Mr Speaker, I am certain I am speaking on behalf of all of us when I say that we are all very grateful, together with his family and his friends, that the hon the State President has recovered to such an extent that he can once more take his place in this Parliament today.

Hear, hear!

INTRODUCTION

Mr Speaker, only when history in its relentless way passes judgment on the most recent years in the development of our economy can the role of each of the various actors be properly assessed. The crucial test will lie in the goals that people set themselves in their actions in this era, and the ensuing effects.

There can be little doubt that history will pronounce this era to have been not one in which the main question was the degree of prosperity that could be attained, but rather one in which the first concern was economic survival in the face of an internationally-organised assault on the economy. In addition, extraordinary international and local market- and environmental factors in general exacerbated the impact of these constraints.

This set of adverse economic conditions could not have come at a worse time for the Government with its sincere wish for reform and renewal.

Meaningful and stabilising reform is greatly hamstrung when people, both in their present circumstances and in their prospects for the future, feel unsure regarding their material welfare. This applies both to those who have and to those that still fall short, and especially to those for whom the prospect of reform has created great expectations, on the economic front as well.

In South Africa reform is being tackled on the basis of the broadening of democracy and the extension of the system of free enterprise. This requires courage, particularly in Africa. The current onslaught on our economy threatens not only the pace of the reform process, but even casts doubt on the ability of both democracy and free enterprise to deliver, in our particular country, the desired results.

We must therefore do all in our power to secure the maximum economic growth, bearing in mind however our ongoing battle against inflation and the vulnerability of our balance of payments and foreign reserves.

Given our successes in this difficult time—as will become apparent in the course of this address—we can nonetheless start to look ahead, past the obstacles we must still clear, to that day when we shall be able to say that we have come through. We shall indeed be bruised here and there, but we shall emerge leaner, fitter, and with much newly-won knowledge and skill from this contest.

The fact that we are now looking for positive economic growth for the fourth successive year, even though the growth rate over this period was relatively modest, is for those of us who experience at first hand and grasp the magnitude and depth of the problems facing us, nothing less than a great achievement for our country.

However, South Africa must now, in the economic field, consolidate so as to preserve what we have achieved with great exertion and sacrifice in these extremely difficult circumstances. We cannot afford to lose again what we have built up.

The adjustments that our economic life demands of us call for the involvement of one and all. Just as every home that has a son performing military service or voluntary service to repulse the physical onslaught against South Africa is making a real sacrifice, so must every South African make a sacrifice in the battle against the economic onslaught. This sacrifice may appear lighter than that on the security front, but in reality it is often heavier, since it manifests itself in lower living standards, fewer job opportunities and dearer goods and services for all. It is also more remorseless inasmuch as it spreads the burden throughout the whole economy—and precisely on those least able to protect themselves against it.

Anyone who is involved in the allocation of funds cannot but be deeply affected when in our particular situation he has to channel large sums of money to all sorts of imposed expenditures, knowing how tens of thousands are yearning for basic necessities of life such as good housing and care.

In the final analysis, a country’s total expenditures must be allocated as fairly as possible among all the needs, but in addition the total expenditures must not exceed the total capacity of the country’s taxpayers to provide those means. At the end of the day it is the taxpayers who part with their wealth for the general welfare of the whole country.

The State’s budget is essentially the same as the budget of the ordinary household: income and expenditure must balance. The old saying applicable in difficult times to a family’s budget should apply to the State’s budget too: that you must buy not what you need but only what you simply can’t do without.

What will be the judgment of history on those who have exploited the particularly vulnerable position of our country to enrich themselves? There are so many schemes afoot that are nothing but scoundrelly and deceitful means of enriching people at the country’s expense: whether it is through bribery, corruption, illegal dealings in financial rand, price manipulation or exploitation of consumers. There are also complicated tax avoidance schemes that manifestly thwart the legislature’s intention and thereby shift an ever increasing portion of the tax burden to those unable to defend themselves against this. It is ironic that these schemes require some of the country’s best brains to devise, and people of the same calibre to overturn them. And this while our country cries out for every ounce of skill, imagination and enterprise rather to be used to promote growth and progress in the midst of a battle for survival.

What will be the judgment of history on those commentators and critics who see in our present circumstances little more than an opportunity for destructive criticism? They evidently cherish the misplaced hope that in the process of denigration the acceptability of their own viewpoint may be enhanced, poor in solutions though it is. As if, alternatively, the implementation of just a few economic policy measures could so overturn reality as to maintain economic growth indefinitely, with no inflation or without any sacrifice by anyone.

