Employees need at least 5% salary increase to maintain spending power

CONSUMERS are in for a tough time. They face the combined impact of a VAT increase, income tax bracket creep, and the absence of a strong, growth-stimulating fiscal spend in the recent Budget Speech. Some argue, however, that these pressures could have been eased by a reduction in the interest rate - a move that might also have helped revive the sluggish property market.

- GIVEN MAJOLA

It is getting harder, say the experts, for the average South African to keep up with costs.

In fact, says Tanya Tosen, a tax and remuneration specialist at Tax Consulting South Africa, employees need a salary increase of at least 5% just to maintain their current spending power.

She said this is because Finance Minister Enoch Godongwana has not adjusted personal income tax brackets for inflation in the 2025/26 tax year.

Therefore if employees receive increases, they may be pushed into higher tax brackets without realising it, leading to more tax deductions and less money in their pockets.

During a recent webinar hosted by CPD Consortium, Tosen broke down what this means for different salary brackets.

She said that for high earners, where someone earning R2 million receives a 5.5% increase, they could end up with nearly R7000 less in their take-home pay because of the higher tax bracket. They would actually need a 6.13% increase just to break even.

For middle earners, a person earning R30 000 per month, would see their marginal tax rate jump from 26% to 31% if they received a 4.3% salary increase. Tosen said that without tax bracket adjustments, their PAYE (Pay As You Earn) tax would increase by nearly R4200 per year, leaving them with less disposable income.