The BankservAfrica Take-home Pay Index (BTPI) continued its upward movement in January as the high rate of inflation moderated, providing relief to salary earners. However, stormy clouds are on the horizon, particularly for tax-paying South Africans.

“The nominal average take-home pay was R15 670 in January, representing a 9,1% YoY increase – off the low base – and showed a 1,5% growth on the R15 533 recorded in December,” says Shergeran Naidoo, BankservAfrica’s head of Stakeholder Engagements.

Real take-home pay tracked higher at R13 968 in January 2024, registering a 3,5% YoY improvement, suggesting the significant erosion of the purchasing power of salary earners during 2023 is easing off.

However, government’s recent decision to not adjust income tax brackets for inflation, announced during the 2024 National Budget Speech, may cause financial strain.

“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,” explains independent economist, Elize Kruger.

This phenomenon, also known as “bracket creep”, will earn the government R16,3-billion more in taxes in FY25. 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 – and could subtract R52,2-billion from the pockets of tax-paying salary earners over this period.

Headline CPI moderated notably from 6,9% in January 2023 to 5,3% in January 2024. Both fuel and food price inflation subsided notably during the past year, however, 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.

Added 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 around 5,3% in 2024 compared to 6% in 2023 (2022: 6,9%), which, according to Kruger, is somewhat higher than consensus expectations of around 5%.

A lower inflation rate, combined with some relief forecast on the level of interest rates (interest rate cuts of 75bps pencilled in for 2024), could provide much-needed support to households for their spending ability and confidence levels. However, this could only surface in the second half of the year.

The BankservAfrica data confirmed that the ongoing economic challenges have hampered companies’ ability to pay inflation-related salary increases in the past 18 to 24 months. Significant increases in the operating cost environment, partly due to the impact of load shedding, but also global factors, have been among the main forces impacting companies’ profits.

Although only mediocre economic growth of 1,3% is forecast for 2024, at least somewhat better than the estimated 0,6% recorded in 2023, and on the assumption of notably less load shedding in 2024, the business environment is expected to improve somewhat compared to the previous two years and, as such, the labour market could also expect some upside – both in terms of wage settlements and job creation, says Kruger.

The BankservAfrica Private Pensions Index (BPPI) slipped marginally in both nominal and real terms in January 2024 – however, remained in positive territory on an annual 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,” says Naidoo.

For the year 2023, the average private pension was R10 657 or 6,8% higher compared to a year earlier, signalling that the purchasing power of pensioners represented in the BankservAfrica database has largely been preserved amid the still high inflation environment.

Similarly, in real terms, the average BankservAfrica BPPI increased by 0,8% in 2023 keeping its recent inflation-beating record and this trend continued in January 2024.