LAHORE: The Pakistan government is expected to adopt a mix of public appeasement measures and revenue-boosting reforms -- particularly under pressure from the International Monetary Fund (IMF). As these two goals often conflict, the impact on ordinary citizens will depend on how effectively the government balances them.
Should the government seek to appease people while aggressively raising revenues to satisfy IMF conditions, it is likely to resort to indirect taxation alongside selective relief schemes. This approach is considered regressive: it shields only the very poor while placing a heavier burden on the rest of the population.
Potential public appeasement measures may include increased social protection spending, such as the expansion of stipends or coverage under the Benazir Income Support Programme (BISP). One-off cash payments to the poorest families, similar to those announced in 2020 and 2023, could also be introduced. These would aim to soften the political impact of austerity. Other likely measures include subsidised utility support programmes for low-income households. While these would provide some relief, the benefits would be limited -- especially if inflation rises and real incomes decline.
Public sector employees may receive a 10-15 percent increase in salaries and pensions. This would offer some support to the middle class employed in government, but it could also add to inflationary pressures -- particularly if not accompanied by new revenue sources or spending cuts elsewhere. It would also increase the fiscal deficit unless offset by additional taxation.
The upcoming budget is expected to continue or even expand utility subsidies. Lifeline electricity units (50-100 units per month) are likely to remain subsidised, and new gas subsidies for tandoors and low-usage households may be introduced. These measures would ease the energy burden on low-income groups but could deepen the fiscal deficit or necessitate cross-subsidisation, pushing higher costs onto industry and middle-income consumers.
Development spending in politically important constituencies may also be used as a tool for electoral gain. Targeted schemes such as roads, water supply and school infrastructure in Punjab, Sindh, or Khyber Pakhtunkhwa may be announced. While these projects could create short-term employment and modest local improvements, their long-term impact on poverty would be limited unless supported by maintenance plans and local procurement strategies.
To meet IMF revenue targets -- estimated to require an additional 1.5-2 per cent of GDP -- the government may roll back several tax exemptions. Zero-rating or reduced GST on sectors such as fertilisers, pharmaceuticals, textiles, or essential food items could be curtailed. Exemptions for retailers and specific sectors may also be withdrawn. These moves would likely push up prices, hurting both the middle class and the poor unless compensated through targeted subsidies.
Efforts to broaden the tax net may include stricter enforcement against retailers, real estate dealers, and agricultural income earners. Enhanced compliance through track-and-trace systems, digital invoicing, and point-of-sale (POS) integrations is expected. If implemented fairly, these reforms could reduce the tax burden on salaried workers over the long term. In the short run, however, they may provoke pushback from vested interests and contribute to price hikes.
There is also speculation that the government may raise the general sales tax (GST) or the petroleum levy. GST could be harmonised at a standard 18 per cent rate, while petroleum levies might be increased. These steps would be highly inflationary, disproportionately affecting transport and food costs -- burdening lower-income households the most.
Fuel price adjustments and electricity tariff hikes have already been signalled and would further tighten household budgets by reducing disposable income.
The overall impact of the forthcoming budget on ordinary citizens will vary across socio-economic groups. The poorest 20 per cent may receive targeted relief through BISP and energy subsidies, but these gains risk being eroded by inflation caused by indirect taxation and higher utility costs.
The lower-middle class is likely to suffer the most, as they typically do not qualify for direct subsidies yet bear the brunt of inflation and increased taxation. Salaried middle-income earners may benefit from pay raises, but will likely see a net loss in purchasing power due to higher indirect taxes.
Small businesses will face increased tax scrutiny, rising input costs, and shrinking consumer demand amid inflation. Meanwhile, the agricultural and informal sectors may be drawn into the tax net -- a politically sensitive but economically necessary step -- which would raise their input costs as well.