The salaried struggle carries on and on

While the government may tout improved economic stewardship, for ordinary Pakistanis, life remains extremely difficult. Besides the challenge of making ends meet, basic public services — such as dependable water supply, affordable gas and electricity, and decent job opportunities — are either inadequate or out of reach.

The situation has been harsh, and the budget presented last week offers little hope for meaningful relief. If anything, it has further diminished the modest expectations people may have had, particularly for families caught between the two social extremes; the ones neither poor enough to qualify for support nor affluent enough to absorb the rising living cost.

Pakistan’s struggling salaried middle-income group — estimated to have lost half its strength over the last five years as rising living costs and falling household real incomes pushed many into poverty — received no assurance from Finance Minister Muhammad Aurangzeb of a more supportive environment in the year ahead. The 2025-26 budget proposals, if passed, suggest that this segment will continue to bear the burden of the government’s policy failures and the inefficiencies of both public and private utility providers.

Even those who reject the idea of a ‘manufactured government’ find themselves questioning the democratic credentials of Prime Minister Shehbaz Sharif’s coalition government, based solely on its taxation policies. It is hard to imagine a truly elected government being so indifferent or unwise as to impose direct taxes on families subsisting below the poverty line.

The proposed budget contains multiple instances where the government has chosen measures that disproportionately penalise the voiceless and vulnerable, those already living in subhuman conditions, to accommodate the more fortunate.

While spatial constraints do not permit listing every such decision, the following examples illustrate the mindset and priorities of the government in relation to the general public: it was reported that the income tax rate for individuals earning between Rs50,001 and Rs100,000 per month was revised upward from one per cent, as initially announced by Mr Aurangzeb in his budget speech, to 2.5pc. This regressive adjustment was reportedly made to offset the impact of last-minute increases in the salaries and pensions of civil servants. In the last budget the applied rate was 5pc.

Further highlighting this skewed approach, the finance minister, during the post-budget press conference, cited the decision to keep the minimum wage unchanged at Rs37,000 as part of the government’s strategy to support businesses to remain competitive, effectively sidelining the working poor in favour of corporate cost control. I challenge any economic wizard, within or outside the government, to draft a realistic family budget with this amount, keeping in mind that the minimum wage must sustain a typical family of seven members.

In the absence of an official definition of ‘the middle class’ in Pakistan, an attempt was made to identify it based on expected living standards associated with this segment. By reasonable estimates, individuals supporting families on a monthly income of approximately Rs150,000 to Rs350,000 fall within the middle-income-group category. This group lies in the top three of five income brackets, where the proposed income tax relief is minimal, barely 4pc to none, depending on each individual’s nominal annual income.

The majority within the projected middle-income bracket — approximately 70pc — earn closer to Rs150,000 per month. For families near this lower threshold, the tax burden has seen modest relief, with the proposed rate reduced to 11pc from the previously 15pc. However, for those earning above Rs222,000 per month, the applicable tax rate ranges from 15pc to 30pc, offering little or no relief for a significant portion of the middle-income group.

Overall, in a year when official inflation is projected to exceed 7pc, a tax relief of 4pc or less will leave households in this income category worse off starting July, even before factoring in other rising costs and growing needs based on tax liability alone.

It would not be an exaggeration to conclude that families in this category will not only be unfairly burdened for non-compliant taxpayers and those who managed to remain outside the tax net, such as traders, realtors and landed aristocracy, but also pay for the follies of policymakers and corruption leading to slippages in revenue collection in the Federal Board of Revenue and its departments.

Given the cost of living, the tax exemption limit should have been doubled. A basic home-cooked meal for a family of seven costs at least Rs500 per day, amounting to Rs42,000 monthly, including essentials like tea, milk, and sugar. Taxation should begin at no lower than a monthly income of Rs150,000.

It is worth noting that using the $2.1 per person per day international poverty threshold, a seven-member Pakistani household would require a monthly income of around Rs150,000 to barely rise above the poverty line based on current exchange rates and basic arithmetic.

To understand the impact of the proposed budgetary measures on middle-class households, the spending pattern of a typical family was analysed. Key expenditure heads and their relative weight in a standard family budget were identified, and overall impact was assessed. The findings are summarised in the table.

Published in Dawn, The Business and Finance Weekly, June 16th, 2025