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Indonesia’s economic landscape is undergoing a critical transition as the country battles its way out of post-pandemic economic challenges. Following a remarkable drop in inflation to 1.57% in 2024, the lowest in recent history, Indonesia’s government is doubling down on fiscal measures to bolster its economic recovery, with a particular focus on labor-intensive industries and the property sector. The fiscal stimulus measures announced earlier this year, notably Finance Minister Regulation (PMK) No. 10/2025 and PMK No. 13/2025, are a direct response to the challenges faced by workers, business owners, and industries most affected by the economic slowdown.
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Economic Context: A Need for Stimulus Amid Record-Setting Low Inflation
While low inflation is generally seen as a sign of price stability, Indonesia’s economic planners are wary of its implications for broader economic activity. A closer look at the situation reveals that this low inflation rate is symptomatic of sluggish demand in various sectors, exacerbated by the ongoing aftereffects of the pandemic. For much of 2024, industries that typically drive growth, especially labor-intensive sectors such as manufacturing and construction, have been severely impacted by a combination of rising operating costs and diminishing consumer demand.
The unemployment rate, although stabilizing, saw an alarming uptick in layoffs during 2024, with more than 77,000 workers losing their jobs across the country. Jakarta alone accounted for over 17,000 of these layoffs, a staggering 608% increase compared to the previous year. This stark rise underlines the urgent need for intervention through government policy and fiscal incentives to support these industries and the workforce they employ.
Fiscal Policies Introduced: PMK 10/2025 and PMK 13/2025
The Indonesian government responded with two key measures aimed at reviving the labor market and ensuring that households maintain their purchasing power. At the heart of these interventions is PMK 10/2025, which focuses on government-borne income tax relief for workers in labor-intensive industries. This regulation, which is set to run throughout 2025, aims to reduce the tax burden on both employees and businesses in sectors struggling to stay afloat amidst the economic challenges.
The rationale behind this policy is straightforward: by easing the financial strain on businesses, the government is providing a lifeline to companies that might otherwise be forced to reduce their workforce or cut wages. In turn, this will prevent further unemployment while helping companies retain their competitiveness in the international market. In parallel, PMK 13/2025 targets the property sector, which has also faced a slump in demand. By offering a government-borne VAT (value-added tax) break on the purchase of landed houses and apartments, this policy is designed to stimulate the housing market, promote homeownership, and revitalize the construction sector.
The Property Sector: A Crucial Pillar of Indonesia’s Economy
The property sector is a key driver of Indonesia’s broader economy. It affects not only the construction industry but also a wide range of interconnected sectors, from raw materials to banking and services. Following a slowdown in property transactions during the last quarter of 2024, exacerbated by low consumer purchasing power, PMK 13/2025 seeks to address these challenges. The policy provides tax relief for property buyers, with a specific focus on lower to mid-tier homes, which are crucial for ensuring housing affordability for a growing urban population.
In the first half of 2024, property investments showed some signs of recovery following earlier stimulus measures (including PMK 7/2024 and PMK 61/2024), amounting to IDR 29.4 trillion (US$1.78 billion), a 6% increase year-on-year. However, the market remains under pressure due to ongoing concerns over affordability, especially for first-time homebuyers. PMK 13/2025 is thus viewed as a necessary intervention to solidify the recovery, providing further incentives for property developers to cater to the needs of lower-income buyers while stimulating wider economic growth.
Implementation Challenges and Policy Risks
While the tax incentives introduced under PMK 10/2025 and PMK 13/2025 hold considerable promise for stimulating both the labor and property sectors, the implementation of these measures is fraught with potential challenges.
Historically, Indonesia has struggled with compliance issues, particularly when it comes to the adoption of complex tax regulations. In the past, businesses and consumers alike have faced difficulties in fully understanding and benefiting from available incentives due to insufficient guidance and lack of awareness. To avoid a repeat of these issues, it is critical for the government to ramp up public outreach efforts, offering detailed instructions on how businesses can claim these incentives and how they can be effectively integrated into existing tax systems.
Moreover, there is a broader concern about the equitable distribution of the benefits of these tax incentives. While PMK 13/2025 is designed to support the middle-income housing market, critics argue that it may disproportionately benefit more affluent buyers who are already able to access financing, leaving lower-income households with limited support. To address this, the government may need to introduce additional measures specifically targeting affordable housing for low-income groups to ensure that the benefits of the property sector recovery are more widely distributed.
Long-Term Goals: Sustainable Growth and Inclusive Recovery
The government’s immediate objective with these policies is clear: to stabilize the economy in the short term, provide relief to households and businesses, and create a foundation for long-term, sustainable growth. However, a key challenge will be ensuring that these measures lead to sustained improvements across all sectors of the economy. This includes fostering competitiveness in labor-intensive industries, ensuring that the property market remains buoyant, and maintaining consumer purchasing power in the face of global inflationary pressures.
The success of these measures will depend on the government’s ability to monitor their implementation and make adjustments as needed. Early indicators suggest that while PMK 10/2025 has provided much-needed relief to businesses in labor-intensive sectors, the full effect of PMK 13/2025 on the property sector may take time to materialize. If the initial impacts are insufficient, the government may need to extend these incentives or introduce additional support mechanisms tailored to specific regions or sectors.
Ultimately, Indonesia’s economic recovery in 2025 will depend on the successful alignment of these fiscal incentives with broader macroeconomic trends. By addressing immediate fiscal challenges while laying the groundwork for future growth, Indonesia aims to chart a path toward a more resilient economy that can weather the storms of global financial turbulence and domestic economic volatility.
Conclusion: Navigating Challenges, Seizing Opportunities
As Indonesia faces a complex and rapidly evolving economic landscape in 2025, the strategic use of fiscal policies like PMK 10/2025 and PMK 13/2025 is critical to ensuring that the country not only survives but thrives. With a well-coordinated approach to tax incentives, labor market stabilization, and property market revitalization, Indonesia has the opportunity to maintain economic growth, protect workers, and create a more equitable recovery for all segments of society.
However, the full impact of these measures will depend on effective implementation, transparent monitoring, and continuous adjustments to ensure that they are meeting the needs of Indonesia’s diverse population.
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