How South Africans Are Earning More But Taking Home Less
In the 2025/26 national budget, the South African government made a subtle yet impactful move, one that’s quietly tightening the tax burden on everyday earners. By choosing not to adjust personal income tax brackets or rebates in line with inflation, National Treasury has effectively implemented a stealth tax hike, particularly impacting low to middle-income earners.
This decision may not have made headlines, but its effects are already being felt. Despite salary increases, many individuals are finding that their purchasing power is shrinking. How? The answer lies in a concept known as bracket creep.
What is Bracket Creep?
Bracket creep, or fiscal drag, occurs when inflation-linked salary increases push individuals into higher tax brackets, even though their real (after-inflation) income hasn’t changed. In effect, people pay a higher percentage in tax simply because their earnings have gone up on paper, while their actual financial position remains static or worsens.
No Relief for 2025/26
Last year, Treasury had proposed some relief by partially adjusting lower tax brackets and rebates to reflect inflation. This was to help offset the proposed VAT increase. However, in the 2025/26 budget, there was no such adjustment.
This means that earners will now not only face higher indirect taxes through the phased VAT increase (from 15% to 16% by April 2026), but also a larger slice of their income being taxed due to unchanged brackets.
Real-World Example: How Bracket Creep Affects You
Take a look at a simplified example:
Mr X – Tax Year 2024/25:
- Annual salary: R510,000
- Tax payable: R103,372
- Take-home income: R406,628
Mr X – Tax Year 2025/26 (with a 5% salary increase):
- New salary: R535,500
- Tax payable: R112,412
- Take-home income: R423,088
Despite a 5% salary increase, Mr X only sees a 4.05% increase in after-tax income, resulting in a noticeable decline in real purchasing power, especially when adjusted for inflation and rising living costs.
More Than Just Income Tax: The Bigger Picture
This “silent tax” doesn’t stop at income brackets. Inflation impacts how capital gains, transfer duties, municipal rates, and estate duties are applied—often taxing nominal gains rather than real, inflation-adjusted value increases.
A powerful example is an investor who placed R1 million in the JSE All Share Index in the year 2000. By 2025, the value grows to R11.6 million—a 1084% gain on paper. However, after accounting for capital gains tax (CGT) and estate duties (a combined R3.7 million), the family inherits only R7.3 million.
But here’s the real catch: when adjusted for inflation and measured in gold (a traditional hedge against inflation), the investment’s purchasing power has dropped by over 66%. So, despite paying millions in tax, the investor effectively made a real loss of R670,000.
This highlights a growing concern, governments may generate more tax revenue not by raising rates, but simply by letting inflation do the work.
How to Protect Your Wealth
In this climate, it’s essential to be proactive. Here are a few strategies to counter bracket creep and protect your financial health:
- Maximise Tax-Efficient Investments
Contribute more to retirement annuities or pension funds. These lower your taxable income while building long-term wealth. - Utilise Tax-Free Investment Accounts (TFIAs)
These accounts allow your capital to grow without incurring tax on dividends, interest, or capital gains. - Reassess Your Salary Strategy
If possible, negotiate increases that outpace both inflation and bracket creep, or consider structuring your remuneration in more tax-efficient ways. - Diversify Your Income
A side hustle or passive income stream can offset losses in purchasing power and provide financial flexibility. - Work With a Trusted Financial Advisor
An independent advisor can help tailor your tax and investment strategies to ensure your wealth isn’t silently eroded by unseen forces like inflation and fiscal drag.
The Bottom Line
The lack of bracket adjustments in this year’s budget may seem minor, but it represents a significant shift in how South Africans are taxed. Without inflationary relief, more income is taxed at higher rates, reducing real take-home pay and purchasing power.
As the government balances its books, taxpayers must take a more active role in managing theirs. Whether through better tax planning, smarter investment choices, or more strategic income structuring, now is the time to act.
