Indonesia's Middle Class Falls to 46.7 Million as Indef Calls for Relief on Taxes and Essential Costs

A shrinking group faces rising household bills

Indonesia's middle class fell to 46.7 million people in 2025, down from 57.33 million in 2019, as the Institute for Development of Economics and Finance (Indef) urged the government to direct more fiscal support toward households squeezed by taxes, food prices, education and healthcare costs.

The figures attributed to Statistics Indonesia (BPS) show a decline of 10.63 million people, or about 18.5% of the middle class recorded in 2019. Its share of the population dropped from 21.45% to 16.6%, a fall of 4.85 percentage points.

Riza Annisa Pujarama, a researcher at Indef's Center for Macroeconomics and Finance, said support should extend beyond cash payments. More affordable public education, stable prices for essential goods and carefully chosen tax relief could leave families with more money for everyday needs.

Speaking during an online discussion on Indonesia's economic performance on November 5, 2026, Riza argued that assistance and subsidies were supporting poorer households while the middle class faced mounting pressure without comparable protection.

Indonesia's economy grew 5.47% in the third quarter of 2026. Riza's concern is that growth has not been matched by better jobs and stronger worker incomes. The policy debate therefore reaches beyond whether the economy is expanding: it concerns how much of that expansion reaches household budgets.

What the middle class figures measure

BPS classifies the middle class by spending per person, rather than salary alone. The broadly stated monthly expenditure range is about Rp2 million to Rp9.9 million per person. For 2024, the more precise range was Rp2.04 million to Rp9.91 million.

The 2024 boundaries were equivalent to 3.5 to 17 times the poverty line of Rp582,932 per person each month. People spending between 1.5 and 3.5 times that line were classified as the aspiring middle class. Those spending between the poverty line and 1.5 times it were classified as vulnerable to poverty.

A family budget therefore has to be considered alongside the number of people it supports. A household's total spending and one person's salary measure different things from expenditure per household member, which determines this classification.

The population figures show how far the middle class has contracted:

• 2019: 57.33 million people, representing 21.45% of the population.
• 2024: 47.85 million people, representing 17.13%.
• 2025: 46.7 million people, representing 16.6%.

The decline between 2019 and 2024 was 9.48 million people. Another 1.15 million left the category between 2024 and 2025. The accompanying expansion of the aspiring middle class and the group vulnerable to poverty makes the security of household spending a central concern.

BPS's March 2025 consumption publication draws on the consumption expenditure module of the National Socioeconomic Survey, known as Susenas. Released on October 10, 2025, and revised on January 21, 2026, it presents expenditure patterns nationally and for each province, providing an official basis for examining what Indonesians spend.

Why household pressure matters for growth

Household consumption accounts for more than half of Indonesia's gross domestic product (GDP), the measure of goods and services produced by the economy. When families limit purchases, the effects reach shops, transport providers, manufacturers and other employers.

BPS figures cited in the debate put the middle and aspiring middle classes together at more than 81% of consumption. Deputy Coordinating Minister for Economic Affairs Dradjad H. Wibowo similarly described the two groups as roughly two thirds of the population and responsible for more than 80% of household consumption.

Indonesia's recent growth figures show an economy continuing to expand: annual growth was 5.61% in the first quarter of 2026, 5.29% in the second and 5.47% in the third. In the third quarter of 2024, growth had been 4.95%.

Riza said job quality and worker incomes had not improved alongside economic growth. Bhima Yudhistira, executive director of the Center of Economic and Law Studies, made a related argument at M Bloc Space on November 3, saying middle class disposable income, the money available after tax, was falling.

Inflation was 3.26% in October 2026, slightly below September's 3.28%. Prices were still rising compared with a year earlier. For households whose earnings were not keeping pace, the same shopping basket continued to absorb more of their income.

Taxes reduce spending room at several points

Riza identified overlapping central and local taxes as a source of pressure. Middle income Indonesians potentially encounter up to 16 types of tax across earning, spending and owning assets, depending on their employment, purchases and property.

PPh Article 21, the income tax withheld from employment earnings, affects salaries, allowances, bonuses and holiday payments. Value added tax, known in Indonesia as PPN, reaches households through taxable purchases.

Other levies discussed include luxury goods sales tax, or PPnBM; the tax on certain goods and services, or PBJT, covering activities such as restaurant meals, hotels, parking and entertainment; and property tax, known as PBB-P2. Vehicle taxes, fuel taxes, the duty on acquiring land and building rights known as BPHTB, and stamp duty add further points of payment.

Yusuf Rendy Manilet, an economist at the Center of Reform on Economics Indonesia, identified employment income tax and VAT as especially important for purchasing power. Tax withheld from wages reduces what workers receive, while VAT uses part of the money they subsequently spend.

Yusuf argued that households consuming a substantial share of their earnings feel the accumulated effect of VAT across many transactions. Wealthier households can save a larger share of income, while also receiving money from investments and assets subject to different tax treatment.

A tax allowance unchanged since 2016

Indonesia's tax free income allowance, known as PTKP, has remained Rp54 million annually, or Rp4.5 million monthly, for an unmarried individual taxpayer without dependants since the 2016 tax year.

Yusuf called for periodic adjustments to this allowance and to income tax brackets in line with inflation and living costs. A fixed allowance protects a smaller amount of purchasing power as prices rise over time.

The government was reported to be reviewing a higher PTKP, with President Prabowo Subianto giving approval in principle through State Secretary Minister Letter No. B-40/M/SDK/KI.00/10/2026, dated October 20, 2026. The proposed new amount and its implementation date were not specified.

