Akmalal Hamdhi, Jakarta – Indonesia's middle class – long regarded as the backbone of domestic consumption and a key driver of national economic growth – has been shrinking sharply over the past five years, prompting calls for urgent government intervention, including tax relief.
According to the Central Statistics Agency (BPS), the number of Indonesians classified as middle class dropped from 57.33 million in 2019 to 47.85 million in 2024 – a decline of nearly 17 percent.
Economists warn that if the trend continues, it could trigger a rise in poverty, erode purchasing power, slow the circulation of goods and services, and ultimately lead to mass layoffs.
"The phenomenon of a shrinking middle class could worsen rapidly," said Bhima Yudhistira, Executive Director of the Center of Economic and Law Studies (Celios), on Thursday.
Tax relief
Celios is urging the government to extend fiscal support to middle-income earners, including cutting the value-added tax (VAT) rate from 11 percent to 8 percent – similar to Vietnam – and raising the monthly non-taxable income threshold (PTKP) to Rp 7.5 million ($480) to boost disposable income.
Bhima criticized the government's current policy focus, saying it has largely favored large corporations with tax holidays and allowances rather than targeting relief for the middle class.
"The government also lacks the political will to tax the wealthy, for example, through a wealth tax," he said.
Celios further proposed redirecting fiscal incentives from big business toward programs that directly benefit middle- and lower-income groups.
Risks of inaction
Bhima warned that without decisive measures, many in the middle class could fall into poverty, widening economic inequality and increasing the risk of social unrest.
He also noted that extending social assistance to the middle class has been hampered by poor data accuracy. "Even households below the poverty line often miss out on aid due to weak database management," he added.