Lebanon's government is facing a major fiscal challenge after Parliament approved an additional $630 million in the 2026 budget to fund six additional monthly salaries for public sector employees and retired military and civilian personnel, raising fresh concerns about the country's fragile public finances and the risk of repeating the costly mistakes of past public sector pay hikes.

The measure, approved during last Wednesday's legislative session, grants six additional monthly salaries to public sector workers and retirees, with retroactive effect from March 1.

The decision represents nearly 10% of Lebanon's 2026 state budget, estimated at roughly $6 billion, and has reignited debate over how the government intends to finance the additional spending without further burdening citizens or destabilizing the economy.

The move has also revived memories of Lebanon's controversial public-sector salary scale approved in July 2017, which was initially projected to cost about $800 million but ultimately exceeded $1.5 billion, contributing to the country's deteriorating fiscal position.

An $800 Million Annual Package

According to the Finance Ministry, the salary increase is part of a broader package aimed at improving the living conditions of around 260,000 public sector workers and retirees, including approximately 120,000 active-duty military personnel, 80,000 retired military personnel, 50,000 retired civilian employees, and between 8,000 and 9,000 teachers and administrative staff.

The overall package carries an estimated annual price tag of nearly $800 million.

The largest component is the six additional monthly salaries, costing about $50 million per month, or roughly $600 million annually. Because the measure takes effect retroactively from March, this year's actual cost is expected to reach around $500 million.

The package also includes a sharp increase in family allowances.

Payments will rise from 33,000 Lebanese pounds per child and 60,000 pounds for a spouse to approximately 1.155 million pounds per child and 2.1 million pounds for a spouse, representing an increase of nearly 35-fold. The Finance Ministry estimates the annual cost of the measure at between $100 million and $150 million.

In addition, retired military personnel will receive education grants equal to those of other public sector employees, increasing reimbursement from 50% to 100%, at an estimated annual cost of $70 million.

Government Looks to Taxes for Funding

To finance the additional expenditures, the government has identified several revenue sources, with fuel taxes expected to shoulder most of the burden.

A 320,000-pound levy on every 20-liter gasoline can, introduced in February, is projected to generate around $450 million annually, making it the principal funding source for the salary increases.

Based on available estimates, the government had already collected approximately $195 million through the fuel levy by mid-July.

Questions remain over whether those revenues have been preserved to finance the newly approved spending.

The Finance Ministry is also preparing to raise the value-added tax (VAT) from 11% to 12%, a measure expected to generate roughly $150 million in additional annual revenue.

Although linking a specific tax directly to a particular spending measure is considered unconstitutional under Lebanese law—and similar legislation has previously been rejected by the Constitutional Council—the ministry has defended the planned increase by emphasizing that more than 30% of imported goods remain exempt from VAT, particularly basic food products, school textbooks and children's clothing.

Critics argue those reassurances have accompanied every previous VAT increase without preventing broader price increases.

Additional revenue measures include higher fees on shipping containers and related customs procedures, while the Finance Ministry is also seeking roughly $200 million through improved tax compliance, stronger customs collections and efforts to combat tax evasion.

Economists Warn of Fiscal Risks

Economist Jassem Ajaka, a professor at the Lebanese University, told Nidaa Al-Watan that the Parliament's approval of the additional appropriation once again exposed deep structural weaknesses in Lebanon's management of public finances.

"The fundamental problem is the continued reliance on temporary fiscal patchwork rather than a comprehensive reform strategy," Ajaka said.

He criticized the rapid approval of such a large spending package without extensive review by Parliament's specialized committees and warned that the expenditure had not been matched by sustainable tax and customs legislation capable of financing it.

According to Ajaka, separating spending decisions from revenue measures will inevitably widen Lebanon's 2026 budget deficit and place additional pressure on government finances at a time when state revenues remain depressed because of the war and recent geopolitical tensions.

He also noted that because the salary increases have been classified as temporary social assistance, rather than incorporated into employees' basic salaries, they will not improve end-of-service indemnities or retirement pensions.

Ajaka warned that injecting such a large volume of liquidity without structural sources of revenue risks undermining Lebanon's fragile monetary stability.

He said the policy could become a political tool to postpone a deeper crisis while fueling inflation that would ultimately erode the purchasing power of both citizens and public employees.

Labor Union Rejects VAT Increase

The General Confederation of Lebanese Workers (CGTL) has vowed to oppose any increase in VAT, arguing that citizens should not bear the cost of financing public sector salary increases.

CGTL President Bechara Asmar said the union would fight plans to raise the VAT rate to 12%, describing the proposal as unacceptable.

He recalled the union's successful campaign against Decree No. 3214 on environmental fees, which the government later withdrew, and said it would similarly oppose recently introduced taxes and fees, however modest, because they would ultimately be paid by ordinary citizens.

Asmar warned that the union was prepared to escalate through demonstrations and strikes if the government proceeds with the VAT increase.

He said he plans to convey the union's position directly to Finance Minister Yassine Jaber during a meeting scheduled for Tuesday at the Finance Ministry.

Instead of imposing new taxes, Asmar urged the government to identify alternative funding sources, including revenues from public maritime and riverfront properties and other state assets.

According to Asmar, the government is effectively giving public employees six additional salaries—worth between $120 and $200 per month, depending on rank—with one hand, only to take the money back through higher taxes and fees with the other.

Echoes of the 2017 Salary Scale

While few dispute the need to improve conditions for public sector workers after years of economic collapse that have left some retirees surviving on pensions of just $200 to $300 per month, critics argue that the latest measures risk repeating the mistakes of the past.

The debate has revived scrutiny of the 2017 salary scale law, which included a series of reforms intended to prevent unchecked growth in public spending.

Those reforms called for a freeze on public-sector hiring, a comprehensive review of government staffing levels, and a restructuring of the public administration.

However, a report commissioned by Parliament's Finance and Budget Committee later found that 5,473 employees had been recruited after the law took effect, outside the military and security services.

Only 460 of those appointments complied with legal recruitment procedures and matched officially approved job descriptions.

Political hiring continued, while the promised restructuring of the public sector was never carried out.

IMF Conditions

Finance Minister Yassine Jaber has said the government is seeking to comply with International Monetary Fund requirements that any increase in public spending outside the budget framework be matched by corresponding revenues.

"The International Monetary Fund was clear with us that no spending increases should be approved without securing matching revenues," Jaber said.