed here are solely his own.