The 2025/26 national budget prioritises fiscal restraint, but in doing so, it leaves a growing number of workers exposed to the full effects of inflation. By keeping both the minimum wage and the Pay As You Earn (Paye) tax-free threshold unchanged, the government has opted to preserve revenue at the expense of household purchasing power.
The rationale is clear. Raising the Paye threshold would reduce income tax revenues. Increasing the minimum wage would place additional financial strain on the public sector wage bill and on small businesses already facing tight operating margins.
In a context of high debt, constrained donor support and growing demands for public spending, the decision reflects a desire to maintain stability and avoid widening the budget deficit.
However, the social and economic consequences of holding these thresholds steady are becoming harder to ignore. Inflation remains elevated, particularly for food and essential goods.
This continues to erode the real value of wages, especially among low-income earners. The result is a sharp decline in disposable incomes, with more households spending most of what they earn on basic needs such as food and transport.
Reduced disposable income weakens consumer demand, which in turn suppresses private sector activity. Businesses facing lower sales are unlikely to expand or hire, which undermines job creation efforts.
In some cases, firms may even scale back operations or cut staff, deepening unemployment and further depressing demand. This is not a hypothetical scenario—it is a feedback loop already visible in parts of the economy.
The government has responded by scaling up targeted social protection measures, including the Social Cash Transfer Programme and other safety nets. These programmes are designed to offer relief to the poorest households without placing upward pressure on wages or drawing down revenue. In principle, this is a cost-effective way to protect the most vulnerable.
Yet such interventions are not designed to stimulate broad-based economic growth. They serve an important humanitarian function, but they do not compensate for stagnant wages or limited household consumption. Nor are they fiscally sustainable at scale in the absence of growth in revenue-generating sectors.
Calls for a review of the Paye tax-free band—particularly proposals to raise it to K300 000—reflect growing concern that the tax system has not kept pace with the cost of living. Maintaining the current threshold effectively means taxing a larger share of real incomes as inflation rises. Without adjustment, the tax burden becomes heavier in real terms, further reducing the purchasing power of already stretched households.
This has broader implications for the economy. Consumer spending remains a key driver of growth. When that spending slows, it drags down retail, services and other sectors that rely on household demand. Productivity may also suffer as workers, facing financial stress, struggle to meet basic needs or invest in their own skills and wellbeing.
The government’s decision is not without merit. Maintaining revenue is very important, especially when debt servicing costs are rising and external financing remains uncertain. But the choice to hold wages and tax thresholds steady carries its own risks. Over time, it may entrench economic inequality and limit the pace of recovery.
Formal discussions on minimum wage adjustments are ongoing, and there remains an opportunity to review the Paye structure. A more balanced approach—one that gradually increases the tax-free band and allows modest wage growth—could help ease pressure on workers while maintaining macroeconomic discipline.
Stability is essential, but it must be inclusive. Economic recovery cannot rest solely on workers’ shoulders with falling real incomes. If left unaddressed, wage and tax stagnation may prove more costly than the short-term revenue loss the government is seeking to avoid.
