ISLAMABAD: The government may increase salaries and pensions of all civil and uniformed employees, along with six special honoraria for the staff of the finance and revenue divisions, in the federal budget for the 2016-17 financial year.
Informed sources told Dawn that the Ministry of Finance was in the process of finalising at least two options for increasing the salaries and pensions that would be more than enough to absorb the impact of increase in the cost of living.
The ministry will present the two options, along with their financial impact, to the prime minister at a meeting on budgetary proposals after his return from the UK later this week.
The first option entails a seven per cent across-the-board increase in salaries and pensions, having a financial impact of Rs22-23 billion — about Rs15bn on account of salaries and over Rs8bn on account of pensions. The second option involves an increase of 10pc in salaries and pensions, having an additional fiscal impact of about Rs35bn. The increase would be through ad hoc relief, the sources said.
The allocation for pension is expected to go up by 6pc to about Rs245bn from Rs232bn in the current financial year.
Separately, all officials of the two divisions of the Ministry of Finance — revenue and finance — will be given six special honoraria equivalent to their six basic salaries for working on the budget.
Officials argued that since inflation measured by the Consumer Price Index (CPI) remained 2-3pc over the past two years and increased a little over 4pc this year, the finance ministry’s preferred option would be the 7pc increase in salaries and pensions that was significantly higher than the rate of inflation.
However, the prime minister, as a goodwill gesture, could allow a 10pc increase, but this will have a higher financial impact. A final decision on the matter will be taken at a special meeting of the cabinet on budget just before its presentation in the National Assembly on June 3.
An official recalled that annual increment was originally inbuilt in salary as part of basic pay scales of employees to offset increase in the cost of living. Over the years, a new system of annual increase in salaries and pensions was introduced over and above the annual increment and formalised on the basis of rate of inflation during the period of late finance minister Dr Mahboobul Haque.
The system was politicised during the last PPP government when remunerations of the employees of civil service and armed forces were increased by a cumulative 135pc in five years, including a 50pc jump in a single year. This was in addition to special allowances for civil servants posted at certain institutions like president and prime minister houses and the Federal Board of Revenue, and transport monetisation allowances for senior bureaucracy.
Interestingly, the bureaucracy quietly exempted their monetisation allowances ranging between Rs70,000 and Rs100,000 per month from becoming part of salary to enjoy tax exemption unlike private salaried class and government employees working in grade-19 and below who are subjected to income tax on entire remunerations.
Published in Dawn, May 25th, 2016