Prabowo's Future Administration Must Shelve Levies to Avoid Further Middle Class Drop, Economist Says
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10 September 2024 07:28 WIB
TEMPO.CO, Jakarta - An economist from the Institute for Development of Economics and Finance (Indef), Eko Listyanto, asks President-elect Prabowo Subianto to shelve various policies burdening the middle class. These policies include the Tapera savings, subsidized commuter line tickets based on the Citizenship Identification Number (NIK), value-added tax increase, and additional pension fund levy.
According to him, Prabowo’s cabinet must reconsider these policies next year, despite some already being solidified through laws. If forcefully implemented, Eko said, these policies could further weaken the middle class’ purchasing power.
“That would implicate a class downgrade,” he said in an online Indef discussion on Monday, September 9, 2024.
These policies, Eko believes, would cause a downgrade in the middle class into the aspiring middle class next year. In a worse scenario, the middle class could drop into the vulnerable or lower class, causing the government to spend extra on social assistance.
Eko stresses the government must postpone the implementation of these levies and reevaluate them once the economy recovers. “Don’t let businesses stagnate due to these levies when the interest rate already drops,” he said.
One of the proposed policies set to run next year is the 12 percent value-added tax in January 2025. As the policy has been ratified in law, the government would require some steps to withdraw the policy.
Statistics Indonesia (BPS) records that up to 2024, the middle class comprises 47.85 million people, drops 9.48 million compared to the pandemic years.
BPS classifies the middle class in 2024 as those with income ranging from Rp2 to 9.9 million. Meanwhile, aspiring middle class income ranges from Rp874,000 to Rp2 million, and lower class Rp582 to 874 thousand.
Senior economist at Indef, Bustanul Arifin, said the middle class is sensitive to changes in political economy policies. Hence, the purchasing power must be maintained, as middle class’ consumption covers about 80 percent from the total population.
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