All eyes will be on Finance Minister Pravin Gordhan on February 22 as he tables what will likely be a difficult 2017/18 Budget, in which measures will need to be adopted to generate sufficient taxes without stifling growth and widening inequality.

With South Africa in a “near perfect storm” of challenges, Gordhan, despite securing the significant support and backing of the public in recent months, was going to have to walk a tightrope like no other previous Finance Minister has had, Deloitte Africa head of taxation services Nazrien Kader said on Tuesday.

Gordhan is tasked with stimulating growth in an environment that is plagued by an ongoing countrywide drought and commodity crisis, rising inflation, a volatile rand, a rising tax to gross domestic product (GDP) ratio, low or nonexistent savings, foreign capital outflows and an upward trajectory in the government wage bill that shows no signs of abating.

In addition, South Africa’s estimated growth rate for this year is only 0.8%.

“Tax hikes across the spectrum of taxes is a must,” Kader told media at a yearly pre-Budget roundtable, pointing out that it was probably time to undertake tax reforms, which was “one sure way" to stimulate the struggling economy.

Discussing expectations for the 2017/18 Budget at Deloitte’s Woodmead headquarters, Kader noted that South Africa continued to disregard global ratings agencies’ threats of conferring junk status, while the national purse still needed to raise additional tax revenue.

If taxpayers are to shoulder tax hikes, transparency will be critical.

“[The public will be] expecting spending efficiencies on the part of the government by avoiding wasteful expenditure, a zero tolerance approach to corruption in the public sector, a more efficient municipal rates system to collect revenues from property and an overall culture of thriftiness,” she commented.

Deloitte public sector leader Nazeer Essop said innovation and creativity would be needed to overcome South Africa’s revenue shortfall, with an additional R43-billion to be raised over the next two years.

To meet this target, it was imperative to reduce expenses, increase taxes or “look for more empowerment” through internships and the upskilling of those at accounting centres, he said.

“Another important factor that needs to be addressed by government is the public sector wage bill. It continues to account for a considerable share of the Budget each year, and increases to compensate for inflation. However, the wage bill is not likely to change as public sector professionals need to be fairly remunerated and government needs to attract the best and most talented individuals to serve in the public sector.”

Further, Essop pointed to the automation and integration of fragmented financial, supply chain and human resource management systems as a critical challenge to increase transparency and enable better monitoring of and control over spending.

“Combining all the aspects above will reveal the opportunities where multiple additional streams can be located to ultimately fund the Budget shortfall and [assist in] diversifying the economy, creating new income streams and focusing our investments on areas like tourism and innovation to maximise the long-term return to the benefit of the country,” Essop explained.

Some of the additional revenue generation options that could add tens of billions of rands to the fiscus included a levy or surcharge tax on wealthy individuals and all companies with earnings or turnover above a set threshold; the restructure of tax policy around trusts, estate duty and donations between spouses to increase tax collection on intergenerational wealth transfers; and increasing the fuel levy, and the sugar tax and other sin taxes, Kader said.

An increase in value-added tax from 14% to 15%, although unlikely, was also considered, which could add R15-billion to revenue; however, this would have the consequential impact of a reduction of 0.2% to 0.4% on GDP, as well as an increase in inflation.

In addition, fiscal drag could add some R13.1-billion, while the current special voluntary disclosure programme, which aims to bring undisclosed foreign investments held by South Africans into the tax net, could generate significant tax revenue of well over R10-billion.

Meanwhile, the current rate of 28% for company tax would likely remain unchanged; but companies could expect far more vigorous enforcement, driven by a focus on base erosion and profit shifting and the widening tax gap, Kader noted.

Other proposed taxes such as carbon tax and other environment-related taxes are also a potential source of revenue, but will only likely be implemented in 2018 and are expected to be ring-fenced and used to fund other environmental initiatives.

No real moves are expected around government incentives, which are under review until October to assess performance, determine value for money and analyse how the system as a whole supports the economy and job creation.