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#Budget2016: Increasing VAT a viable option for finance minister

Economists say an increase in VAT could help prevent the country from slipping into a recession.

Finance Minister Pravin Gordhan delivers arguably his most crucial budget speech this afternoon in Parliament. Picture: GCIS.

CAPE TOWN - Economists say an increase in Value Added Tax (VAT) could be a viable option for Finance Minister Pravin Gordhan to help prevent the country from slipping into a recession.

Gordhan is under pressure and is expected to announce a raft of measures to cut state spending and jump start the economy today.

He delivers arguably his most crucial budget speech this afternoon in Parliament.

Nedbank's Mohammed Nalla says Gordhan could consider a VAT hike.

"It's largely controversial, simply because it's seen by some quarters to be quite a regressive tax, hurting the consumer most."

But Old Mutual's Derick Ferreira says South Africans should see the positive in the possible increase.

"I think ones got to see that in the light of a contribution or investment in a healthier economy."

Downsizing the public sector wage bill and the privatisation of state-owned enterprises are strategies the minister could also consider to put the economy back on track.

LISTEN: Here's what South Africans have to say about government...

JUNK STATUS

Gordhan's speech is being called the most important budget speech in post-apartheid South Africa, and with the country's back to the economic wall, he has few choices.

Economists are also saying that to avert a downgrade to junk status, the minister will have to do more.

He will take the stage amid a clamour from left, right and centre to do the right thing.

Nalla says Gordhan has to go further.

"The market is going to be looking for actual delivery, rather than just more rhetoric."

That could mean opening up some state-owned companies to privatisation, closer collaboration with business and labour reforms, all likely to anger the Congress of South African Trade Unions (Cosatu).

"I certainly wouldn't understand how hard it's going to be for the finance minister to try and get some of these structural reforms across the line, but it's certainly what's expected and what's needed."

Nalla says the economy needs tough medicine to return to health.

'GORDHAN NEEDS TO FIND MORE MONEY'

Meanwhile, financial analysts say Gordhan needs to find more money to spend on running the country even as the economy slows.

Gordhan is expected to cut spending and hike taxes as he tries to balance the country's books.

Sanlam's Karin Muller says it's becoming a very difficult balancing act.

"Make sure that our expenses do not run away with us, as well as look at more sources of income."

The finance minister will deliver his budget speech shortly after controversial comments made by President Jacob Zuma about his short-lived appointment of Minister Des Van Rooyen.

LISTEN: Save money buying 'expired' groceries

POLITICS SURROUNDING FINANCE MINISTER

Gordhan was reappointed to the post last year at a time when Zuma appeared to need him.

This means he may well have a relatively free hand today.

Any move against him would have a huge impact on the rand and stocks in general.

This means most of the boundaries around him are economic rather than political.

But the minister won't want to pick fights unnecessarily and may want to tread carefully around some issues.

Yesterday, the president issues a statement supporting the budget, which means it would be very difficult for anyone in the ruling party to oppose Gordhan's plans.

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