Take-home pay increases in South Africa – but storm clouds are gathering

The BankservAfrica Take-home Pay Index (BTPI) has continued to increase, but there are dangers for tax-paying South Africans.

“The nominal average take-home pay was R15,670 in January, representing a 9.1% year-on-year increase – off the low base – and showed a 1.5% growth on the R15,533 recorded in December,” said Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements.

Real take-home pay increased by 3.5% year-on-year to R13,968 in January 2024, suggesting that the significant decline in purchasing power during 2023 is starting to ease.

Nevertheless, Finance Minister Enoch Godongwana’s decision not to adjust income tax brackets for inflation may cause financial challenges.

“This essentially means that a salary increase could push salary earners into a higher income tax bracket. Affected individuals could end up paying tax at a higher rate – and take home a lower salary than before the increase,” said Elize Kruger, Independent Economist.

“Bracket creep” will see the government earn more than R16.3 billion in taxes in the 2024/25 financial year.

The government looks set to keep “bracket creep” around for at least three years as part of its medium-term policy, which could take away R52.2 billion from the pockets of tax-paying salary earners over the period.

Although headline CPI moderated from 6.9% in January 2023 to 5.3% in January 2024, a few upside risks have appeared in the first few weeks of 2024.

The rand weakened from R18.35/$ at the start of the year to roughly R19.30/$ in the last few weeks.

This is expected to add upside risks to inflation, as imports and globally priced products, such as fuel, will see price increases.

Major medical aid premium increases in February are also expected to keep headline CPI elevated for some more months.

CPI is expected to average 5.3% in 2024 compared to 6.0% in 2023, which Kruger said is highly higher than consensus expectations of 5.0%

A lower inflation rate, as well as the 75bps worth of interest rate cuts expected for 2024, could also lead to more support for households in terms of spending ability and confidence levels. This is only expected to occur in the second half of 2024.

Not all bad

BankservAfrica said the ongoing economic challenges have hampered businesses’ ability to pay inflation-related salary increases in the past 18 to 24 months.

Load shedding, global factors and other increases in the operating cost environment have impacted companies’ profits.

Although weak GDP growth of 1.3% is expected for 2024, it is better than the estimated 0.6% seen in 2023, which should boost the labour market, especially in terms of wage settlements and job creation.

However, the BankservAfrica Private Pensions Index (BPPI) dropped marginally in both nominal and real terms in January 2024. That said, it remained in positive territory on a yearly basis.

“The nominal private pension fell slightly to R10,616 in January 2024 compared to the previous month’s R10,642, but still 5.7% higher than a year earlier,” said Naidoo.

The average private pension was R10,657 or 6.8% higher compared to a year earlier, which signals that the purchasing power of pensioners has mostly been preserved despite high inflation.

In real terms, the BankservAfrica BPPI jumped by 0.8% in 2023, boosting its recent inflation-beating record, and this trend continued in January 2024.

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