Poor little rich people have to tighten their belts
Financial report shows that even the relatively wealthy find the tough economic times are 'biting hard'
As South Africa grapples with a plummeting economy, even the rich are being forced to cut back on their shopping sprees, luxury holidays, personal grooming and entertainment.
The latest Old Mutual Savings and Investment Monitor, which tracks shifts in the financial attitudes and behaviour of South Africa’s working, metropolitan population, found that increased living costs are “clearly biting hard”.
The report found that 67% of household income was spent on living expenses this year, up five percent from last year.
“There seems to be an awareness of the need to cut back more on expenses such as DStv, food and groceries, although this is more prevalent in upper income groups, where there is more room to tighten the belt,” said Lynette Nicholson, research manager at Old Mutual.She said those earning in the R80,000 or more per month bracket were trimming the budget for entertainment, shoes, clothing, hair and beauty.
Travel, food and DStv also featured on the list of expenses to cut back on, said Nicholson.
Economist Mike Schussler said South Africa’s “very tight” economy was exerting immense pressure on “the top and middle ends more than ever before”.
“Companies openly state that ‘flatter’ structures are on the cards. Entry-level workers have been getting a bigger slice of the salary pie for decades but in the last decade the actual number of top positions in the private sector have been cut. Companies outsource many more specialist positions than before.”
Schussler added that nobody was immune to the slow GDP growth.
“South Africa is falling further behind in nearly every aspect at present and has been doing so for a number of years. High-income earners have felt the impact via higher tax rates of 45% for the last year and a half.“Those earning over R350,000 per year have not had tax relief – in 2017 tax year they had none and very little in 2018 or 2015 and 2016. The tax relief did not make up for the inflation impact.
“In a direct sense therefore most people earning over R350,000 a year have seen real take-home pay decrease as they effectively had high tax rates as the increases they got were eaten up by reaching higher tax brackets.”
Schussler said higher taxes and utility bills were taking a toll on the “the actual income” people have left to spend.
“Also at the top end, below executive management levels, increases have lagged at the bottom for a number of years. So gross salaries go up barely in line with inflation.”
The issue of land expropriation also impacted “on richer people who are more likely to have land”.
“They then read the changes as negative on their futures and they tend to look at their lives differently. I’m not sure if they then save less but it is possible,” said Schussler.