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Finance Minister Ties Salary and Pension Increases to Inflation in Post-Budget Press Conference

Finance Minister Aurangzeb states, "We are able to offer relief only within the limits of our financial resources." Finance Minister Aurangzeb Presents Pakistan’s Fiscal Strategy for 2025-26 On Wednesday, Finance Minister Muhammad Aurangzeb held a post-budget press conference to outline Pakistan’s fiscal priorities for the 2025–26 financial year. This followed the unveiling of the Rs17.57 trillion federal budget. He stressed the importance of linking salaries and pensions in both public and private sectors to inflation benchmarks. According to Aurangzeb, many countries adopt this approach to ensure wages keep pace with economic realities. The briefing started with some tension, as journalists protested the absence of a Federal Board of Revenue (FBR) technical briefing. Nevertheless, Aurangzeb highlighted key budget targets, including a GDP growth goal of 4.2% and a 7% reduction in overall federal expenditure. Key Budget Highlights: Deficit, Inflation, and Tax Relief The government proposes a fiscal deficit of 3.9% of GDP and expects inflation to ease to 7.5% in FY26. Defence spending will increase by 20.2% to Rs2,550 billion. Meanwhile, the FBR must collect Rs14,131 billion in taxes, representing an 18% rise from last year. This effort aims to raise the tax-to-GDP ratio to 10.1%. To ease the burden on the salaried class, the budget introduces new tax slabs. For example, the minimum tax rate drops from 15% to 4% for incomes up to Rs2.2 million annually. Other income brackets will also benefit from reduced rates. Additionally, the government plans strict measures against tax non-filers, which could restrict their access to the financial system. Tariff Reforms and Agricultural Support Aurangzeb emphasized the critical role of tariff reforms. He revealed that tariffs have been eliminated on 4,000 out of 7,000 tariff lines—an adjustment not made in 30 years. These reforms aim to boost exports and stimulate economic growth. Furthermore, the government will collaborate with provinces to develop the agriculture and livestock sectors. Small farmers will gain access to loans on easy terms. Importantly, the budget does not impose any new taxes on agriculture. However, Aurangzeb cautioned that relief efforts remain limited by the country’s financial capacity. Managing Inflation and Federal Spending With inflation currently at 7.5%, the Finance Minister highlighted efforts to cap federal expenditures at 2%. He acknowledged that the budget begins with a deficit and noted the historical trend of rising national debt. Aurangzeb justified necessary spending increases and stressed that the government relies heavily on loans to fund its initiatives. He also defended recent salary hikes for parliamentary leaders, pointing out that ministerial salaries had not increased since 2016. Taxation of Non-Profit Organizations FBR officials clarified that non-profit organizations will not receive tax exemptions without thorough scrutiny. Institutions must prove they operate on a non-commercial basis to avoid tax liabilities. The FBR continues to use a self-assessment tax regime to enhance transparency and compliance. Balancing Fiscal Discipline, Growth, and Relief Overall, this budget reflects a careful balance between fiscal discipline, economic growth, and social relief. It addresses ongoing challenges such as inflation, debt servicing, and the need for structural reforms in taxation and trade policies. Moving forward, the government aims to maintain this balance while supporting key sectors and improving tax compliance.

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June 11, 2025