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New Year risks to your household income

 In Articles, Daily Finances, Tips

As we start the new year, Christmas bills and the reality of getting back to work welcome us with open arms. There has been news to make us optimistic for the year to come though, with the economy expected to continue its slight growth through 2017. Additionally, the disposable income to debt ratio has been gradually improving from an all-time low in 2008 to 26% at the end of 2016. Unfortunately, the expected growth in the South African economy appears to be too small to turn household disposable income growth positive on a per capita basis, meaning South African consumers are still vulnerable.

To accompany the growth projections for 2017, FNB’s most recent consumer barometer for Q1 2017 highlights three areas in the year ahead that may increase consumer vulnerability.

Employment

Economic growth does not always mean an immediate increase in employment opportunities as employment trends often dawdle behind economic ones. In fact, with the economy only just improving after years of poor performance, we may yet see more decline in employment opportunities before the tide turns. The domestic wage bill has increased at a faster rate than GDP for a number of years, meaning something must give. We could see either a reduction in employment numbers or a slowing of wage increases. In either case, it will likely cause a constraint on households.

Taxation

In times of a weaker economy, the government has, on occasion, turned to personal income tax as a way of boosting revenue. The personal income tax has been sneakily raised by not fully correlating tax brackets with inflation. The statistics speak for themselves. In 2004 personal taxes on households were around 10.9% compared to the 15% seen in 2015. There appears to be no let up for this trend during the new year, adding to the risk of less disposable income.

Poorer per capita real disposable income growth than expected

In laymen terms, the growth of household disposable income may not represent an increase per individual, as the population may have grown at a faster rate (a 1% growth in income compared to a 1.3% growth in population in 2015). It is believed this pattern could continue through 2017, putting spending constraints on the household sector.

2017 may be a more positive economic year both from an individual and national perspective, however, there are still signs that we need to be cautious with our money. As always, reduction in personal debt should always take priority over unnecessary expenses.