What will be the judgment of history on those who seek to use the international assault on the economy as a means of trying to promote a revolutionary takeover of the Government? They proclaim volubly in international forums the fatuous notion that a new, so-called juster order can arise only from the ashes of a sanctions-devastated South Africa. Have they ever reflected on the price in blood and tears and lost opportunities with which history will one day debit their account?

As so often in the past, South Africa’s situation is unique; and we must choose, on the international economic front too, a direction that provides the exit from the present undesirable situation.

In these circumstances it is all too easy to move in the direction of growing isolation.

There are those who ask whether we should not in fact let this process of economic isolation run its course or even help it on. They argue that if South Africa is forced to stand alone, so be it: we shall do it as we have done it in the past and have survived. They then quote impressive growth figures from the years when South Africa “stood alone”, which they further support with statistics from the Rhodesia of yore.

It is not unusual for a beleaguered economy to fare comparatively well to begin with. But the simple fact is that such a country’s foreign exchange eventually runs out, and then—after endless damage has been done—the elementary but remorseless truth strikes home, for both the economic and the political policymakers, that no country can stand alone. No country today is completely self-sufficient in those things a modern economy can and should offer its citizens. A country that seeks to stand alone ultimately sees its leading and dynamic people depart.

Moreover, the difference between South Africa now and 25 years ago is something much more than the mere number of years. In today’s technological current every area of life, worldwide, is now unrecognisably different to then. And so too are the conditions for economic growth. South Africa is and remains a part of Africa in particular and of the world economy as a whole.

The answer for us clearly lies in a full-scale effort to break the isolation imposed on us, by a dynamic expansion of our trade with the outside world and a restoration of our creditworthiness by means of the correct economic measures and political progress. The best peacemaker is the greatest possible degree of interdependence between nations. Profitable reciprocal trade relations are a sobering and calming factor when tension arises between countries. But they heighten risks and vulnerability. Strong, imaginative leadership and a stable political system are therefore needed as a basis for securing and keeping a foothold in such a world.

We as fiscal and monetary policymakers and administrators are waiting anxiously to break out of this grip of isolation, so that we may with others of good will help make this country what it is impatient to become. How we all yearn for this economy to unleash the human resources of this country and unhindered to put to work the pent-up potential of all the physical resources with which we are blessed!

How ironic that we are now forced to label a modest growth rate of 3% in our economy as “overheating”. How sad that steps must then be taken to cool the economy down, simply because its resources are bottled up.

By this time friend and foe alike must admit that sanctions are counterproductive, since they do not secure the political goals they so misconceivedly pursue. Vital growth and past time are lost for ever, and those already finding the going heavy are therefore hit the hardest.

What will be the judgment of history on the twisted “global statesmanship”, so-called, that instigates these injustices from world assemblies?

Friend and foe must further admit that our economy has not only survived these blows but that we are in fact making the best of it. We are already reaping the benefits of several structural changes in our economy that are being implemented chiefly through a market-orientated policy approach.

We have therefore demonstrated to both ourselves and the world that we can survive economically and indeed achieve great things in the process. We must build further on these successes and on the confidence that we have restored in the recent past, to give our political processes maximum support.

Once the process of negotiation shows clear promise that the political aspirations of reasonable people will be met, confidence—in our economic future too—will increase sharply, and with it investment and development. We must continue in new strength and courage along the path of reform and renewal we have taken. Therein lies our sole hope for the future. In the economic sphere too South Africa must not be held back in its march to a great and glorious future.

Today’s Budget, then, is aimed precisely at this, notwithstanding that our options are very limited.

Firstly, the success of the past year involving our short-term economic policy objectives must be consolidated. Fiscal policy too must contribute to this:

• — We dare not create further problems for ourselves involving the balance of payments and consequential exchange rate and debt repayment problems, by following a lenient and stimulatory budget policy.
• — We dare not aggravate the inflation problem by excessive increases in expenditure or by unsound financing of the deficit before borrowing.
• — We must not put unnecessary further pressure on the money and capital markets and thereby let interest rates rise still further, by an excessively large deficit before borrowing.
• — We must not needlessly cool the strong recovery in the private sector, but leave it as much scope as possible.

