Middle class to remain under pressure despite tax relief measures: Debapriya

Bangladesh’s middle class is unlikely to see significant relief in the coming fiscal year despite some tax concessions in the proposed FY2026-27 budget, as inflation, weak wage growth and declining household savings continue to erode purchasing power, economist Debapriya Bhattacharya has warned.

Speaking at a media briefing titled “National Budget 2026-27: What Is There for Disadvantaged Citizens?” by the Citizens’ Platform for SDGs, Bangladesh today (15 June), Debapriya said lower- and middle-income households are currently facing a ‘triple pressure’ of high inflation, stagnant real wages and shrinking savings.

Even if people are working, they are not necessarily moving forward economically, he said. “Inflation remains higher than wage growth, while household savings are declining.”

According to the platform’s analysis, inflation stood at 9.42% in May 2026, while wage growth was 8.13%, implying a continued decline in real incomes. At the same time, domestic savings have fallen sharply—from 25.76% of GDP in FY23 to 21.38% in FY26.

The economist questioned the government’s macroeconomic assumptions underlying the proposed budget, arguing that several projections appear detached from current realities.

The policy framework may be thoughtful, but it is standing on a weak and to some extent dysfunctional fiscal framework. The medium-term macroeconomic framework is even weaker. In fact, we believe it is not merely weak, but unprofessional, Debapriya said.

The Citizens’ Platform said the government’s recovery strategy could prove difficult to achieve within the proposed timeframe of one year, particularly as key employment-generating sectors continue to struggle.

The platform expressed particular concern about the government’s continued reliance on indirect taxation. Nearly 60% of additional revenue mobilisation is expected to come from VAT and other indirect taxes, which affect consumers regardless of income level.

Potential price pressures may also emerge from VAT increases on products and services such as LPG cylinders, restaurant meals, construction materials and various consumer goods, Depapriya said.

However, the platform welcomed several tax measures, including raising the tax-free income threshold to Tk375,000, reducing source tax on essential commodities, granting tax exemptions to startups and freelancers, and providing duty waivers on assistive devices for persons with disabilities.

At the same time, it criticised the increase in advance income tax on savings certificates from 5% to 10%, arguing that it would discourage small savers.

Highlighting regional disparities, Debaproya stressed the need for special initiatives for northern Bangladesh, the Chittagong Hill Tracts, and coastal areas. 

While acknowledging the increase in social protection spending as a positive development, he said that a significant portion of the allocation is being spent on pensions for government employees, thereby limiting the actual coverage of social protection.

Outlining four recommendations for budget implementation, Debapriya Bhattacharya said the government must publish updated economic data, submit quarterly reports on budget implementation to Parliament, form a parliamentary caucus for disadvantaged groups, and introduce a ‘reform tracker’ to monitor reform activities.

“The biggest challenge is implementation,” he said adding, “Without realistic data and accountability, the intended benefits of the budget may not reach the people who need them most.”