Average salary increases suggest better year for take-home pay – BTPI

Average monthly, annual and quarterly increases in take-home pay suggest a better year for take-home pay, with average take-home pay improving by 2.5% in February. The business environment in 2024 is expected to improve somewhat, unlike the previous two years when persistent economic challenges significantly affected companies and their ability to pay inflation-related increases.

The monthly BankservAfrica Take-home Pay Index (BTPI) experienced another positive month in February. “The average nominal take-home pay reached R16 085 in February, 4.6% more than a year ago and 2.5% more than in January when it was R15 692,” Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements, says.

“In real-terms, the monthly take-home pay tracked higher at R14 354 in February 2024, slightly below year-on-year levels.”

Elize Kruger, an independent economist, says while it is still early days, the BankservAfrica data signals 2024 could be a better year for salaries.

“Although mediocre economic growth is forecast for 2024, the economy is expected to perform somewhat better than the 0.6% reflected in 2023. However, this depends on reduced load shedding, a moderation in average inflation and interest rate cuts.”

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But watch out for bracket creep

However, consumers must remember that the minister of finance did not adjust tax brackets to mitigate the impact of inflation, which essentially means that a salary increase could easily push salary earners into a higher income tax bracket.

Kruger says people who are affected will subsequently pay tax at a higher rate, with the result that the effective increase felt in the pocket of the salary earner will be lower. if you earn, for example, R370 500 and get an increase of 5%, given the higher tax rate in the next bracket, the effective increase after higher tax, will be only 4.4% compared to the after-tax salary before the increase.

She says this is erosion due to the tax scenario. If inflation is indeed 5%, the salary earner would have a real decline in take home pay of 0.6%.

 A comparison of the average nominal BTPI for the three months to February 2024, with the corresponding three months in 2023 reveals a 6.4% increase, according to Kruger. This is broadly in line with the forecast of the South African Reserve Bank (Sarb) of an average salary increase of 6.1% for 2024.

The figure also aligns with the results of a recent pay poll by Andrew Levy & Associates, indicating the majority of companies (58%) anticipate their average increase in respect of salaried staff to be in the region of 5% to 6.9%.

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Could 2024 be a year of positive increases in take-home pay?

Headline CPI moderated notably from 6.9% in January 2023 to 5.3% one year later and is forecast to average about 5.3% in 2024 compared to 6.0% in 2023 and 6.9% in 2022.

“With a forecast average salary increase of about 6%, 2024 could be a year of positive real increases in average salaries again, which will see the purchasing power of salary earners improve somewhat compared to the previous two years,” Kruger says.

In addition, a lower inflation rate combined with some relief forecast for interest rates could provide much-needed support to households in terms of their spending ability and confidence levels, Kruger says, but also points out that this will likely only be evident in the second half of 2024.

Kruger says the repo rate is likely to remain unchanged at next week’s Monetary Policy Committee (MPC) meeting as sticky headline inflation, the weakness in the rand exchange rate and concerns about food prices could keep the Sarb from providing early relief.

The BankservAfrica Private Pensions Index (BPPI) increased in nominal and real terms in February 2024, remaining comfortably above year-ago levels.

“The average nominal private pension increased to R10 774 in February 2024 from R10 653 in January, which was 7.1% higher than a year earlier. Similarly, in real terms, the average BankservAfrica BPPI increased by 1.3% in February 2024 compared to a year earlier, beating inflation again,” Naidoo says.