The SUAR team explored the thoughts of decision-makers, company leaders and economic observers regarding the increasingly difficult condition of Indonesia's middle-class population to prosper through the Business World Universe Survey.

Highlights:

• People in the middle class in Indonesia have not yet reached a prosperous status (76.3%). The reasons are low purchasing power (44.8%) and limited savings (24.1%).
• This middle-class group also still finds it difficult to find formal employment and a decent income (89.5%).
• This middle-class group has not received adequate attention from the government (76.3%).
• Policies that are considered to help the middle class become more prosperous include providing formal employment (31.6%) and providing tax incentives or facilities (26.3%).
• The government needs to expand the scope of social protection to target not only the poor, but also the middle class.

Before the Covid-19 pandemic struck in 2020, Indonesia was growing as one of the countries with a promising economy. For more than 50 years, Indonesia's economy has grown by an average of 5.6% per year. In 2019, Indonesia's per capita income reached US$4,106. The poverty rate has also been reduced to 9.2%.

In line with this, Indonesia's middle class is growing. In 2019, data from the Central Statistics Agency (BPS) showed that one in five Indonesians belonged to the middle class. This amounted to 57.33 million people or 21.45%.

Some of thepoor andvulnerable people who managed to move out of poverty did not immediately move into the middle class, but entered the aspiring middle class. The number at that time was around 115 million people. If the economy continues to improve, they will move up.

The middle class is the main driver of Indonesia's economic growth, especially in terms of consumption. Consumption in this group has grown 12% per year since 2002 and represents almost half of all household consumption in Indonesia.

The middle class with high education and skills is also capable of creating jobs.

The middle class is generally a population with better education and skills. They usually work as white-collar workers in the formal sector and mostly live in urban areas. With higher education and skill levels, many go on to run their own businesses or become entrepreneurs. Thus, they also create jobs for others.

With such great potential for the middle class, Indonesia's hopes of becoming developed are wide open. Unfortunately, the Covid-19 pandemic has shattered that hope. In 2020, the number of middle class declined as per capita income declined. The poverty rate also increased again.

Since then, the middle class has gradually declined. In 2021, the number will be 53.83 million people (19.82%). In the following years, the number continues to shrink until in 2024 it becomes 47.85 million people (17.13%). This decline is followed by a reduction in the number of people working in the formal sector.

Before the pandemic, the number of people working in the formal sector based on BPS data was 44.12% of the total working population. Due to the pandemic, in 2020 the number of workers in the formal sector fell to 39.53%. After the economy began to recover from the pandemic, the number of people working in the formal sector increased. Unfortunately, the increase was very slow, so the condition has not returned to what it was before the pandemic. In 2024, the number of people working in the formal sector was 42.05%. 

The middle class is still struggling to prosper

BPS uses the World Bank's reference in categorizing the population based on expenditure. The middle class is households whose monthly expenditure ranges from 3.5-17 times the poverty line. With a poverty line in 2024 of Rp 595,242 (September), the expenditure of the Indonesian middle class is between Rp 2 million and Rp 10 million per capita per month.

Meanwhile, theaspiring middle class is the group with expenditure of 1.5-3.5 times the poverty line or around Rp 900,000-Rp 2 million per capita per month.

With this amount of expenditure, the Indonesian middle class, in the opinion of many economists, is a group that is still far from prosperous. This is because the income of middle-class households is usually relatively equal to their expenses. Thus, they find it difficult to save. The biggest expenses of this group are usually for food consumption, paying taxes, children's education costs, and housing installments.

This portrait of a middle class that is difficult to prosper is also reinforced by a survey conducted by the SUAR Team.

According to the majority of survey respondents, Indonesia's middle-class population is not yet prosperous (76.3%). The reasons are low purchasing power (44.8%) and limited savings (24.1%). Instead of becoming prosperous and moving towards high-income status, the Indonesian middle class is forced to live in a "mantab" phenomenon, aka eating savings.

A number of other reasons were also raised, such as the fact that many still work in the informal sector, the condition of some people who find it difficult to get higher education, the many economic pressures, and the lack of attention from the government.

The government's lack of attention to the middle class can be seen from the fact that this group is not covered by social security and does not receive social assistance because they do not meet the criteria. In addition, they also face economic burdens due to tax increases.

Since April 1, 2022, the government raised the Value Added Tax (VAT) from 10% to 11% to increase state revenue. The government gradually plans to increase the VAT rate. It was originally planned that as of January 1, 2025 there would be an increase in VAT to 12%, although it was later canceled by presidential order.

Law Number 7 of 2021 concerning Harmonization of Tax Regulations in Article 7 paragraph (3) explains that the central government can change the VAT rate to a maximum of 15%.

The government's move to increase VAT is based on Law Number 7 of 2021 concerning Harmonization of Tax Regulations. Article 7 paragraph (3) even explains that the central government can change the VAT rate up to a maximum limit of 15% and a minimum of 5%. The implementation will be derived through a Government Regulation.

The economic pressure experienced by the middle class due to the lack of government attention can also be seen in the vulnerability of this group to rising prices, especially food prices. The largest portion of the consumption of the lower middle class and the poor is food, especially rice. An increase in the price of rice, which is usually followed by the prices of other necessities, will put further pressure on the lives of the middle class.

High inflation further erodes the purchasing power of the middle class whose income is limited. The small income of the middle class is due to their limited access to jobs in the formal sector.

This was also recognized by the survey informants. The majority of interviewees agreed that it is difficult for the middle class to find formal employment and a decent income (89.5%). This condition cannot be separated from the number of workers who have experienced layoffs in the past year.

The decline in the number of Indonesia's middle class since the pandemic until now actually signals that the government's work has not focused on the group that is the engine of economic growth. In fact, the government is targeting economic growth of up to 8%.

If government policies are not directed at improving the condition of the middle class, then the wheels that will turn the economy will work harder. Therefore, a special strategy is needed to keep the middle class from going downmarket.

Helping the middle class

According to respondents, policies that are considered to help the middle class become more prosperous include providing formal employment (31.6%) and providing tax incentives or facilities (26.3%).

Job creation in the formal sector will absorb more labor and provide a better income. This will increase people's purchasing power. Food price stability also needs to be maintained by ensuring the smooth availability of supplies, so that consumption can vary beyond food needs.

Increased public consumption will certainly drive the economy so that growth can be high. However, the newly improved condition should not be burdened with tax increases. There needs to be room for the middle class to save so that asset accumulation occurs. Thus, slowly the condition of the middle class will improve and become prosperous.

As many as 10.5% of the interviewees were of the opinion that the middle class should also receive social assistance and food/non-food subsidies like those received by the poor. This policy must of course adjust to the government's financial condition because it will be related to budget allocations.

In addition, the middle class also needs training and development programs (7.9%). This is so that they have a high bargaining position and can expand their access to jobs in the formal sector.

Methodology and respondent profile

The Business World Universe Survey was conducted from September 9 to September 25, 2025. A total of 38 resource persons (respondents) were selected by purposive sampling from the business world and economic observers. From the business world, the position of the resource persons varied, ranging from director, managing director, to owner.

In terms of education, most of the respondents had an undergraduate degree (50%) and postgraduate degree (42.1%).

Author: Gianie