A leading private sector economist says Finance Minister Pravin Gordhan is unlikely to announce any major new tax hikes during his Budget address next Wednesday, but has warned that the upcoming tax review could result in additional taxes on high income earners from as early as 2014.

Investec’s Annabel Bishop said on Thursday that President Jacob Zuma’s State of the Nation address announcement that the National Treasury would conduct a study into whether the prevailing tax policies were appropriate to support public spending implied possible future hikes, in line with government’s redistributive income policy.

However, Gordhan was unlikely to make major changes ahead of the review, which would probably only be completed by either the October Medium-Term Budget Policy Statement, or mini-Budget, or ahead of the 2014 Budget.

The immediate 2013 Budget focus, Bishop argued, would be to send a signal that there would be no further ‘fiscal slippage’, beyond that outlined in last year’s mini-Budget.

Following a brief period of Budget surpluses, South Africa’s deficit rose to 6.5% of gross domestic product (GDP) in 2009/10, as tax collections contracted and the economy descended into a recession.

By October last year, and following a weaker-than-expected recovery, the National Treasury indicated that the deficit would widen to 4.8% of GDP in 2012/13, from 4.2% in 2011/12, and that it would only return to 3% of GDP before 2015/16.

This one-year extension to the fiscal-consolidation timeframe, together with South Africa’s strained industrial relations environment and poor employment and equality indicators, were cited as key reasons for recent downgrades by credit rating agencies.

Bishop expected the 2013 Budget to show similar fiscal deficit ratio projections to those outlined in October and stressed that she did not expect any widening. “The 2012/13 fiscal deficit will likely come out at 4.7% of GDP, if not below.”

Should there be any sign of further “slippage, however, further downgrades could arise, particularly in light of the fact that South Africa’s Budget deficit position no longer compared that favourably with those being recorded internationally.

Bishop also felt government should be cautious before pursuing tax increases, noting that only six-million of the country’s 50-million citizens were currently in the tax net. In addition, just 1.7% of those individuals were contributing 24.3% of all income tax collected.

She was also concerned about the prospects of increasing mining and corporate taxes, owing to the fact that the competitiveness of many enterprises was already being eroded by a range of above-inflation increases in administered prices.

The review should, thus, be pursued with full acknowledgement that the taxpayer-base is “finite” and that a small number of companies and individuals were paying most of the taxes.

Bishop argued that it might be worthwhile considering raising consumption-based taxes, but accepted that any move to raise value-added-tax rates, or fuel levies would face political resistance.