Astri Warih Anjarwi, head of the Undergraduate Taxation Study Program at Universitas Brawijaya's Faculty of Administrative Sciences, also recommended considering a higher allowance. She urged policymakers to examine household costs together, including toll charges, compulsory contributions, regional levies and taxes.

Yusuf proposed strengthening taxation of capital income and asset ownership to distribute the burden more fairly. Astri supported broadening the tax base, meaning bringing more taxable activity into the system, while protecting people with limited means.

Astri also called for clear limits and sufficient public explanation around PPh Article 22 collection through online marketplaces. Poorly designed collection arrangements, she warned, could burden small traders or be passed to buyers through higher prices.

Education and essential goods are central to Indef's proposal

Riza's recommendations focus on bills households have limited room to avoid. Education, basic goods and healthcare recur in family budgets, so reducing their cost could provide continuing support rather than a single payment.

Public early childhood education was one priority. Riza said government facilities were far fewer than private facilities and called for expanded public provision. She described quality education from early childhood through primary and junior high school as foundational to developing people's knowledge and skills.

More accessible public provision could give families another option when arranging education. Riza's argument connects immediate household costs with children's longer term opportunities: affordable education can ease current bills while supporting future learning.

Food affordability was another priority. Riza urged the government to keep essential goods within reach and consider VAT relief for selected necessities.

She cited hearing aids and wheelchairs as examples of disability equipment receiving favourable VAT treatment in several countries. She also raised sanitary pads as essential products deserving attention in tax policy. Her proposals put specific needs within the fiscal debate, including the cost of managing a disability and recurring menstrual hygiene expenses.

Existing assistance reaches some workers and homebuyers

Government support already includes arrangements under which the state pays PPh Article 21 for eligible workers. Dradjad said the programme covered about 7.5 million workers earning below Rp10 million a month, with expansion across sectors planned for 2027.

Yusuf acknowledged that such incentives can help household budgets, while pointing to their limited sector coverage and temporary nature. Formal employees outside eligible sectors continue to face their regular tax and living costs.

Other measures described by Dradjad included a 50% discount on contributions for work accident insurance, known as JKK, and death benefits insurance, known as JKM.

Housing support included government payment of VAT on homes priced up to Rp2 billion and a mortgage interest subsidy of 6% for first homes priced up to Rp500 million. These programmes address particular purchases and eligibility groups, while Indef's education and essentials proposals focus on recurring expenses.

Riza said purchasing power during 2025 and 2026 was becoming increasingly dependent on repeated fiscal stimulus. Figures discussed alongside that assessment showed a subsidy and social assistance spending measure rising from 10.92 to 30.68. Its units and comparison periods were unspecified, leaving the monetary scale unclear.

The policy choice is therefore about the reach and duration of support as well as its size. Temporary assistance can reduce a bill for eligible recipients; changes to public services or tax allowances can alter regular household costs.

Changing jobs complicate the response

Dradjad attributed part of the middle class decline to changes in employment and economic activity. He cited technology, artificial intelligence and geopolitical developments as forces reshaping work, with textiles and footwear under pressure while several service industries expanded.

He described consumption growth of about 3% to 4% for food and beverages, footwear and textiles, compared with about 6% to 7% for telecommunications, transport, hotels and restaurants. He also pointed to shoppers buying smaller quantities and using online channels more frequently.

Those changes require a response aimed at earnings as well as prices. A household moving into a different kind of work may need new skills, while a worker facing uncertain income still has to meet regular education, food and health expenses.

The government plans internships for 150,000 people and vocational training for 300,000 in 2027. Dradjad presented these programmes as part of helping workers adjust to changing demand, alongside the planned wider reach of government paid employment income tax.

Bank BCA chief economist David Sumual had earlier linked the middle class decline partly to government attention and spending being absorbed by politics. He also warned that delays in social spending could slow growth. His assessment adds a practical concern: the timing of assistance matters to households and businesses waiting for spending to circulate.

The dates behind the policy debate

The discussion brings together a decline measured over several years and policy proposals advanced in late 2026. The main milestones are:

• 2016: The current Rp54 million annual PTKP for an unmarried taxpayer without dependants took effect.
• 2019 to 2025: The middle class fell from 57.33 million to 46.7 million people.
• October 20, 2026: A State Secretary Minister letter reportedly conveyed presidential approval in principle for reviewing a higher PTKP.
• November 3, 2026: Bhima discussed falling disposable income and middle class dissatisfaction at M Bloc Space.
• November 4 and 5, 2026: Economists called for changes to tax allowances and household support as third quarter growth reached 5.47%.
• 2027: Internship and vocational training programmes are planned, alongside broader sector coverage for government paid PPh Article 21.

Indef's central proposal is to make fiscal support more responsive to the expenses that repeatedly strain family budgets. The government's employment and training plans address another part of the same problem: helping people earn enough to sustain their spending.

For households, the concrete measures to watch are eligibility for tax support, any change to the income allowance, access to affordable public education and the cost of essentials. Together, those decisions will shape how much money remains after unavoidable bills.

Key Points

• Indonesia's middle class declined by 10.63 million people between 2019 and 2025, reaching 46.7 million.
• Indef recommends relief through affordable education, food, healthcare and selected tax measures, alongside existing assistance.
• The tax free income allowance for an unmarried individual without dependants has remained Rp54 million annually since 2016.
• Existing employment income tax support reaches about 7.5 million workers, according to Dradjad.
• Government plans for 2027 include internships for 150,000 people, vocational training for 300,000 and broader employment tax support.
• Middle and aspiring middle class households account for more than 80% of consumption, making their financial security central to domestic demand.