JAKARTA, December 4, 2017 – Expanding Indonesia’s middle class can help boost economic growth and broaden prosperity. This is a key message emerging from two new World Bank reports on the middle class in East Asia and Indonesia that were discussed today in Jakarta.
Following a massive reduction in Indonesia’s poverty rate in the last two decades, one in every five Indonesians now belongs to the middle-class group. Another 45 percent are part of an aspiring group who are no longer poor or vulnerable to poverty, and members of this “aspiring class” have yet to reach the level of economic security and lifestyle of the middle class.
While 35 percent of the population remains poor or vulnerable to falling into poverty and sustained attention is required to provide them with greater opportunities to escape poverty, expanding the middle class is consistent with the agenda of poverty reduction.
Today’s middle class counts at least 52 million people whose consumption accounts for 43 percent of total household consumption. A larger middle class will help accelerate consumption growth. The middle class can also be a strong voice for better governance, provide the tax revenues required for the delivery of public services such as infrastructure, health and education, and start businesses that create jobs. Conversely, if the aspiring group fails to join the middle class, a more polarized and fractious society may result.
“The middle class holds the key to unlocking the potential of Indonesia. It is important for the government to support the growth of this group in all fronts. This includes support to improve quality of education and skills of the population and promoting job-creating growth and ample access to social protection. With such support, the middle-class group will grow quickly and push this country and region towards a brighter future”, said Rodrigo A. Chaves, World Bank Country Director for Indonesia.
A second key message is that helping millions of Indonesians to join the middle class requires creating jobs that pay a middle-class income, and equipping workers with the skills needed to take up those jobs. This means that enhancing the quality of education and skills for all Indonesians is crucial. Growth-enhancing policies related to improving the business environment, including reforming labor laws and reducing restrictions on investment, are also a fundamental ingredient. Finally, there also needs to be sufficient access to social insurance to protect this aspiring class from the health and employment shocks that threaten their upward mobility.
Providing high-quality education and the infrastructure required for job-creating growth takes resources. Therefore, the report calls for a new social contract of better services in exchange for greater participation of the current and future middle class contributing to the state through taxation.
“A new social contract that meets the needs of all Indonesians is needed. One where the middle class pays taxes to resource the government, which delivers high-quality public services and drive inclusive growth, which in turn helps the middle class grow and thrive,” said Matthew Wai-Poi, World Bank Senior Economist and author of the forthcoming report Aspiring Indonesia: Expanding the Middle Class.
The World Bank will launch Aspiring Indonesia: Expanding the Middle Class in early 2018. The research for the report was funded by the Australian Government through the Department of Foreign Affairs and Trade.