What to expect from Gordhan's budget speech

As Finance Minister Pravin Gordhan prepares to deliver the 2017-2018 Budget speech, concerns loom over the state of South Africa's economy. While the medium-term budget managed to prevent a downgrade last year, challenges such as under-spending on infrastructure and a volatile exchange rate continue to threaten fiscal consolidation. Ernie Lai King, Head of Tax for Asia and South Africa at Hogan Lovells, shed light on some key issues during a recent CNBC Africa interview. The looming budget address has sparked discussions on potential tax hikes, with Value Added Tax (VAT) being a hot topic. While some experts have proposed an increase in VAT, others argue that it may not be a politically feasible option. Ernie Lai King emphasized the complexities surrounding VAT, pointing out its regressive nature and potential social implications. Personal income tax and corporate tax hikes have also been scrutinized, with concerns raised about the economy's ability to absorb further increases. The focus is shifting towards economic growth as a solution to revenue challenges, with calls for a bigger 'cake' to generate more income. The conversation touched on the broader economic landscape, highlighting issues such as irregular spending and institutional instability. King pointed out the challenges facing the South African Revenue Service (SARS), particularly in light of succession issues and growing credibility concerns. The interview also delved into the implications of potential changes in leadership within the finance ministry, with speculation rife about Pravin Gordhan's future. King highlighted the importance of policy certainty and implementation in appeasing ratings agencies, who play a crucial role in determining South Africa's economic outlook. The looming budget speech carries significant weight, not just for the economy but also for political stability and investor confidence. As the nation awaits Gordhan's address, the delicate balance between revenue generation, economic growth, and policy direction hangs in the balance.