• Indonesia's middle class has decreased from 21.45% in 2019 to 17.13% in 2024, despite economic growth goals.
• The decline is attributed to economic difficulties and decreased purchasing power, with the middle class at risk of falling into poverty.
• The government aims to support the middle class with measures like tax incentives, subsidies, and human resource development programs.
• The decline in the middle class impacts Indonesia's 2045 vision of having 80% of the population in the middle class, indicating a slowdown in social and economic progress.

Indonesia, a Southeast Asian nation, is wrestling with a significant decrease in its middle class, even as it aims to achieve an economic growth target of 5.2 per cent by 2025. The Statistics Indonesia (BPS) disclosed that the middle class, which represented 21.45 per cent of the country's total population in 2019, plummeted to 17.13 per cent by 2024. This decline has sounded a critical alarm, as Indonesia's 2045 vision targets the middle class at 80 per cent of the population.

The acting head of BPS, Amalia Adininggar Widyasanti, stated that many people have faced economic difficulties during the recent crisis, leading to a decrease in their purchasing power. The middle class now faces a greater risk of falling into the vulnerable group. In the face of ongoing global economic challenges, Widyasanti said the middle class finds it increasingly difficult to move up to the upper class and is at risk of falling back into the approaching middle class or even poor categories.

The Chairman of the House Budget Committee, Said Abdullah, emphasized the importance of a robust middle class, citing its vital contribution to boosting domestic consumption, tax revenue, and fostering social and economic stability, all of which are essential for economic growth. A decline in the middle class could also potentially reduce domestic consumption, which significantly contributes to economic growth, he said.

Government Measures to Support the Middle Class

In the 2025 state budget, the government has proposed an economic growth target of 5.2 per cent for 2025. Abdullah said that Indonesia has surpassed this figure once between 2015 and 2023, achieving a 5.31 per cent growth in 2022. From a structural perspective, Abdullah mentioned that the challenge of boosting economic growth while increasing the middle class involves high economic costs, legal affairs and quality of human resources. He urged the government to address these structural issues.

Finance Minister Sri Mulyani Indrawati highlighted the government's efforts to support not only the poor but also the middle class, including subsidies for necessities and energy, credit and value-added tax exemptions. The government is also committed to strengthening the middle class through tax incentives, human resource development programs, and affordable healthcare access, Indrawati said.

Coordinating Ministry for Economic Affairs Secretary Susiwijono Moegiarso said that increasing quota for subsidized housing from the original target of 166,000 units to 200,000 units is part of the government's commitment to expand the middle class. Increasing the middle class contributes significantly to expanding the tax base, he said.

Challenges and Future Prospects

Meanwhile, Raden Pardede, advisor to the coordinating minister, stressed the importance of developing the formal sector, particularly quality manufacturing, where job opportunities are broader and decent wages are available.
"This aims to boost people's purchasing power, prevent the middle class from falling into vulnerable categories, and create high-quality jobs. Previously, our garment industry only produced towels, shirts, T-shirts and sarongs. Moving forward, we must be able to produce branded products like Uniqlo (a Japanese casual wear firm). The jobs may be the same, but the quality of the products differs," he said. Improving product quality is essential for driving middle class growth and enhancing global competitiveness, he said.

The Indonesian government's commitment to supporting the middle class through tax incentives, subsidies, and human resource development programs aligns with the views of economic experts and stakeholders who emphasize the importance of a robust middle class for sustained economic growth and social stability. These measures are seen as critical for enhancing purchasing power, promoting domestic consumption, and fostering a skilled workforce that can contribute to higher productivity and innovation.

Indonesia faces several structural challenges in boosting its economy and expanding the middle class, particularly given the global economic situation. These include macroeconomic instability, a transition from agriculture to higher productivity sectors, unemployment and underemployment, an education and skills gap, sustainability and competitiveness issues, global economic challenges, and income inequality.
Addressing these challenges requires comprehensive policy interventions, including fiscal and monetary policies, investment in education and infrastructure, and creating an environment conducive to business growth and job creation.

Decline impacts 2045 Vision
The decline in Indonesia's middle class significantly impacts the country's 2045 vision, which aims to have 80 per cent of the population as part of the middle class by that year. The reduction in the middle class size hampers this goal as it suggests a slowdown in social and economic progress. A larger middle class is crucial for sustained economic growth, social stability, and higher domestic consumption, all of which are key elements in Indonesia's vision for a prosperous society by 2045.
The current trend, if not reversed, could mean falling short of the ambitious target set for the middle class expansion. The effectiveness of these programs depends on their implementation, efficiency, and the ability to reach those who need them most. The government's measures aim to create an enabling environment where the middle class can thrive, contributing to a more equitable distribution of wealth and a stronger economy overall.
However, the success of these initiatives will largely depend on the government's ability to effectively implement them and ensure they reach the intended beneficiaries.