Secondly, we should keep as close as possible to our long-term objectives. The Long-term Economic Strategy devised by the Economic Advisory Council and accepted by Government requires that:

• — Government expenditures rise more slowly than those in the rest of the economy;
• — The deficit before borrowing be gradually reduced to a level no higher than 3% of the gross domestic product;
• — The five-year guideplan for State expenditure be adhered to;
• — The tax burden, particularly that on the personal sector, be increased no further but rather be gradually reduced.

Several developments—such as the peace initiatives, user-charges and privatisation—offer promising possibilities for an eventual structural reduction in State spending. These have not as yet been able to exert a sufficient influence on total State expenditure either to permit the tax burden now to be significantly reduced or to create scope for a faster move from direct to indirect taxation. We are however making progress in the direction of a relatively lower deficit before borrowing.

Thirdly, this Budget must also reinforce as far as possible the long-term structural adjustments already taking place in the economy. These involve adjustment programmes in agriculture, mining, industry and the financial sector. Various important measures are therefore included in this Budget that are aimed at taking the structural adjustments further and thereby creating a sounder base for high economic growth rates in the future.

We therefore submit to Parliament a budget that is in the best interests of our whole country—a budget that must serve South Africa’s interests long after the next general election is past and gone.

If, for example, from an election viewpoint today’s Budget had brought only good news for our people, it would have been bad news for the economy, and its inescapable adverse consequences would soon have erased the good news. An irresponsible budget would ultimately have been extremely damaging and have left our people and our country poorer.

We therefore lay before Parliament a budget that we confidently describe as one of economic responsibility and political integrity.

The Budget Review

It is not practicable in this Budget Speech to give a proper exposition of the many and complex analyses, goals and lines of thought underlying it. It is difficult to handle even a few of the main points thoroughly.

To follow up last year’s pioneering effort, therefore, an exhaustive Budget Review is again being made available separately. It is a much fuller exposition of the contents of this Address and also deals with several matters that could not be included in the Address. An in-depth appreciation of the Budget is not possible without a study of the Budget Review.

ECONOMIC REVIEW

Economic Growth

We come now to the more technical aspects of the Budget and firstly I want to say a few words about economic growth and then discuss a few related subjects.

Despite troubled financial and trade relations between South Africa and the rest of the world the South African economy experienced its third year of recovery in 1988. From an initially hesitant real growth of less than ½% in 1986 the upswing acquired greater momentum and posted growth in the real gross domestic product of more than 2% in 1987 and more than 3% in 1988. This was a creditable achievement given the continued pressure on the balance of payments that accompanied it.

Excluding agriculture, where real production was slightly less than in the 1987 calendar year, virtually all sectors contributed to the increase in production in 1988. Even mining, which had earlier experienced falls in real production, grew in 1988. Real production in the secondary sector grew appreciably, by 5½%—manufacturing production, for example, by about 6%.

The gross national product also showed accelerated growth in 1988, namely about 4½% as against3%in 1987. In per capita terms, which can be seen as a measure of living standards, there was growth of about 2% in 1988.

Total real gross domestic expenditure grew by 7% in 1988 and considerably exceeded the growth in the real gross domestic product, as is normal in upward cyclical phases.

The rate of increase in private consumption expenditure began to level off at the end of 1988 under the influence of rising interest rates and other demand-dampening measures, but nonetheless rose for the year as a whole by nearly 5%. The upshot of the creation of new capacity and improved business confidence was that real gross domestic fixed investment rose by about 6½%. Real government consumption expenditure on the other hand rose more slowly, namely by only 1,7% as against 3,9% in 1987.

Balance of Payments and Foreign Reserves

Over the past four years there were, apart from a small deficit in the first quarter of 1988, continuing surpluses on the current account of the balance of payments. The surplus of R2,9 billion for 1988 was however much smaller than in the preceding three years. As a percentage of gross domestic product it amounted to 1½% in 1988 as against an average 4½% in those three years.

In the light of the increase in the value of merchandise imports, allied with the weakening in the price of gold from USA $487 per fine ounce in December 1987 to $419 in December 1988, the surplus on the current account of the balance of payments naturally shrank. Increases of 7% in the physical volume of exports, and 16% in the price level, contributed to a total increase of about 25% in the total value of merchandise exports, which of course influenced the course of the current account positively.

After a net capital outflow of about R6,7 billion in 1988, chiefly from debt repayments inside and outside the debt standstill net and the conversion of foreign to domestic trade financing, inter alia because of interest rate differentials, the gross gold and other foreign reserves fell from R7,9 billion at the end of 1987 to R6,7 billion at the end of 1988.

