Real take-home pay increasing at snail’s pace - report

Cape Town - South Africans' real take-home pay increased slightly for the third consecutive month in May on a year-on-year basis, according to BankservAfrica's latest Disposable Salaries Index (BDSI) released on Wednesday.

Although the 0.9% increase was slower than March and April, SA’s formal sector workers are still slightly better off than in 2016, according to the index report.

The BDSI direction in real salaries indicates that the trend of shrinking real salaries has been replaced - at least for now - with slowly increasing real salaries.

The report states that it is likely that this is the result of 2016’s higher consumer price inflation which influenced the size of the salary increases granted by larger employers such as government.

The seasonally adjusted real take-home pay averaged at R13 790 in May 2017, marginally lower than April’s average of R13 914. With most of the last two years indicating declines in real take-home pay, the overall picture reflects no real salary changes in the formal sector, states the report.

Nominal terms

In nominal terms, the average disposable salary increased by 6.6% on a year-on-year basis. This was slower compared to the 7% year-on-year increase experienced between April 2017 and April 2016.

The report points out that, as salary adjustments are largely based on the inflation rate, much of the increase in nominal salaries are taxed at higher tax rates. This makes it difficult for salaried employees to keep up their lifestyles as the higher tax rate impacts take-home pay.

The median salary increased by 2.5% in real terms, indicating that banked disposable salaries for the typical formal sector employee performed slightly better than the average salary. The median take-home pay was 73.8% of the average pay.

Medical insurance

Medical insurance - as measured by Statistics SA - showed an average increase of 10.3% in May 2017.

"More often than not, this expense is deducted before a salary is banked. The fact that the average salary increased by 0.9% in May indicates that banked formal sector employees are probably averaging gross salary increases of over 7% before taxes with medical aid deduction reducing take-home pay increases to 6.6% or so," according to the report.

"The higher than inflation increases in deductions could hurt other parts of the economy as employees are the driving force behind consumer spending."

According to the report, it is highly likely that the disposable salaries’ underperformance will affect consumer confidence and drive sentiment down in the coming months. Retail sales and domestic tourism as well as car sales are, therefore, expected to remain slow for some time to come.