Municipal tariff hikes are on the cards, adding to woes of SA’s shrinking middle class

South Africa’s unemployment rate is 34.5% and, despite indications that the middle class is growing, a look at the longer-term picture shows that it is actually shrinking. 

With inflationary pressures on all sides, the middle class is likely to shrink even further as many South Africans are forced to downsize or turn to debt to make ends meet.

Brandon de Kock, storytelling director at consumer insights consultancy WhyFive, recently told DM168 that it’s not always best to measure the middle class based on income, pointing to an economic recovery and the fact that car sales — often a measure of economic health — went up in March and May. (April sales were affected by the number of public holidays that month.)

But highly respected economist Mike Schüssler, who died on 24 May, would have begged to differ. In April, he wrote an insightful report with Brenthurst Wealth’s Elize Kruger about the economic realities of the middle class.

Schüssler made the point that, in most countries, anyone earning a typical salary would pay personal income tax, but that was not the case in South Africa: “Hence, in the case of South Africa, those who pay personal income tax can be considered upper middle class. However, this does not translate to being rich, as upper middle class is then effectively classified as a working person who earns an annual income upwards of just R87,000 (R7,250 a month). 

“The irony is that many of the top 10% of earners in South Africa would fall into the lower middle class in many other countries. Yes, upper middle class is a relative term in SA because, in this country, so few people even earn a regular formal salary,” he noted.

He made several other notable points. First, that the upper middle class is typically people in formal jobs, earning fixed salaries and paying PAYE every month. “They are the group of people who keep the wheels of the South African economy rolling.”

Second, the National Treasury’s Budget Review shows a clear downward trend in the number of registered taxpayers with earnings above the annual tax threshold. For the year ending March 2022, there were 6.8 million taxpayers, compared with 6.95 million five years ago. Schüssler pointed out that the bulk of registered taxpayers (69%) earned between R87,300 and R350,000 a year (about R29,000 a month).

Third, and most important, Schüssler pointed out that the increase in the number of personal income taxpayers this year is most likely because many of those who lost jobs during the Covid lockdowns were returning to the workplace.

“However, there does not seem to be any prospect that the upper middle class in South Africa will ever make up more than 20% of the adult population, unless multiple reforms take place. There will be more pressure on the upper middle class in the form of tax burdens and having to pay for more of their own services in the years ahead,” he said.

Schüssler was definitely not wrong about the increasing pressure. The country is on an upward interest rate cycle, food price inflation was 7.6% in April, and petrol prices are through the roof.

Annabel Bishop, chief economist at Investec, said the fuel price hike this month stems from both rand weakness, as South Africa has to pay for its imported oil and petroleum products in US dollars, and the higher ratcheting of international petroleum product prices.

“With the oil price now closer to US$120 per barrel of crude oil than May’s average of closer to US$110 per barrel, South Africa now risks even higher fuel prices in July,” she warns, hinting at an increase of R3 a litre.  

City of Cape Town increases

Johannesburg increases

Durban increases