Middle Class Decline - According to the latest numbers from the Central Bureau of Statistics (BPS), the number of people classified as middle class has declined by close to 9.5 million in the past five years. In 2019, the middle class population in Indonesia numbered at 57.33 million. BPS data shows that this has dropped to 47.85 million in 2024.
The World Bank defines those in the middle class as individuals whose expenditure each month - used as a proxy for income - range from 3.5 to 17 times above the poverty line, which BPS data equates to approximately 2 million rupiah (US$130) to 9.9 million rupiah per capita.
The middle class population began to decline after the (COVID-19) pandemic, while the aspiring middle class increased. In line with the decrease in the number of people classified as middle class, the number of those classified as part of the aspiring middle class has increased within the same period of five years.
Those classified as part of the aspiring middle class segment of the population increased from 128.85 million in 2019 to 137.5 million this year. They form 49.22 per cent of Indonesia’s population. These two segments make up about 66.6 percent of the country’s population, and stressed the importance of the middle class for Indonesia's economy, describing it as the driving force for economic growth.
The Golden Indonesia 2045 vision is a long-term plan which aims to make Indonesia an advanced and prosperous country by its 100th independence anniversary. To support the middle class, the government has implemented various initiatives, including social protection programs, tax incentives, the Pre-Employment program, as well as the People's Business Credit scheme, among others.
Post Covid - However, analysts said that beyond the lingering effects of COVID-19, other reasons that have contributed to a decline in Indonesia’s middle class population include weak national economic fundamentals, burdensome government policies, as well as the absence of a robust social safety net.
The weak performance of the manufacturing sector is a significant factor in the shrinking middle class. The downturn in the manufacturing sector has led to widespread layoffs and the decline in the industry's share of the gross domestic product.
Since the beginning of 2024, the Indonesian Confederation of Workers Unions of the Archipelago has predicted that layoffs in the labour-intensive manufacturing sector could affect as many as 100,000 people.
VAT - One government policy that has further strained the public’s purchasing power is the increase in the value-added tax (VAT) rate, which took effect on Apr 1, 2022. The VAT increase contributes to higher retail prices. This added to the higher cost of living situation is further exacerbated by the lack of social safety nets for the middle class, since most of the government's focus is primarily on providing social assistance to the poor.
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