Indonesia Doubles Wage Subsidies, Axes Electricity Discounts in Economic Stimulus Overhaul

Indonesia’s government has unveiled a significant shake-up of its economic stimulus package, doubling wage subsidies for low-income workers while abruptly canceling electricity discounts for households and businesses. Announced on May 24, 2025, the policy shift aims to bolster purchasing power amid inflationary pressures but has sparked concerns over rising energy costs for millions of Indonesians already grappling with economic uncertainty.

Stimulus Shift: Prioritizing Wage Support

The revised stimulus package, rolled out by the Ministry of Finance, increases wage subsidies from 600,000 Indonesian Rupiah (US$38) to 1.2 million Rupiah (US$75) per month for eligible workers in sectors hardest hit by the post-pandemic recovery, such as manufacturing and retail. The move targets approximately 18 million workers, with the government allocating an estimated 21.6 trillion Rupiah (US$1.35 billion) to fund the program through the end of 2025. Finance Minister Sri Mulyani Indrawati described the policy as a direct intervention to “safeguard livelihoods and stimulate consumer spending” during a press conference in Jakarta.

The decision to double subsidies comes as Indonesia faces persistent inflation, which hovered at 3.2% in April 2025, driven by rising food and fuel prices. Economists note that boosting disposable income for low-wage earners could help sustain domestic demand, a critical driver of Indonesia’s economy, which is Southeast Asia’s largest by GDP. However, the abrupt cancellation of electricity discounts—previously a lifeline for small businesses and households—has raised questions about the government’s long-term strategy to balance fiscal health with public welfare.

Electricity Discounts Scrapped: A Bitter Pill

Under the previous stimulus framework, electricity discounts provided relief to over 30 million households and 3 million small businesses, slashing bills by up to 50% for the most vulnerable. The program, costing the state-owned utility PLN around 6.5 trillion Rupiah (US$406 million) annually, was deemed “unsustainable” by officials citing budget constraints. Energy Minister Arifin Tasrif stated that redirecting funds to wage subsidies offered a “more targeted approach” to economic recovery, though he acknowledged potential backlash from affected communities.

The removal of discounts is expected to hit small and medium enterprises (SMEs) particularly hard, as many rely on affordable energy to keep operations afloat. In Java, where industrial activity is concentrated, business owners expressed dismay over the policy shift. “Electricity costs were already a burden, and now they’ll double” said Rudi Hartono, a textile factory owner in Bandung. “How are we supposed to compete when our overheads keep rising?” Public sentiment on social media platforms like X reflects similar frustration, with users questioning why energy relief was sacrificed while corporate tax breaks remain untouched.

Economic Trade-Offs and Fiscal Pressures

Indonesia’s fiscal deficit, which stood at 2.8% of GDP in 2024, has constrained the government’s ability to fund expansive relief programs. The decision to prioritize wage subsidies over electricity discounts appears to reflect a broader pivot toward direct cash transfers, a policy favored by President Prabowo Subianto’s administration since taking office. Analysts suggest the move aligns with populist pledges to support workers, though it risks alienating middle-class households and small business owners who benefited from cheaper power.

Dr. Faisal Basri, an economist at the University of Indonesia, warned that the cancellation of electricity discounts could exacerbate inequality if not paired with alternative relief measures. “Wage subsidies help a specific group, but energy costs affect everyone” he noted. “Without a safety net, this policy may deepen the cost-of-living crisis for those outside the subsidy net.” Basri also highlighted the potential for inflationary spillover, as businesses pass on higher energy costs to consumers through price hikes.

Internationally, Indonesia’s stimulus overhaul has drawn comparisons to similar post-COVID recovery strategies in neighboring countries like Thailand and Malaysia, where targeted cash handouts have gained traction over broad-based subsidies. Yet, the scale of Indonesia’s population—over 270 million—and its sprawling archipelago present unique challenges in ensuring equitable distribution of benefits. Remote regions in Kalimantan and Sulawesi, already underserved by infrastructure, may feel the sting of higher electricity bills most acutely.

Public and Political Reactions

The policy announcement has ignited debate within Indonesia’s political sphere. Opposition lawmakers from the Indonesian Democratic Party of Struggle (PDI-P) criticized the government for lacking consultation with stakeholders before axing the electricity program. “This decision was made behind closed doors, ignoring the struggles of ordinary Indonesians” said PDI-P spokesperson Hasto Kristiyanto. Meanwhile, ruling coalition members defended the wage subsidy hike as a bold step to protect vulnerable workers, framing it as a fulfillment of campaign promises.

Public reaction has been mixed. In Jakarta, street vendors and gig economy workers welcomed the increased subsidies, with many expressing relief at the prospect of extra income. “This money will help me buy school supplies for my children” said Sari, a food stall owner in the capital’s Tanah Abang market. However, in suburban areas, where electricity bills constitute a larger share of household budgets, frustration is palpable. Community leaders in Sumatra have called for protests, arguing that the government has abandoned its duty to shield citizens from economic shocks.

Looking Ahead: Sustainability and Equity

As Indonesia navigates this economic tightrope, questions linger about the sustainability of its stimulus strategy. The government has hinted at potential compensatory measures, such as expanding social assistance programs or introducing tiered electricity tariffs to protect the poorest households. However, no concrete plans have been announced, leaving millions in limbo as they brace for higher bills.

Economists and policymakers alike are watching closely to see if the wage subsidy boost will deliver the intended economic stimulus without triggering unintended consequences. With global uncertainties—ranging from fluctuating oil prices to supply chain disruptions—continuing to loom, Indonesia’s ability to balance short-term relief with long-term fiscal stability remains a critical test for the administration. For now, as households and businesses adjust to the new reality, the debate over who bears the burden of recovery continues to simmer across the nation.