Taxes eat away at disposable income: index

 ·24 Jun 2015

Average disposable salaries in South Africa declined in real terms year-on-year (y/y), according to the latest BankservAfrica Disposable Salary Index (BDSI) released on Wednesday.

Mike Schüssler, chief economist at Economists dotcoza, cautioned that the index was impacted by the salary negotiations for public servants not having been settled in May due to on-going bargaining.

“I think [the] delay in state salary increases is now playing itself out in the latest data, but we will probably be in positive territory again in real terms as soon as new public sector increases come into effect,” Schüssler told Fin24.

“As soon as the public sector salaries get adjusted we will be back to positive salary increases in real terms. We could even see a surge as they get back pay. Ultimately, the real underlying issue is that there might be a little bit of a blip in retail due to the delay.”

Schüssler said salaries are not the problem in South Africa, but rather unemployment. The number of people employed is not growing as fast as salaries are growing.

Weak numbers should be taken with a pinch of salt

“Disposable salary increases were, therefore, disappointing due to the drawn-out bargaining in the public sector, which is nothing more than a technical factor. However, it is making monthly comparisons difficult on a year ago basis and the weak numbers should be taken with a pinch of salt,” said Schüssler.

“In the short-term there may be a lack of household spending too, as people wait to see what their actual increase is going to be, and when it will take place. We can also expect to see a sharp spike in salaries in the months ahead, but this will of course be due to the delayed settlement and the adjustments this causes.”

May 2014 reflected the backdated increase of the April 2014 annual government salary increases, so this also skews a y/y comparison.

“This means that the country’s biggest employer is making a comparison between May 2014 and May 2015 very difficult. The May 2014 numbers reflect two months of salary increases rolled into one, while May 2015 does not yet show an increase as salary talks had not finalised,” explained Schüssler.

Public servants make up nearly a quarter of the total workforce – around a third of the estimated number of employees in the BDSI – and receive nearly 30% of the non-farm payroll wages.

“In the salary payments systems, we believe this could be as much as 40% of the value of salary payments. So any delay in public sector wage increases has a huge knock-on effect, not only on the BDSI, but also on retail sales and many other consumer indicators,” according to Dr Caroline Belrose, head of fraud and data analytics at BankservAfrica.

This delay resulted in a real y/y decline of -1.4% in salaries, while the nominal increase was 3.1%. However, on a monthly basis, salaries still grew strongly as the April holiday season came to an end.

The actual median take-home pay in May was R9 333. This saw a real decline of -0.3%, and increased below the rate of consumer inflation.

Tax impact

Another factor that is decreasing average disposable salaries is the tax increases that many higher salary-earners are now paying. This also constrains overall consumer spending.

BankservAfrica estimates that this has taken close to 1% away from the real salary increase.

Salaries are, however, still increasing in nominal terms, and BankservAfrica expects that when the full year’s salaries are reviewed the actual real disposable salary will be positive.

Less than 20% of employees now earn less than R4 000 per month, meaning over 80% of formally employed people on the South African payment system now take home over R4 000 a month.


Pensioners are still getting above-inflation increases.

“Although average pensions are only 46.6% of the average salary, the increase over the last year has been nearly 10%,” according to Belrose.

“In real terms, pensions are up by 5.1%, which is certainly good news for many a person on pension, and means that both average and median pension payments have outperformed inflation.”

Pension growth appears to be largely driven by reasonable returns from fund managers.

“Another factor influencing this increase is probably that, as workers retire and become new pensioners, their now higher salaries offer a higher pension level when they start receiving a pension,” explained Belrose.


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