Why salaried workers are feeling the impact of slow economic growth

September’s real disposable take-home income declined for the first time in seven months on a year-on-year basis, according to the latest BankservAfrica Disposable Salary Index (BDSI).

This is due to the higher rate of inflation, resulting in disposable salaries declining by over 1.3% in this period.
According to the BDSI, the average real seasonally adjusted banked salary was R13 964 in September 2017. In nominal terms, the take-home salary averaged at R14 255.
While the latest changes do not necessarily point to the declining trend of take-home pay levels, they do suggest that the lower rate of growth is becoming the norm on both a nominal and real term basis.
The difficult economic conditions in the country at present are impacting firms and their ability to pay high salaries. Effective tax rate on gross salaries is also a toll. The sluggish economic growth is slowing down government revenue, resulting in public sector wages being below inflation. The private sector is experiencing the same issue with salaries.
Due to the slowdown of government revenue and the impact of the tax rate on gross salaries, consumer spending is expected to decline for retail sales, vehicle sales, tourism and dining out in the coming months.
Meanwhile, the BankservAfrica Private Pension Index (BPPI) for September found that real average private pension paid into bank accounts reached R6 701, the highest level that real average pensions have ever reached.

The average constant private pension grew by 2.2% in September – the strongest percentage change in four months. For the second time in the history of the BankservAfrica income time series, the average pension reached 48.6% of the average take-home pay.

The BPPI has grown by 10.1% in real terms over the last four years while disposable salaries declined by 1.1% in the same period.

While the level of private pension paid will remain far below salaries, their impact on the economy is mounting not only due to the monetary increase but also as individuals over the age of 65 is the fastest growing population group in South Africa.

The total real increase in pension payments into bank accounts was 14.4% since September 2013. Total take-home salaries declined by 2.2%, leaving total real take-home income down at 0.9%.

With wage earners under severe pressure, it is clear that pensions are becoming an importance source of consumer spending.

Mike Schüssler is the Chief Economist at Economists dotcoza.

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