ASIATODAY.ID, JAKARTA – The decline in the number of middle class people in Indonesia is the main issue in the 2025 Economic Outlook held by the National Research and Innovation Agency (BRIN) at the BRIN Gatot Subroto Area Office, Jakarta, Wednesday, December 11 2024.
Head of BRIN’s Center for Macroeconomic and Financial Research, Zamroni Salim, said that the number of the middle class had experienced a significant decline of 18.8% in the last few years, from 57.33 million to 48.27 million. This decline has a direct impact on purchasing power, domestic consumption and national economic stability.
According to Zamroni, one of the main causes of the decline of the middle class is increasing economic pressure, including increases in taxes and living costs.
“The middle class faces heavy burdens, such as increases in income tax rates, additional levies such as Public Housing Savings (TAPERA), and excise taxes on sweetened foods and drinks. This narrows their economic space,” he said.
Apart from that, domestic consumption, which has been the main driver of economic growth, has also been affected. The decline in the purchasing power of the middle class hampers the growth of the production sector, which ultimately limits employment.
“This condition has a domino effect on the manufacturing and service sectors, which depend on the stability of middle class consumption,” explained Zamroni.
The solution to overcome this decline, according to Zamroni, must focus on policies that support the middle class, such as reducing the tax burden and economic incentives.
“The government needs to review policies that burden the middle class. “Support such as energy subsidies or more inclusive social programs can help improve their purchasing power,” he added.
Apart from that, Zamroni emphasized the importance of quality investment to create new jobs in strategic sectors, such as manufacturing and technology.
“Investment with a high multiplier effect, such as in the textile, food and technology-based industry sectors, must be a priority to strengthen the middle class,” he stressed.
The government is also expected to be more proactive in improving the quality of human resources through education and health.
“Improving the quality of Human Resources will open up opportunities for the middle class to grow again and contribute significantly to the economy,” he said.
In addition, Zamroni underscored the need to focus on regions with a low human development index (HDI).
“Underdeveloped areas such as Papua, Maluku and South Kalimantan require special attention to improve the quality of life and economic access of their citizens,” said Zamroni.
Through a combination of policies that support the middle class and increasing quality investment, Zamroni is optimistic that Indonesia can restore stability to the middle class as the main pillar of economic growth.
“The middle class is the heart of our economy. Keeping them strong means safeguarding Indonesia’s economic future,” he concluded.
Transformation Strategy to Achieve the 8% Economic Growth Target
The Indonesian government is targeting economic growth of 8% by 2025. However, to achieve this target, a holistic and comprehensive economic transformation strategy is needed.
Zamroni also outlined the main challenges faced and the strategic steps that must be taken to realize this growth.
According to Zamroni, one of the main challenges is the dependence of the Indonesian economy on domestic consumption and government spending.
“Economic growth has tended to stagnate at 5% because it still depends on consumption and government spending. “To reach 8%, we must strengthen the manufacturing sector and improve the quality of investment,” he explained.
One of the key steps proposed is to improve the quality of investments. Zamroni highlighted the importance of reducing the Incremental Capital Output Ratio (ICOR), which is currently at 6.8-6.9 to below 5.
“Investment efficiency must be a top priority to support high growth, as India has done in the past 14 years,” he explained.
He also emphasized that investment must be focused on strategic sectors, such as high technology and value-added manufacturing, to create jobs and increase competitiveness.
Based on the research results, Zamroni highlighted the decline in the number of middle class people as a major challenge that could hamper economic growth.
“The decline in the purchasing power of the middle class has a direct impact on domestic consumption and the stability of the production sector. The government needs to formulate policies that support the middle class, such as reducing the tax burden and economic incentives,” he said.
Apart from investment, improving the quality of human resources is also an important focus. Programs such as superior education, child nutrition, and health services must be improved to strengthen human capital which is the foundation for long-term growth.
“Areas with a low human development index must be a priority in policy planning,” said Zamroni.
Zamroni emphasized that government expenditure must be directed strategically to encourage productive sectors.
“Efficient government spending can attract private investment and encourage the growth of the manufacturing sector,” he added.
Global conditions, such as geopolitical conflicts and commodity price fluctuations, are also external factors that can influence the achievement of this target. Zamroni emphasized the importance of rupiah exchange rate stability and adaptive trade policies to face global challenges.
Even though the challenges faced are not light, Zamroni is optimistic that with the implementation of the right strategy, Indonesia can achieve its growth target of 8% by 2025.
“This growth is not just about numbers, but about building an inclusive and sustainable economy,” he concluded.
Through integrated economic transformation, improving investment quality, and strengthening people’s purchasing power, Indonesia has a great opportunity to realize its vision of becoming a developed country and getting out of the middle income trap. (AT Network)
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