For the first time in seven years, the average formal sector employee’s disposable income has contracted to less than 70% of his or her gross salary, trade union Uasa’s latest South African Employment Report (SAER) has shown.

Disposable income is the actual rand amount received by the employee from the employer, after mandatory costs, such as taxes and unemployment insurance fund contributions, had been deducted.

The trade union’s twelfth yearly report, which was launched on Friday by economist Mike Schüssler, showed that salary increases were being increasingly consumed by higher taxes, pension fund contributions, medical insurance and administrative expenses, such as municipal rates and school fees, which were under upward pressure from rising inflation.

Schüssler asserted that, while the average gross salaries in the non-agricultural, formal sectors expanded by 7.6% to R14 504 a month in 2012, this did not translate into increased disposable income.

In contrast, disposable salaries increased by 6.5% which, while still above the 2012 inflation rate, indicated that employees did not receive true value from increases in their overall salary.

“The average employee’s disposable income for 2012 was R10 141, which is less than 70% of gross salary. Take-home pay is, therefore, under enormous strain,” he commented.

In addition, once average debt repayments, insurance and other necessary service costs were deducted, this amount decreased to R6 633.80 a month.

However, this was still not discretionary spend, Schüssler emphasised.

“If disposable salaries averaged R10 141, discretionary spend would amount to only R2 409 a month for the average worker. This means that only 16.6% of gross earnings is left of the average worker’s wages,” he said.

Salary deductions increased from an average of R2 612 a month in 2008 to just over R4 360 a month in 2012, representing an increase of 67% in over four years, despite a meaningful decrease in the number of civil debt judgements.

“The primary culprit here is the personal income tax which, between the last quarter of 2002 and the last quarter of 2012, has increased by 167.3%, chiefly owing to bracket creep. This is, by far, the greatest category of tax collection,” said Schüssler.

The SAER showed that, in contrast, inflation increased by 55.4% over the same period, while average salaries grew by 85%.

“About 40% of the increase in personal taxes is owing to the fact that tax breaks, in the whole, are well below the rate of inflation and certainly below wage inflation,” he added.

On a year-by-year basis, personal income taxes had increased, on average, by more than 10% since 2008, despite several reductions in personal debt burdens.

Personal taxes now constituted some 35% of the tax take-up, in comparison with 39% in 2007.

“Only during the Great Depression did personal income taxes decline, as one in ten employees lost their jobs and gross salaries increased by less than disposable salaries,” noted Schüssler.

He said that constraining inflation was key to improving both disposable and discretionary income and that this challenge was more apparent in State and administrative sectors than in private industry.

“If State arms, such as parastatal Eskom, don’t adhere to inflationary targets, discretionary income will continue to decline. It is useless if the State itself is not applying the brakes,” he cautioned.