Hotel Industry Hit Hard by Budget Cuts, Layoffs and Tax Revenue Decline Looming

The hotel industry in Indonesia is feeling the severe impact of President Prabowo Subianto’s budget efficiency policies. Declining visitor numbers have led to mass layoffs and a drop in tax revenues for the sector.

A survey by the Indonesian Hotel and Restaurant Association (PHRI) and Horwath HTL, involving 726 hotel industry players across 30 provinces, revealed that without policy adjustments within the next 6 to 12 months, the industry could face a crisis.

PHRI’s Head of Research and IT, Christy Megawati, stated that 88% of respondents anticipate conducting mass layoffs to reduce wage costs. "Without adjustments, we are looking at massive layoffs and supply chain disruptions," she warned during a press conference at Hotel Grand Sahid Jaya on Saturday (March 22, 2025).

Additionally, 78% of respondents believe that hotel tax targets will not be met, and many foresee a decline in the tourism sector, which would significantly impact regional economies dependent on tourism.

If the situation persists, hotels may face operational deficits and be forced to shut down. Survey results also show that 83% of respondents feel they are not in a strong financial position to begin the new fiscal year.

Hotels Stop Hiring Daily Workers

As a result of government budget cuts, many hotels have ceased employing daily workers due to a sharp decline in government-related hotel bookings.

PHRI Chairman Hariyadi B. Sukamdani stated that the policy negatively impacts employment absorption in the hospitality sector. "Daily workers are practically gone because there are no government-related guests," he said.

Hotels typically hire additional workers during peak seasons or government events, but due to budget constraints, government institutions have stopped holding events in hotels.

Budget Cuts Disrupt Tourism and Hotel Sector

Referring to Presidential Instruction (Inpres) No.1/2025, the government aims to save Rp306.69 trillion in the 2025 state and regional budgets. Ministries and local governments are required to reduce operational expenses, maintenance costs, business trips, infrastructure projects, and procurement.

The government also mandated a 50% reduction in official travel expenses, yet instead of utilizing the remaining budget, official events in hotels have been completely eliminated. If this continues, contract workers in the F&B and reception sectors could also be affected.

Weakened Purchasing Power Leads to Lower Occupancy Rates

The declining purchasing power of consumers has worsened the situation. Hotel occupancy rates have dropped 30% nationwide compared to last year ahead of Eid 2025.

In popular homecoming destinations such as Solo, Malang, and Yogyakarta, hotel occupancy rates could reach 80-100% during the holiday. However, the long holiday period from March 29 to April 7, 2025, may lead people to shorten their vacations due to financial constraints.