Debt Standstill and Foreign Debt Redemption

South Africa has redeemed about R13 billion of foreign debt since the start of 1985, of which about R3 billion falls inside the debt standstill arrangement. In this way the ratio of foreign debt obligations to the annual export of goods and services has fallen from 171% in 1984 to only about 85% in 1988. Measured against comparable countries our position is an enviable one.

Employment

After an increase in 1987 employment again rose moderately in 1988. The average number of White, Coloured, and Asian registered unemployed fell over the first ten months of 1988 by 18,5%, while Black unemployment fell by an estimated 11,2%.

Inflation

Although it is encouraging that in 1988 the consumer price index rose even more slowly than in the previous three years, namely by 12,9%, the rate of increase is still unacceptably high. Several factors, such as increases in administered prices, higher mortgage bond costs, the delayed effect of the increased import surcharge and of the depreciation of the rand, along with higher motor fuel prices, can however mean that the rate of increase in consumer prices will accelerate over the coming months.

Developments in the Monetary and Banking Sector

As real domestic economic activity began to accelerate in 1988, faster increases also developed in bank credit and other monetary aggregates. The growth rate in the quarterly average of M3 from the fourth quarter of 1987 to the fourth quarter of 1988 was 26,5%, which considerably overshot the upper target limit of 16% set for 1988.

A more restrictive policy stance was adopted in this regard at the end of 1987 when the Reserve Bank tightened its accommodation policy towards money market shortages.

Furthermore, interest rates in 1988 were continually under pressure from the faster growth and credit extension, capital outflows, the raising of overseas interest rates, particularly in the second half of 1988, the decline in foreign reserves and the depreciation of the rand exchange rate. As part of monetary policy, which in concert with fiscal policy was aimed at a deliberate cooling-down of the economy, Bank rate was raised in stages from 9,5% in March 1988 to 16% on 23 February 1989.

Prospects for the South African Economy

I want to refer to several prospects for the South African economy. The prospects for the world economy, which has a strong influence on the course of the South African economy, are reasonably favourable. Other than was generally expected the collapse of stock exchanges in October 1987 had only a brief adverse impact on spending and economic growth. Against the background of expected stable growth in the economies of the most important industrial countries, the value and physical volume of South Africa’s merchandise exports should rise further in 1989.

In 1988 the recovery in the South African economy developed greater durability and flexibility than had been foreseen in many circles. The result achieved can be regarded as exceptional when it is borne in mind that it took place in the midst of sanctions, a falling gold price, a strong net capital outflow, the absence of foreign loans and a foreign debt standstill arrangement that necessitates certain repayments. With debt repayments that, without any new capital inflow, could be as high as R4,2 billion in 1989, a relatively low gold price, low foreign reserves and a variety of factors such as salary increases that support the level of total monetary demand and counteract an essential natural cooling-down, the management of the economy in 1989 will require exceptional ingenuity.

With the possibility of a firm contribution by agriculture the assumption of an economic growth rate of about 2% in 1989 appears realisable. This will be reconcilable with a current account surplus on the balance of payments of R4 billion.

MONETARY POLICY AND CONTROL

Money Supply

Fiscal and monetary policy in 1988 were probably not sufficiently restrictive. A reasonably accommodative approach, however, certainly contributed to the good economic results achieved.

For 1989 economic policy will however have to remain restrictive, particularly as the present rate of increase in total spending and in the money supply is still too high. The recent fall in the dollar price of gold to below $400 per fine ounce emphasises the need for such an approach.

A new target range for the rate of increase in the broad money supply (M3), of between 14% and 18% as measured between the fourth quarter of 1988 and the fourth quarter of 1989 was recently announced by the Reserve Bank with the concurrence of the Government. These target limits are 2 percentage points higher than last year, and are based on projections of real growth of approximately 2% and an inflation rate of about 15%. Although the combating of inflation is and must remain a high priority, the authorities accept that inflation cannot be reduced to a lower level overnight.

An excessively strict monetary policy could at this stage create unnecessary privation and disturbance and lead to recessionary conditions. The necessary cooling-down should thus also take account of our objective of promoting growth and creating job opportunities. The Reserve Bank has stated that it will limit its own domestic credit extension by way of accommodation at the discount window or through open market transactions. Here lies the key to better control over the money supply.

