Indonesia’s Middle Class Eroding, A New Threat to National Economic Stability

The middle class, which has long been the backbone of Indonesia’s economic growth, is now facing significant pressure. A sharp decline in the number of middle-class citizens has the potential to hinder the pace of the national economy and widen social inequality.

Middle-Class Population Drops by 16.5 Percent

Data from the Central Statistics Agency (BPS) shows that the number of people classified as middle class has shrunk from 57.33 million in 2019 to 47.85 million in 2024. This represents a decline of approximately 16.5 percent over the past five years.

Key Factors Behind the Decline

Some main causes of the middle class erosion include:

Limited Formal Employment Opportunities
Job growth has mostly occurred in the informal sector, which does not provide job security or stable income.

Rising Cost of Living
Inflation along with increases in education and healthcare costs continue to reduce the purchasing power of the middle class.

Burdening Fiscal Policies
The increase of the Value Added Tax (VAT) to 12% and the implementation of programs such as Tapera are considered to add to the financial burden of the middle class.

Concerning Economic Impacts

The decline in the middle class triggers a domino effect on the economy, including:

Weakening Household Consumption
As the main contributor to domestic consumption, reduced spending from this group could potentially lower national economic growth.

Strategic Actions Needed

To reverse this trend, policymakers are encouraged to take concrete steps such as:

Promoting Formal Job Creation
The government should direct investment into labor-intensive sectors that offer job security and sustainable employment.

Fiscal Policy Reform Favoring the Middle Class
Providing tax incentives, targeted subsidies, and economic policies that alleviate the financial burden on the middle class.

Investment in Education and Skills Development
Strengthening human resource capacity through training and education will improve the competitiveness of the middle class in the digital era.

The current condition of Indonesia’s middle class demands serious attention. Considering their strategic role in maintaining purchasing power and social stability, the government needs to promptly formulate inclusive and proactive policies to strengthen the middle class for the sustainability of national economic growth.