He told parliament that growth would be a modest 2.7 percent this year and the government's budget deficit would hit 5.2 percent amid "enormous" challenges facing the country.
"South Africa's economic outlook is improving but it requires that we take a different trajectory to move it forward," he said.
Gordhan stressed that a growing economy and widening the tax base was the best way to address the budget shortfall.
"All of you must pay a little more tax thank you very much," he said.
To close the R16.3 billion gap, in the short term he announced cuts to planned spending of R10.4 billion over three years.
He also announced an increase in fuel levies as well as taxes on beer, wines, spirits and tobacco, while announcing some tax incentives for consumers and youth employment.
A carbon tax will be increased from 2015.
"There will be significant adjustments in revenue, which means that taxes may go up later," Gordhan said.
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