Indonesia rolls out discounts to boost consumer spending

Food, wage assistance not enough to get middle class to spend more during upcoming school holidays, experts say

JAKARTA, Indonesia (MNTV) –  Indonesia is rolling out a slew of stimulus measures to get its people to spend more in the next two months, but these may not be enough to revive sluggish domestic consumption and lift economic growth, CNA reports.

Instead, broader moves are needed to help the country’s dwindling middle class and protect businesses from the effects of higher United States tariffs, analysts say.

With the school holidays set to take place between June 28 and July 12, the government is looking to boost domestic tourism and consumption.

The government announced on Tuesday (May 27) discounts on electricity bills and transportation costs as well as cash and food handouts to selected households that will begin on June 5. 

Indonesians will enjoy a 30 % discount on train tickets as well as a 50 % discount on sea transport. In addition, the government will cover the 6 % value-added tax (VAT) on airfares from early June to mid-July. 

A 50 % discount on electricity bills will be given to around 79.3 million households with a maximum usage of 1,300 volt-amperes from June 5 to July 31.

The government will also provide a wage subsidy for two months to about 17 million workers.

It will also provide staple food assistance to 18.3 million households.

With the majority of the incentives set to benefit low-income families and not the middle class, experts are questioning just how effective the stimulus will be. 

“It is difficult to achieve the expected consumption boost with such (a) small benefit given to such a small number of beneficiaries,” Achmad Nur Hidayat, an economics and public policy lecturer from the Jakarta National Development University, told CNA.

Almost all of the planned incentives will benefit lower-income households, he noted. According to the Indonesian Statistics Bureau, there are 25.2 million Indonesians who live below the poverty line. 

“Houses with 1,300VA (maximum electricity usage) are typically found in housing complexes for low-income families. Workers with a salary of less than 3.5 million (rupiah) are low-income workers,” he explained.

“If the intention is to boost consumption, then the government should target the middle class with disposable income,” he said.

“The middle class has been responsible for much of Indonesia’s domestic consumption and their purchasing power has been dwindling for the last few years,” concurred Yusuf Rendy Manilet, an economist from the think tank Center of Reform on Economics (CORE). “And yet, incentives for the middle class are limited to transportation fares.”

Experts say that Indonesia’s middle class could shrink further with the US’ threat of 32 % tariffs on goods from Indonesia. The Trump administration has put higher “reciprocal” tariffs on hold until July.

The Indonesian government’s latest economic stimulus incentives will only cut household expenses temporarily, said Tauhid Ahmad of the think tank Institute for Development of Economics and Finance (INDEF). 

“But if we want something which is long-lasting, then we need to do much more, starting from creating new jobs to preventing existing jobs from disappearing,” he said.