Take-home salaries under strain in SA

Take-home salaries under strain in SA

May 3, 2016

South Africa continues to experience slow growth in disposable salaries, according to the latest BankservAfrica Disposable Salaries Index (BDSI) released last week.

The nominal trend indicates further increases could be even smaller than currently seen, but remain above the inflation rate.

The trend in total payments of disposable salaries and pensions shows consumers will not be in a strong position this year, according to Mike Schüssler, chief economist at Economists dotcoza.

At the same time, he pointed out, pensioners are still not well off by any stretch of the imagination.

“Last month the increase in disposable salaries of 6,5% on a year ago barely beat inflation, which sits at 6,3%,” explains Dr Caroline Belrose, head of knowledge and risk services at BankservAfrica.

The average monthly take-home pay for March 2016 was R12 501. This still outpaced banked pensions, even though the BankservAfrica Private Pensions Index increased at a faster rate than salaries and was up by 7,4% for the year.

The average pension as paid via the payments system of BankservAfrica for March 2016 came in at R6 075.
Schüssler explained that the slowdown in disposable salary growth is also impacted by personal income taxes that were effectively raised again by not being compensated for inflation. This is called bracket creep and means that as people’s salaries or pensions go up to compensate for inflation, they enter a higher tax bracket. Therefore, in real terms they are taking home the same amount.

The salary of employees in the middle of the salary spectrum outpaced those at the higher end due to more people slowly moving up the employment ladder. The median salary shows a growth of 7.2%, which is again better than the average salary.

The typical pension increased by 13.4% on a year ago, and shows that many pensioners have kept up well with inflation. But pension payments are still less than half of salaries.

The typical salary came in at R9 282 for the month of March, while the typical pension was R4 259. The increases for both medians outpaced inflation in March 2016.

The total combined payments of salaries and pensions grew by a total of 7.2% over the year to March 2016. It is the seventh month that the total payments have been within 50 basis points of 7%.

This is slower than the period of July 2014 to March 2015, where only one month had a growth rate in single digits. While BankservAfrica still excludes payments to bank accounts that are over R100 000, the total averaged over R47,8-billion.

“The slowing trend in the total payments for salaries and pensions is probably the best indicator that the current growth in retail sales is coming from the falling sales of big ticket items such as cars,” explains Schüssler.

“There is likely to be a bit of extra consumer credit growth driving retail sales too. The faster increase of median and average pensions was unexpected. But as we do not have a long history of data, it is difficult to have foreseen this.”

He believes retail sales will no longer be growing at a real rate of 4% or even 3% within the next few months.

“Interest rate hikes and slower salary increases based on last year’s low inflation numbers will limit the employee’s ability to spend. This is bad news for large item sales like cars and furniture. It is likely that retailers will struggle for real growth in the next few months,” says Schüssler.

By Carin Smith for www.fin24.co.za