Take-home pay up 9%
LOSSES: BAD OMENS IN BUDGET’S BRACKET CREEP DECISION, RAND WEAKNESS Not adjusting income tax brackets for inflation may reduce real earnings.
Take-home pay showed a year-on-year increase, continuing its upward movement in January as the high rate of inflation moderated. However, storm clouds are on the horizon, particularly for taxpayers.
According to the BankservAfrica Take-home Pay Index (BTPI), the nominal average take-home pay was R15 670 in January – a 9.1% year-on-year increase, although it was off a 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, the amount received after tax, insurance and other deductions, was also higher at R13 968 in January, a 3.5% year-on-year improvement, suggesting the significant erosion of the purchasing power of salary earners during 2023 is easing off.
However, government’s recent decision not to adjust income tax brackets for inflation, announced during the 2024 national budget speech, may cause financial strain, Elize Kruger, an independent economist, said.
“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.”
This phenomenon, also known as “bracket creep”, will earn the government R16.3 billion more in taxes in the 2025 financial year. Kruger said government’s intention to maintain this as a medium-term policy, with revenue projections suggesting that bracket creep will stay for at least three years, could take R52.2 billion from taxpaying salary earners over this period.
Headline CPI moderated notably from 6.9% in January 2023 to 5.3% in January 2024 and fuel and food price inflation subsided during the past year. However, Kruger says a few upside risks appeared in the early weeks of 2024.
“The rand exchange rate started the year at R18.35/$, but depreciated in recent weeks to around R19.30/$, more than 5% weaker.
“This will surely be inflationary as all imports and globally priced products will increase sharply and add to the current under-recovery on fuel prices, which are already signalling a +R1 increase in both diesel and petrol prices in early March, with a likely second-round impact on general pricing in the economy.”
Kruger said add to these the negative impact of considerable medical aid premium increases in February and a scenario of headline CPI remaining elevated for some more months is likely. Consumer inflation is expected to average 5.3% in 2024 compared to 6% in 2023.
“A lower inflation rate, combined with some relief forecast on interest rates, with rate cuts of 75 basis points pencilled in for 2024, could provide much-needed support to households’ spending ability and confidence levels. However, this may only be in the second half.”
The BankservAfrica data confirmed the ongoing economic challenges hampered companies’ ability to pay inflation-related salary increases in the past 18-24 months, she said.
Although only economic growth of 1.3% is forecast for 2024, the business environment is expected to improve compared to the previous two years and the labour market could also expect upside in terms of wage settlements and job creation.
The nominal private pension fell slightly to R10 616 in January 2024. “It is still 5.7% higher than a year ago.” –