The latest BankservAfrica Disposable Salary Index (BDSI) showed that South African consumers’ disposable income, which refers to the money you take home after tax, is not showing any increase.
According to Brad Gillis, CEO of regulated products at BankservAfrica, disposable income has increased by only 3.8% over the last three months compared to a year ago.
“This means the real situation is an actual decline after inflation. This is the fifth month in a row whereby actual real disposable salaries declined on a year-ago basis, and the eighth time in the last nine months, said Gillis.
Economist, Mike Schüssler, told BDSI that this is the longest decline since 2005, when the BDSI data series began.
“This is a clear indication that disposable salaries are once again not increasing as quickly as gross salaries,” he added.
It is estimated that deductions take over 30% from the average gross salary in South Africa. The reason for this is likely to be the increase in the cost of medical insurance (10.2% year-on-year according to Statistics South Africa) and personal income tax, which has also increased by over 10% on the same basis.
Research showed that taxes, medical insurance, pensions and garnishee orders are the four biggest deductions from disposable salaries. They are followed by UIF and other statutory deductions, as well as loans (deducted at bank level), in some cases.
Schüssler said that, with the exception of December 2012, the declining trend in real disposable salaries showed that households will remain under pressure and the average South African consumer will have to cut back.
How should we make do with less?
Sasfin financial consultant, Gavin Came, recommends that consumers curb their expenses if they want more disposable income.
“After your compulsory expenses like your house’s bond repayments and medical aid are deducted, you are left with your discretion income usually spent on food, clothes, alcohol, cigarettes etc. You run into trouble when you allow expenses to exceed your income,” said Came.
Came describes discretionary expenses like cigarettes and alcohol as ‘low-hanging fruit’ because it is easier to cut down on them.
Where the importance of a discretionary expense is questioned is in cases where you have to opt for sending your child to a public school instead of a private school or choosing a cheaper medical with fewer benefits.
Came said that these disposable expenses have a different hierarchy than the ‘low-hanging fruit’ type because of the impact this budget cut has on your life.
“Most people only really cut down on unnecessary expenses when they are backed against a wall and don’t have any other option,” said Came.