Exchange Control

The financial rand system is a necessary complement to the debt standstill arrangement whereby foreign creditors are permitted to withdraw their loans to South Africa only in a regulated way. The financial rand system prevents foreign investors who dispose of their investments in South Africa to South African residents from withdrawing the rand proceeds from the country at the cost of our scarce reserves of foreign exchange. Such disinvestors may sell the financial rand acquired in this way only overseas and to other nonresidents seeking to make new investments in South Africa.

The fact that the discount of the financial rand on the commercial rand is presently so high means that at this stage, even at the low rate for the financial rand, there are still more foreign investors wanting to withdraw from South Africa than there are would-be new investors. To abolish the financial rand now would simply mean that we would lose much by way of foreign reserves and moreover would have to accept a sharp depreciation of the commercial rand. That would not be in South Africa’s interest.

By definition, South African residents may neither hold nor trade in financial rand. There are nonetheless people who are tempted to make fraudulent use of the difference between the two exchange rates for their own gain. This can be done only at the expense of the country’s scarce reserves of foreign exchange.

As a result of a rise in the number of contraventions in this respect the Reserve Bank recently expanded its Exchange Control Department and intensified its investigations into contraventions. An expert task group has been formed to give attention to such investigations.

Bank Supervision

I want to draw attention to a few matters concerning bank supervision. In the light of some widely publicised malpractices and the accompanying controversy over the public’s deposits with unregistered institutions conducting banking business, it needs to be emphasised that bank supervision cannot guarantee banks’ solvency or liquidity, or insure depositors’ deposits, no more than it can prevent all unregistered banking operations whatever. The public is once again earnestly warned not to place deposits with institutions not subject to ongoing supervision.

Savings

An important structural question in the South African economy is the decline in the economic growth potential that arises inter alia from an increasing misallocation of a scarce resource, namely capital. The whole question of the formation and application of capital and the impact of taxation in this regard, are now being carefully investigated.

Financial Markets

In the light of the need to use the available capital resources in South Africa more efficiently the Government has approved various steps that should promote a more effective working of the financial markets in the allocation of capital.

Firstly, the Control of Financial Markets Bill, which was envisaged by both the Stals and Jacobs committees of inquiry into certain aspects affecting the financial markets, will be introduced during the present parliamentary session. This Bill has as its object inter alia the further development and more efficient functioning of the financial markets, and is based on the principle of self-regulation.

Secondly, the Government has decided to consolidate several of the existing issued government stocks into a few large new issues, so as to enhance the marketability of government stock and reduce for the State the cost of borrowing. Further details will be given in due course.

Thirdly, it has been decided to abolish the official borrowing programme for public sector borrowers. In accord with the Government’s policy of deregulation the markets will henceforth have to handle this function themselves.

Lastly, following the De Kock and Margo Commissions the Jacobs Committee recommended that the prescribed investment requirements that apply to certain financial institutions be abolished. These requirements, which inter alia sought to ensure a larger flow of loan funds to the Exchequer, shackle investment that could lead to further job creation. The maintenance of prescribed investment requirements also has serious implications for the privatisation process of State corporations, since the latter’s post-privatisation loans will naturally no longer qualify as prescribed assets. The Government therefore, as part of a package of financial adjustment measures, has accepted the abolition of the prescribed investment requirements for institutional investors. Enabling legislation, which will also contain new solvency prescriptions for such institutions, is meanwhile being prepared, and once Parliament has agreed to it, the obligation of pension funds and certain insurers to invest in specified assets will fall away.

Phasing out of Tax Concessions on Certain Investments

Following recommendations of the Margo Commission the Government has decided to phase out the existing tax concessions of certain building society investments as well as those applicable to Treasury bonds and Post Office Savings Bank instruments. Because of practical administrative problems in connection with Treasury bonds, as well as the proposed investigation into the future of the Post Office Savings Bank, it will only be possible for this phasing out to begin on 1 March 1990.

Further Investigations with regard to Financial Institutions

Various further investigations affecting financial institutions have been or will be undertaken, including the following:

• — A commission of enquiry following the liquidation of the short-term insurance business of AA Mutual—the Melamet Commission—made recommendations on the liquidity, solvency and technical reserving of short-term insurers. Some of the recommendations are already embodied in draft legislation, while others are receiving further attention.
• — A second commission of enquiry under chairmanship of Mr Justice Melamet will be appointed to give specific attention to the outflow of premiums from the country and the use of “captive” insurers both inside and outside the RSA.
• — A committee of enquiry into a retirement provision system for the RSA, consisting of pension experts and representatives of employees, employers and the State, under chairmanship of Prof Wynand Mouton, is investigating a retirement provision system applicable to everyone.
• — Finally, under chairmanship of Dr Jan van der Horst the establishment of a national council for financial institutions is being investigated.

