Some tax increases to fund the kick-start of South Africa’s New Growth Path (NGP) could be included in Finance Minister Pravin Gordhan’s February 23 Budget speech, advisory firm Ernst & Young (E&Y) said on Thursday.

E&Y director Charl Niemand said that it was, however, unlikely that corporate tax or value-added tax (VAT) would be increased, seeing that it was local elections later in the year.

“VAT is a holy cow, especially in an election year and higher corporate taxes would decrease the country’s international competitiveness,” he said at a pre-budget media briefing.

Niemand said that the government would probably raise more funds by not making any adjustments for fiscal drag in personal taxes.

“The reality is that we cannot just throw money at the unemployment problem in the country without also considering reforming some of the country’s labour regulation,” said E&Y technical tax expert David Clegg.

However, E&Y said that such reform would be unlikely during an election year, especially owing to the historical alliance between the ruling party African National Congress and trade unions.

The NGP aims to create an additional five-million jobs over the next ten years by targeting certain sectors such as agriculture, infrastructure, construction and mining.

It also calls for more active monetary policy intervention through a competitive exchange rate and a lower cost of capital to achieve this growth.

However, E&Y director Marc Goulding said that trying to influence South Africa’s currency levels would be a costly exercise and could see the country deplete its already-low reserves.

“Interference in the rand unit is a double-edge sword and could result in the country being less attractive to foreign investors and curbing its import business,” said E&Y’s Rob Stretch.

Clegg agreed, saying that even though the rand was overvalued, it was starting to weaken and would further readjust itself once the pace of the US recovery quickened.

Further, the firm noted that the proposed National Health Insurance Scheme and the impact that the required expenditure would have on the country’s narrow tax base was the “elephant in the room”.

E&Y did not expect any definite announcements on the funding of the scheme to be made in this year’s Budget speech, but noted that the fundamental mismatch between the tax burden being placed on about 1% of South Africa’s population and the thrust for ever-increasing benefits was of great concern.

Goulding said that South Africans were being overburdened with ‘ad hoc’ taxes, but could not necessarily see what the money was used for or how it improved their daily lives, as these were not ring fenced.

“No one knows what has been done with the revenue that was generated from the plastic bags taxes or the carbon emissions tax that came in last year.”

He added that while government promised certain tax incentives, these were not always properly implemented and operational, while the State still sat on the money.

Lastly, E&Y expects sin taxes to rise, but said that it was more of a public relations exercise than a significant revenue generator.