Indonesia’s 8% Dream and the Middle-Class Mirage

(Photo/Elisabeth Simaibang)

By Elisabeth Simaibang

Jakarta’s billboards gleam with promises of progress: new railways, ports, industrial corridors, and a future where Indonesia finally takes its place among the world’s top economies. President Prabowo Subianto has set an ambitious goal of 8% annual growth during his first term, nearly double the rate of recent years. For a nation still defined by its aspirational energy, that number feels intoxicating. Indonesia’s time has come.

But behind that ambitious growth target lies a quieter truth. The people who power the economy are running out of breath. Workers’ real wages have barely grown over the past decade, Indonesian families have seen their household debt climb steadily, and the dream of upward mobility is slipping further away. As one young professional in the outskirts of Jakarta said, “Everything rises except our paychecks.”

Indonesia’s middle class has long been celebrated as the engine of stability and consumption. Yet according to the World Bank, nearly half of Indonesians remain “aspiring middle class” — families with steady incomes but fragile savings, one shock away from backsliding into poverty. Household savings have declined since 2020, while living costs have surged. This isn’t bad luck. These statistics reveal a structural imbalance: Indonesia’s growth leans too heavily on household consumption (more than 50%) and government spending, but fails to attract investment. In 2023, the International Monetary Fund warned that Indonesia’s fiscal expansion and subsidies boost demand, not long-term competitiveness. Indonesia is spending more to stand still.

Freebies and Fiscal Illusions

Indonesia fuels a “freebies economy” to keep the economy humming: free school lunches, fuel, rice, and even cash. Subsidies are popular and politically effective, but they are ruinously expensive. In 2026, the free-school-meals initiative alone will take Rp335 trillion ($20.1 billion) — double the allocation from its first year. Back in 2024, the parliamentary research office cautioned that such programs could exacerbate the budget deficit if not paired with real tax reform.

Supporters argue that these subsidies help families cope with inflation. But this is a short-term perspective. Over time, easy populism can crowd out investments in the engines of sustainable growth: education, innovation, and infrastructure. The government’s generosity is often directed toward low-income voters for political gain. Simultaneously, tax breaks flow upward to corporations and the wealthy.

Between these two extremes sits a middle class that receives little assistance, yet shoulders the costs of inflation and taxes. Instead, Indonesia’s government efforts to create an investor-friendly climate to scale high-quality jobs are sluggish, out of fear of political risk. The result is an economy that looks generous on paper but hollow in practice.

The psychological toll is harder to measure but just as corrosive. Only one in five middle-class Indonesians feels financially secure. Insecurity fuels what economists call “aspirational anxiety”: people spend to signal success, even when their finances are stretched thin. The boom in buy-now-pay-later platforms, along with rising consumer credit, suggests a society leaning on debt to maintain its self-image.

This anxiety has political consequences. A study from the ISEAS–Yusof Ishak Institute found that the anxious middle class increasingly supports populist leaders who promise quick relief rather than slow reform. As a result, calls for subsidy cuts or tax broadening remain politically toxic. 

The 8% target evokes memories of India’s 2010s growth obsession, when officials boasted of miraculous GDP numbers while inequality deepened. There, too, headline figures masked stagnant wages and weak job creation. Indonesia risks repeating that story. The danger isn’t missing the 8% goal; it’s breaking fiscal prudence, social trust, and the middle class on the way there. 

Beyond the Numbers

What would real progress look like? First, Indonesia needs to stop sacrificing fiscal stability for short-term political theatrics. Rather than turning subsidies into new cash handouts, Indonesia should invest those trillions in systems that directly strengthen middle-class security—universal childcare that reduces household costs, better teachers that improve upward mobility, retraining programs that protect workers from automation, and insurance for the near-poor that mitigates sudden financial shocks. Stronger social protection would let families save and spend more confidently, fueling a healthier cycle of growth.

The middle class must be seen not as consumers to be appeased but as citizens to be empowered. They currently bear rising living costs without receiving meaningful support; fiscal integrity, fair taxation, and quality public services would ease that pressure and rebuild trust. As former finance minister Chatib Basri often argues, Indonesia doesn’t need faster growth. It needs better growth.

Indonesia has always been ambitious. That ambition built cities, industries, and hope. But ambition detached from reality turns stale. Worldwide, economies chase GDP at the cost of unraveling social welfare: China faces a post-COVID housing slump, Turkey is stuck in an inflation spiral, and India is struggling with widening inequality.
Indonesia can chart a wiser path. That means measuring success not by how fast GDP grows but by how secure its people feel, how confident its families are to invest in their futures, and how strong its middle class remains when the headlines fade. Eight percent growth might sound like victory. But if the middle class continues to shrink under its weight, what kind of victory will that be?