TAX POLICY

Tax Reform and the Tax Advisory Committee

After the debate on tax and tax reform following the release of the Margo Report and the Government’s White Paper, this subject has enjoyed high priority during the past year by means of many follow-up investigations and further consultation with various interest groups.

The Tax Advisory Committee, which was brought into being in accordance with one of the Margo recommendations and to which mostly private sector members have been appointed, gave further impetus to the tax reform process.

The work done on tax reform during the past year is treated in more detail in the Budget Review. Only a few of the most important subjects can be dealt with now.

Tax on Value Added

In the 1988 Budget Speech reference was made to the decision to replace the existing general sales tax by the well-known system of a tax on value added (VAT).

A draft Bill has been prepared by the office of the Commissioner for Inland Revenue, but, seeing that it must still undergo extensive refinement, it has been decided that no purpose would be served for it to be published for general information and comment at this early stage. The Bill was also referred to the Tax Advisory Committee, which in the meantime has considered it further. Overseas experts visited South Africa at the end of last year and gave valuable assistance in the formulation of important points of principle in connection with this tax.

A comprehensive background document on VAT has now been completed and will shortly be submitted to the Cabinet, after which the Government’s proposals will be published for general information and comment. Thereafter consultation will take place with representative organisations. It should therefore be possible to publish the Bill later this year and submit it to Parliament early in 1990.

Provisional negotiations have also begun with neighbouring states and will be followed by detailed discussions once final decisions on points of principle have been taken.

Tax on Long-term Insurers

In last year’s Budget Speech it was announced that the Government had accepted the recommendation of the Margo Commission for a new tax formula for long-term insurers but that details of its application would have to be settled with the latter. According to the proposal the present pragmatic formula would have to be replaced by a new formula that would tax the difference between income and allowable expense items, at a specified rate.

Agreement has now been reached with representatives of the industry on the basic principles governing this new formula. It comes down to the adoption of the so-called trustee approach, which recognises that a long-term insurer administers funds on behalf of his policyholders and that it is the latter who in fact are liable for tax on the income accruing to the funds. Because of practical considerations however the tax is imposed in aggregate on the insurer and not separately on the individual policyholders.

The formula now agreed upon represents an improvement on the present one but is not likely to satisfy all members of the industry. One appreciates that taxpayers will always strive for a formula that will bring lower tax. It is also acknowledged that the proposed new formula may in course of time be further refined and improved. Any future adjustments will be made in consultation with long-term insurers and in the light of ruling financial conditions and general budget requirements.

Report of the Technical Committee on Mining Taxation (the Marais Committee)

Several of the recommendations of the Margo Commission concerning the mining industry were not definitive. Indeed, the Commission itself recommended that some of its proposals should be investigated further. The Government therefore, early in 1988, appointed a Technical Committee on Mining Taxation under the chairmanship of Dr Org Marais, Deputy Minister of Finance. The Committee subsequently submitted a report which was referred to the Tax Advisory Committee for further consideration and recommendation.

As is indicated more fully in the Budget Review, several of these recommendations of the technical committee have been accepted and some of them are already being brought into operation in the 1989-90 financial year. Several concessions are inter alia being made in favour of the mining industry in order to encourage its further development. The Government is fully aware of the importance of mining to South Africa, and particularly of the vital role played by the export of minerals and raw materials as a foreign exchange spinner.

Before I come to a brief review of the figures for the past year I want to give attention to a few other policy matters.

OTHER POLICY MATTERS

Fiscal Planning within the Long-term Economic Strategy

The Committee of the State President on National Priorities (CSNP) takes a view for a number of years, including overriding economic policy objectives, which is then embodied in a five-year fiscal plan. In its task the CSNP is assisted by four ministerial policy sector committees, namely for protection and legal services, constitutional and general government services, social services and economic services. The policy sector committees consider the division of costs between functions in a specific policy sector and how adjustments must be made, on the strength of function investigations and cost benefit analyses. The sectoral and functional allocations are made chiefly on the basis of the Central Economic Advisory Service’s set of long-term expenditure guidelines, which determine the expenditure for the Government sector in the five-year plan.

