Medical aid, fuel, electricity hikes vs tax relief: The math employers cannot ignore

Following the 2026 Budget, many employees may expect a welcome boost to their take-home pay from inflationary tax adjustments.

On paper, it appears to be good news. When set against rising medical aid contributions and record fuel price increases, the outcome is far less encouraging.

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Budget in a minute

For the first time in two years, income tax brackets were adjusted, delivering 3.4% inflationary relief. However, this lags behind actual inflation of 4.4% in 2024 and just outpaces 3.2% in 2025.

So, what does this mean in real terms for the current tax year starting from 1 March 2026?

For lower-income earners: Tax saving of approximately R585 per year (~R48.75 per month)
For higher-income earners (~R2 million p.a.): Tax saving of approximately R6 776 per year (~R564.66 per month)

At first glance, this appears meaningful – until cost increases are layered in.

Medical aid: The silent erosion of relief

Average medical aid increases for Discovery Health Medical Aid effective from 1 April 2026 range between 6.9% and 7.9% – dependent on medical aid plan type. This is well above inflation and has been year on year.

This has a significant impact on members. Even at the higher end of tax relief:

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A single member on Classic Comprehensive cover already exceeds the monthly tax saving as premiums increase by R739 per month.
A Classic Saver plan member sees relief almost entirely eroded with a monthly increase of R315.
Families experience a compounded effect, pushing them firmly into negative territory.

The bottom line is that medical aid alone is enough to wipe out most, if not all an employee’s tax relief.

Read:
2026 medical aid contribution increases: DHMS vs the rest
Medical tax credit increase offers limited relief to households

Fuel and electricity prices: The multiplier effect

From April 2026, fuel prices have increased to their highest levels in months, with government providing temporary relief in the form of fuel levies being reduced by R3.00 per litre until 6 May 2026.

Petrol prices have increased by about R3.06 per litre, pushing inland prices to around R23.36 per litre for 95 Unleaded fuel, while diesel increased by about R7.37 per litre, with broader inflationary effects across transport and goods.

For employees, this translates into hundreds – or even thousands – of rand in additional monthly costs, particularly for those commuting long distances.

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In addition, from April 2026, direct Eskom customers will face an average electricity tariff increase of 8.76%, as approved by the National Energy Regulator of South Africa.

The impact does not end there: municipal customers, who typically see adjustments from 1 July 2026, are likely to experience even higher increases, as municipalities often apply additional mark-ups above the Eskom tariff.

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Same package, worse outcomes

Let us look at it practically taking three employees on identical cost-to-company packages, but who experience very different – and increasingly negative – outcomes:

Single employee: may retain some tax relief
Family on medical aid: relief fully eroded
Commuting household: materially worse off due to increasing fuel, electricity and medical costs

The result is that net disposable income is declining, despite “relief” on paper.

Why this matters for employers

This is no longer just an employee issue. It is a business risk.

Net pay is under pressure from multiple fronts, in the form of employees’ tax with bracket creep, increased cost of benefits, and now fuel and electricity simultaneously.

Fuel is a multiplier as it increases not only commuting costs, but also the price of food, goods, and services which will be felt in the upcoming months.

Retention risk is rising because employees are increasingly sensitive to even small changes in take-home pay, which may impact morale and retention.

What makes this particularly important is that these pressures are largely outside the employer’s control, but their impact on employees are not.

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What employers should be doing now

Employers need to take action sooner rather than later, which may include the following:

Model the combined impact of tax, medical aid, electricity, and fuel increases on net pay and re-assess salary increase percentages for 2026.
Introduce flexibility into benefit structures to improve affordability and educate employees on how to optimise their packages.
Reassess remuneration design and benefit offerings to prioritise take-home pay where employees are struggling to make ends meet with their basic living expenses.

Tax relief in isolation no longer tells the full story.

When medical aid contributions increase, electricity tariffs are hiked and record fuel prices are factored in, many employees are facing a real decline in disposable income.

Read:
Why more South Africans are paying tax without realising it
Expecting a big pay raise? What SA employees need to know
Why flexible pay structures are the future of retail employment

What looks like relief is, in reality, a growing net loss.

Employers who recognise this shift and respond with data-driven insights and smarter remuneration strategies, will be far better positioned to support their workforce, as well as retain critical talent in an increasingly pressured environment.

Tanya Tosen is a tax and remuneration specialist at Tax Consulting SA.

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