Assessing Fiscal Inefficiencies and Middle-Class Vulnerabilities: A Critical Analysis of Economic Policies Under President Prabowo's Administration

Abstract

Indonesia’s economic trajectory under President Prabowo Subianto’s administration (2024–2025) has been shaped by ambitious fiscal consolidation and structural reforms aimed at achieving an 8% GDP growth target. However, these policies have intensified fiscal inefficiencies and middle-class vulnerabilities, posing significant risks to Indonesia’s transition to a high-income economy. This study employs qualitative critical analysis to evaluate the socio-economic impacts of Prabowo’s austerity measures, tax reforms, and capital-intensive downstreaming agenda. Findings reveal that Rp 306 trillion in spending cuts disproportionately affected public services, with infrastructure and education budgets reduced by 62%, leading to increased unemployment in labor-intensive sectors. Concurrently, a 12% VAT hike and new levies caused a 17% decline in middle-class consumption, exacerbating household debt and inequality. The administration’s focus on downstreaming projects boosted exports but created only 28,000 formal jobs compared to 9.48 million informal sector entrants, highlighting structural misalignment. The study concludes that Prabowo’s supply-side reforms neglect demand-side vulnerabilities, risking long-term stagnation. Policy recommendations include recalibrating fiscal priorities toward progressive taxation, SME-led job creation, and human capital investment to align growth with equity.