The reduction in State expenditure with a consequential drop in the borrowing requirement and in due course in the tax burden too, is a precondition for continuing and higher economic growth. One can say, in fact, that a choice—a trade-off—is now being made between higher State expenditure and lower long-term growth on the one hand or lower State expenditure and higher long-term growth on the other. Without the latter the country will not over the long-term have the ongoing means of handling the realistic development aspirations of large segments of the population on a lasting basis.

Privatisation

The privatisation process gathers increasing momentum, and planning for Iscor, Eskom and Foscor is well advanced. Interim steps such as the conversion of SA Transport Services and Post- and Telecommunications Services into tax-liable companies, so preparing the way for their privatisation, have also progressed.

An exposition of the Government’s viewpoint on how the funds accruing from privatisation should be applied, which links up with what the hon the State President said in his Opening Address to Parliament in 1988, appears in the Budget Review.

LEVIES ON HEAVY VEHICLE LICENCES AND DIESEL FUEL

In last year’s Budget Speech reference was made to the road damage caused by heavy vehicles, and higher licence levies were held in prospect, which it was estimated would garner R200 million for the Exchequer.

This matter was subsequently investigated further by an interdepartmental working group. It was recommended that the total levy should preferably comprise a heavy vehicle licence levy on the licence fee and a levy of 2,5 cents on the price of diesel fuel.

Motor vehicles with a tare of less than 5 000 kg should be exempted from the licence levy, while diesel for certain non-road users, viz in farming, forestry and fisheries, as well as construction and mining, should be exempted from the proposed levy. These proposals were accepted by the Government.

It bears emphasising that neither the licence levy nor the diesel fuel levy will be earmarked for roads. But they do of course end up in the Exchequer, from which inter alia the construction of new roads and road maintenance are financed in accordance with national priority allocations.

†FINANCIAL YEAR 1988-89

We will now deal briefly with the 1988-89 financial year.

In the Budget Speech on the Additional Appropriation full particulars were given of the course of expenditure in the present financial year. The revised estimate of expenditure of R56,6 billion for last year exceeds the budgeted expenditure level by 5% and the actual expenditure for the previous year by 18,4%.

The revised expenditure level also includes the utilisation of the proceeds of the sale of a part of the State’s interest in Iscor. Revenue from this source has been treated as a capital revenue and was not applied in the reduction of the deficit before borrowing.

The public debt, as a percentage of the gross domestic product, fell from 41,3 % in 1978 to 33,7% last year. On the other hand, the public debt interest payments as a percentage of the GDP rose from 2,9% in 1978-79 to 3,9% last year. This was chiefly the result of relatively high interest rate levels. The cost of servicing the public debt was R8,055 billion in 1988-89, which is R450 million higher than the budgeted amount.

Tax revenue was particularly favourable in the 1988-89 financial year and is estimated at R47,460 billion, or about 25% more than the revenue in the previous financial year.

The favourable increase can, however, be ascribed chiefly to steps taken during the financial year, inter alia by means of fiscal policy measures to dampen consumption spending and protect the balance of payments.

Firstly, from 1 July last year a start was made with the phasing out of debtors’ allowances in connection with sales tax, which gave rise to higher collections from this source. It is estimated that sales tax collections will exceed the budgeted revenue by R1,3 billion.

Secondly, a higher import surcharge was introduced with the primary purpose of dampening imports. Despite this, imports continued high, as appears from the increase of 25% in their volume during 1988. Total surcharge collections will rise to an estimated R1,6 billion in comparison with the R700 million budgeted, while the expected customs revenue of R2,350 billion shows an increase of 33% above the previous financial year.

Thirdly, the fuel levies were raised by 3 cents and again by 9 cents in 1988 and early 1989, respectively. Additional revenue from this is estimated at R450 million.

Income tax on individuals is estimated to rise by about R365 million more than was estimated, while the outcome of increases in company profits is that tax revenue from non-mining companies is expected to be nearly 40% higher than in the previous financial year.

