New fiscal year, new slices of the pie

With the new fiscal year underway as of July 1, the government has begun implementing the fiscal year 2025/26 state budget, approved by the House of Representatives on June 17. In this report, Mada Masr outlines the key features of the new budget in terms of spending priorities and main revenue sources.

Spending and its distribution

Public services alone account for nearly 60 percent of total government spending, according to the functional classification used in the state budget.

This classification, as defined in the Finance Ministry’s 2016 budget guide, organizes spending according to the roles and objectives the government aims to fulfill — whether social or economic. It tracks how public funds are allocated across state functions, such as healthcare, education, defense, security and justice. In doing so, it offers a picture of the relative weight placed on each, which can shift over time.

An analysis of this year’s budget shows that the public services sector — which includes a range of sensitive institutions, most notably the Finance Ministry’s public debt unit — alone has been allocated over LE2.718 trillion out of a total LE4.573 trillion in expenditures.

This sector includes executive, legislative, financial and foreign affairs bodies, as well as public debt servicing. Among the major entities falling under this category are the House of Representatives, the Senate, the Presidency, the Cabinet, presidential specialized councils, governorate offices, the Central Auditing Organization, the Finance Ministry and its affiliates, and the Foreign Ministry.

The chart below presents an overview of how expenditures are distributed by function in the FY 2025/26 state budget.

The large allocation to the public services sector is tied to the expenditures of the Finance Ministry’s public debt unit, which is responsible for servicing interest payments on public debt. For this reason, as the chart below shows, interest payments alone consume nearly 84 percent of the sector’s total spending.

The next chart shows how the share of public services in overall government spending has changed over the past five fiscal years. The data shows a steady upward trend, with the sector’s share now at its highest level in a decade.

Health and education

According to the new state budget, the combined allocation for health and education stands at just 12.27 percent of total government spending — the lowest share for the two sectors in ten years.

The chart below traces the trajectory of health and education spending as a percentage of total expenditures over the past decade. Since  FY 2021/22, their share has steadily declined, continuing through the current fiscal cycle.

This shrinking share aligns with earlier Mada Masr calculations, which found that spending on education, measured as a share of Gross Domestic Product, has dropped to a ten-year low, and that the government continues to fall short of meeting the constitutionally mandated spending thresholds for both sectors.

The budget allocates LE315.095 billion for education — 1.54 percent of GDP. Health spending is set at LE246.191 billion, or around 1.21 percent of GDP.

Nevertheless, the government maintains that it is meeting its constitutional obligations. In a statement made in April, the Finance Ministry said the new budget “fulfills the constitutional spending thresholds for health and education,” and reaffirmed its commitment to “implementing presidential directives to increase investment in human development sectors” — primarily health and education as defined by the United Nations’ Human Development Index.

However, this claim rests on a controversial accounting practice devised by the government. It allows for incorporating interest payments on loans used for health and education projects in the sectors’ budgets. It also counts allocations for institutions not part of the civilian health or education systems, such as military and police hospitals or Al-Azhar institutes, and calculates spending in both sectors as a share of  GDP from the previous fiscal year.

The Finance Ministry applied this same approach in preparing the 2025/26 budget, inflating the figures allocated to health and education.

Wages

The 2025/26 budget includes the largest wage increase in over a decade, with wage allocations rising by 18 percent.

However, the increase varies significantly across functional sectors. At the top of the list in terms of wage growth is the public services sector, which, as previously mentioned, includes a number of sensitive institutions.

The chart below shows the disparities in wage growth across sectors, highlighting the stark contrast between public services and the rest.

MP Mohamed Badrawy, a member of the House Planning and Budget Committee, attributes this sharp disparity to structural differences in bonuses and allowances across various state bodies — and even within the same ministry — which fall outside the Civil Service Law governing public wage systems.

“While it’s true that some entities are subject to the Civil Service Law and others are not,” Badrawy told Mada Masr, “each state body has its own set of regulations that grant extra benefits — bonuses, allowances and compensation for performing certain tasks — that are not tied to the law. These result in large differences in individual total incomes, constrained only by the maximum income cap.”

Taxes

In the 2025/26 fiscal year, taxes are expected to generate 85 percent of total public revenue, as shown in the chart below.

The main driver of this tax revenue is taxes on goods and services, which form the largest share of collections, as shown in the following chart, outlining the main types of tax income.

Taxes on goods and services are expected to bring in LE1.091 trillion in the new budget. These are indirect taxes which are generally considered unjust. Unlike income taxes, indirect taxes are levied on consumption rather than earnings, meaning they do not reflect a taxpayer’s ability to pay.

The chart above reflects the heavy reliance on this type of taxation, especially when compared to taxes on corporate profits or returns on treasury instruments — both of which primarily target higher-income segments.

Payroll taxes, meanwhile, fall on salaried workers, and taxes on commercial and industrial activities apply to individual enterprises, typically small and medium-sized businesses.

Revenues represent just one side of a broader fiscal category: resources. This includes borrowing and proceeds from lending and asset sales.

Mada Masr previously examined the significant role of borrowing in financing the 2025/26 budget. New borrowing alone is expected to exceed LE3.5 trillion, out of a total LE6.761 trillion in resources projected at the time.