As Pakistan prepares to unveil its federal budget for the fiscal year 2025-26, set for June 10, expectations are high among government employees and the working class. In the midst of rising inflation, economic challenges, and ongoing negotiations with the International Monetary Fund (IMF), the federal government is actively working on a relief package that includes substantial salary and pension increases, as well as structural changes in the pay and tax systems.
This year’s budget carries significant weight, both politically and economically, with the government seeking to strike a balance between fiscal discipline and social welfare. While final decisions are still under review and are expected to be made during the upcoming cabinet meeting, several proposals have been shared by official sources, revealing the government’s intent to ease the financial burden on public servants and low-income earners.
Proposed Salary Increases for Government Employees
One of the most notable features of Budget 2025-26 is the proposed salary increase for federal government employees, with specific provisions for different employment grades.
- For employees in Grades 1 to 16, a 30% disparity allowance has been proposed. This allowance aims to bridge the income gap between employees in different government departments and mitigate disparities caused by previous uneven increments.
- For officers in Grades 17 to 22, a 15% salary increase is on the table. While smaller in percentage compared to lower-grade employees, this proposal addresses long-standing concerns over inflationary pressures on middle and senior-tier civil servants.
In addition to these targeted increases, a 10% across-the-board salary and pension hike has also been proposed, aiming to provide general relief to all federal employees and retirees amid soaring living costs.
Ad-Hoc Allowance Merger and Structural Reforms
A critical structural change under consideration is the merging of the 2022 ad-hoc allowance into the basic pay. This integration will streamline the salary structure, making it more transparent and standardized across different departments.
Merging the ad-hoc allowance would not only increase the basic salary—affecting future raises, bonuses, and pension calculations—but also simplify financial planning for both employees and the finance ministry.
The government is evaluating four separate proposals regarding salary increases, with key input from the Finance Ministry and allied political parties. The final package will be determined in the cabinet meeting before the budget presentation.
PPP’s Push for Greater Relief
Adding momentum to the demands for improved salaries and pensions, Chaudhry Manzoor, a central executive committee member of the Pakistan People’s Party (PPP) and head of the People’s Labour Bureau, recently met with President Asif Ali Zardari.
During this meeting, Manzoor advocated for a 50% salary increase for all government employees and a 100% rise in pensions. He emphasized that the current proposals fall short of addressing the real inflationary pressures faced by public servants and retirees.
He further suggested the abolition of recent pension reforms and called for the integration of all previous ad hoc reliefs into basic pay. Additionally, he urged the government to set a minimum wage of Rs. 50,000 per month and demanded a 100% increase in pensions under the Employees’ Old-Age Benefits Institution (EOBI).
President Zardari emphasized that societal progress depends on the well-being of workers and public servants.
IMF Agreement and Tax Relief for Salaried Class
In a surprising and welcome move, the International Monetary Fund (IMF) has reportedly agreed to allow income tax relief for salaried individuals. This decision marks a significant departure from previous IMF positions and comes as a result of sustained negotiations by the Pakistani government.
Under the proposed amendments to Section 129 of the Income Tax Ordinance, the tax-exempt income threshold is expected to rise from Rs. 600,000 to Rs. 1 million per year. This adjustment would mean that individuals earning up to Rs. 83,000 per month would no longer pay income tax, compared to the current Rs. 50,000 threshold.
This move is expected to bring substantial relief to the middle class, improving disposable income and boosting domestic demand—an important step in stabilizing the economy.
Proposals Under Review and Final Decision Timeline
As per Finance Ministry sources, four key salary and pension-related proposals are being evaluated, and the final decisions will be made in a cabinet meeting scheduled before June 10. Among the options being debated are:
- A 30% disparity allowance for Grades 1 to 16.
- A 15% salary increase for Grades 17 to 22.
- A 10% across-the-board salary and pension hike.
- Merger of 2022 ad hoc relief allowances into basic pay.
Additionally, the government is considering exempting armed forces personnel from the contributory pension scheme, a move likely to gain support from military and veteran communities.
Conclusion: Hope for Relief Amid Fiscal Challenges
With proposals on the table to raise salaries, merge allowances, ease tax burdens, and increase pensions, the government appears committed to addressing the financial pressures on its workforce.
However, the final outcome will depend on balancing these relief measures with broader fiscal constraints and IMF commitments. For millions of government employees and retirees, the hope is that the upcoming budget not only acknowledges their contributions but also offers real and sustainable relief in an increasingly expensive economy.