Money and Markets

This is the salary increase you will need this year

Business Insider SA
  • This year, income tax brackets have not been hiked in line with inflation.
  • This means you will get less out from a salary increase than you may think.
  • You will need a pay hike of around 6% to keep your salary in line with the expected inflation rate of 4.8%. 

There was some good news and bad news for salary slaves in this year’s Budget.

Good news: The income tax rate didn’t change. The bad news: The income tax rate didn’t change.

While the income tax rate has not been hiked, this year - for the first time since the 1990s – income brackets have not been increased in line with inflation. Government expects to earn almost R13 billion from this manoeuvre.

Usually, these amounts are hiked to make sure that your income will keep track with inflation when you get a salary increase.

Now – when you get a pay hike in line with inflation, you will actually not be getting ahead.

We used the online tax assistance service TaxTim’s tax calculator to work out how big your salary increase would need to be this year to make up for this development and inflation.

Here’s how it will play out:

From March 2019 onwards, if you earn R20,000 a month, you will get R17,141 out after Pay-As-You-Earn and UIF are deducted.

Hopefully, you will get a salary increase in line with inflation this year. The Reserve Bank expects inflation to average at around 4.8% this year.

Given the poor state of the economy and the large group of people who want your job (given the unemployment rate), this seems optimistic.

But say you do get a 4.8% increase: you will get R17,852 a month out from your new salary after tax, according to the TaxTim calculator.

However since that SARS has not adjusted the tax brackets for inflation, the real increase is only 4.1% and not the 4.8% you received from your employer, says Marc Sevitz, director of TaxTim

"What this means is that you may earn more, but your new salary buys you less when you spend it."

Hikes in electricity prices, school fees, gym members and transport costs (especially given the 29c/litre in extra levies that government slapped on fuel in the Budget) will all quickly eat up your effective pay hike of 4.1%.

This year, medical scheme membership fees are also increased by far more than inflation – for example, some Discovery members face increases of more than 9%. (And government has not hiked the monthly amount you can deduct for your medical scheme contribution this year. This remains R310 for the first two members in your household, and R209 per person thereafter.) 

Just to keep your current income in line with the expected official inflation rate (4.8%), you would need a salary increase of around 6%. This is due to the fact that government has not adjusted the tax brackets this year.

If you get a 6% increase, then your after tax take-home becomes R18,029 a month - an effective 5.2% hike. 

In other words you will need more or less a 6% increase just to make sure your take-home pay matches inflation, says Sevitz. "SARS no longer gives you any inflation benefit."

For more, go to Business Insider South Africa.

Receive a single WhatsApp every morning with all our latest news: click here.

Also from Business Insider South Africa: