Public sector employees are increasingly feeling the strain of rising taxes and statutory deductions, with new proposals in the Finance Bill 2026 expected to further squeeze disposable incomes despite modest salary increases.

Recent data from the Kenya National Bureau of Statistics (KNBS) shows that while average earnings continued to rise across the economy in 2025, government workers experienced a decline in their real purchasing power as wage growth failed to keep pace with inflation and the rising cost of living.

According to the 2026 Economic Survey, real average earnings in the public sector fell by 2.2 per cent to Ksh600,600 in 2025, compared to the previous year. This contrasted sharply with the private sector, where real average earnings increased by 3.9 per cent to Ksh716,100.

“In 2025, the real average earnings per employee reached Ksh678,800, an increase from Ksh665,400 in 2024. The private sector experienced a growth of 3.9 per cent, with earnings rising to Ksh716,100. Conversely, the public sector experienced a decline of 2.2 per cent, bringing real average earnings down to Ksh600,600 during the same period,” reads the report.

Inflation

The decline in real earnings reflects the limited growth in salaries for government employees relative to inflationary pressures and additional tax burdens. Public servants recorded only a marginal increase in nominal earnings compared to workers in the private sector.

KNBS data indicates that average annual earnings per employee in the private sector rose by 7.85 per cent to Ksh1.04 million in 2025 from Ksh966,575 in 2024. By comparison, public sector employees registered an increase of just 1.49 per cent, with average annual earnings rising to Ksh874,273 from Ksh861,389.

“In the year under review, overall annual earnings increased by 5.9 per cent to Ksh988.200. The average annual earnings in the private sector increased by 7.9 per cent to Ksh1 million in 2025, while earnings in the public sector increased by 1.5 per cent to Ksh874,300,” the KNBS report says.

The pressure on household budgets is expected to intensify if proposed tax changes in the Finance Bill 2026 are approved. The Bill seeks to widen the tax base and enhance revenue collection through a series of measures affecting workers and consumers.

Although the government argues that the proposals are necessary to support fiscal consolidation and reduce borrowing, they are likely to leave many salaried employees with less disposable income.

For public servants, whose salary growth has already lagged behind inflation, higher taxes and levies could further erode spending power. Increased deductions on earnings, combined with taxes on goods and services, would reduce the amount of money available for household consumption, savings and investment.

Despite the decline in real earnings, public sector jobs continue to attract workers because of perceived job security, pension benefits and predictable career progression. Government positions have traditionally been viewed as more stable than those in the private sector, particularly during periods of economic uncertainty.

Tax reforms

Over the years, policymakers have proposed shifting more government jobs to contract terms as a way of improving efficiency and containing pension obligations. However, such reforms have largely remained unimplemented.

The attractiveness of public employment is reflected in recruitment trends. KNBS data shows that public sector employment expanded faster than the national average in 2025, even as workers experienced weaker earnings growth.

The 2026 Economic Survey shows that wage employment in the public sector increased by 4.6 per cent in 2025, surpassing the overall employment growth rate of 3.1 per cent.

By the end of the year, the public sector employed 1.07 million workers, compared to 2.245 million in the private sector. Total wage employment stood at 3.32 million, up from 3.22 million in 2024.

Public administration and defence recorded the largest increase in employment, growing by 6.6 per cent to 375,100 workers from 351,800 a year earlier. Health and social work followed with a 5.5 per cent rise, while wholesale and retail trade and motor vehicle repair activities expanded by 4.8 per cent.

The report further notes that employment under the Teachers Service Commission increased by 6.2 per cent to 436,300 workers in 2025, while ministries and other extra-budgetary institutions recorded a 2.9 per cent increase.

“Employment in County Governments increased by 5.5 per cent to 239,000, while employment in corporations controlled by the Government, as well as in Parastatal bodies, each grew by 1.3 per cent in 2025,” the report says.

The figures show a growing contradiction within the public sector: employment opportunities continue to expand, but workers are taking home less value from their earnings.

With the Finance Bill 2026 proposing additional revenue-raising measures, public servants could face even greater pressure on their purchasing power in the coming years unless wage growth catches up with the rising cost of living.