Federal govt proposes 7% pay and pension increase, 10% minimum wage hike

The federal government has proposed a 7% increase in the salaries of public-sector employees and pensions of retired government workers in the budget for fiscal year 2026-27.

The budget also proposes a 10% increase in the minimum wage.

Alongside the pay and pension increases, the government has announced income tax relief for salaried individuals across four annual income brackets.

For individuals earning between Rs2.2 million and Rs3.2 million annually, the applicable tax rate has been reduced from 23% to 20%.

The tax rate on annual income between Rs3.2 million and Rs4.1 million has been lowered from 30% to 25%.

Salaried individuals earning between Rs4.1 million and Rs5.6 million annually will face a reduced rate of 29%, compared with the existing 35%.

For those earning between Rs5.6 million and Rs7 million a year, the tax rate has been cut from 35% to 32%.

The surcharge imposed on salaried individuals has also been abolished.

The federal budget for FY27 carries a total outlay of around Rs18.77 trillion, compared with Rs17.6 trillion in the outgoing fiscal year.

The government has allocated Rs8.054 trillion for interest payments during the next fiscal year.

The budget targets gross domestic product growth of 4% in FY27, compared with estimated growth of 3.7% in FY26. Inflation is projected at 8.2%, against an estimated 7% in the outgoing fiscal year.

The government has also set a fiscal deficit target of 3.6% of GDP and a primary surplus target equivalent to 2% of GDP.