The revised estimate of revenue and expenditure brings the deficit before borrowing for 1988-89 to R9,096 billion, or R764 million less than was initially budgeted for. This deficit, expressed as a percentage of the estimated gross domestic product, will be 4,4%, a half percentage point lower than was envisaged in the Budget Address last year. Along with loan redemptions, including Treasury Bills of R1,759 billion chiefly on account of reduced investment by the Corporation for Public Deposits in State paper, the financing requirement came to R14,1 billion. The Public Investment Commissioners contributed R4,8 billion to its financing. As already mentioned, R600 million was obtained from the sale of certain Iscor shares, while R195 million was obtained by means of foreign financing. Taken together with the utilisation of last year’s surplus and the sale of Government stocks and bonds, the available financing is R15,701 billion, which leaves a balance of R1,614 billion for last year. It is proposed that R1 billion of this be transferred to the Reserve Bank in reduction of the shortfall on the Gold and Foreign Exchange Contingency Reserve Account and R320 million to the special defence account. Further particulars appear in the Budget Review. The balance of R294 million will be carried over to the 1989-90 financial year.

FINANCIAL YEAR 1989-90

Revenue

The printed Estimate of Revenue for 1989-90 which is being tabled this afternoon provides for total tax revenue of R54,140 billion which is 14,1% higher than the revised estimate for 1988-89. Inland Revenue and Customs and Excise are expected to contribute R47,040 billion and R7,1 billion, respectively.

With regard to the respective tax sources, some of the estimates are briefly as follows: The estimate for income tax on individuals is R17,1 billion, or 22,5% above the revised estimate for 1988-89, chiefly because of the effect of salary adjustments, fiscal drag and new entrants to the tax corps.

The estimate for non-mining companies is R9,5 billion which is an increase of 17,3%. As undertaken in Parliament last year the minimum tax on companies will be discontinued. As a cash flow measure it has served its purpose for now.

Tax and mining lease revenue from the gold mining industry are estimated at R1,250 billion and R370 million, respectively, which represents a fall of 27,4%. Income tax payments by other mines are expected to increase by only about 6,5%.

Income from sales tax is estimated at R15,150 billion or 17,4% higher than the revised estimate of last year. These collections are, however, strictly speaking not comparable with those of last year because of the phasing out of debtors’ allowances.

Revenue from excise duty is estimated at R2,475 billion, which represents an increase of only about 4,4%. It is attributable chiefly to the fact that most excise duties are specifically levied on physical consumption rather than on value. Regular adjustment of these excise duties is therefore necessary to maintain the relative contribution to the Exchequer.

Revenue from fuel levies will according to estimates rise by 50%. This is attributed to the fact that 1989-90 will be the first year in which increased fuel levies, including the heavy vehicle diesel levy, will be collected for a full year.

Expenditure

The printed Estimate of Expenditure for 1989-90 amounts to R63,570 billion. The estimated expenditure on capital services of R5,076 billion is 4,4% lower than provided for in the main Budget of last year. Only some highlights of a few heads of expenditure will be dealt with now.

Education

An amount of R11,8 billion is provided for education, which is 19,2% more than the amount for last year. This is the largest single allocation and represents 18,6% of the total Budget. It illustrates the Government’s commitment to education and its good faith in difficult circumstances in making, via this considerable vote, an investment for the future which far exceeds that of comparable countries.

Social Welfare

Along with the carry-over costs of the pension increases that came into force on 1 January 1989, the total expenditure on social pensions for 1989-90 is R3,008 billion. Beneficiaries now receive R33 per month more than last year.

Remuneration of Public Servants

The 15% general salary increase from 1 January 1989, along with some occupation-specific increases, means a carry-over cost of about R3,5 billion for the coming year. Only R50 million is being additionally provided, for certain occupation-specific adjustments.

Analysis of Expenditure Items

Hon members will note that chapter 8 of this year’s Budget Review sets out the votes and revised expenditures for 1988-89 for the respective departments/administrations, as well as the amount proposed for voting for the new financial year. It also sets out, with regard to the respective budget items, objectives and actual changes, as well as in certain cases outstanding results achieved and special goals for the following year.

BUDGET PROPOSALS

Let us now deal with the Budget proposals. Firstly, the supplementary expenditure proposals.

Supplementary Expenditure Proposals

Development Bank of Southern Africa (DBSA)

With the establishment of the Development Bank of Southern Africa the Government bound itself to a five-year programme of capital contributions to the bank’s development fund. This programme was completed in the past financial year. It was recently agreed with the Development Bank of Southern Africa that the Government would commit itself to a further five-year programme, but on the distinct understanding that the bank must obtain 50% of its further development capital needs from the capital market. As 1989-90 is the initial year of the new programme and this contribution could not be budgeted for timeously, it is proposed that a sum of R375 million, as a contribution to the bank’s development fund, be voted in the Supplementary Estimates.

Structural Adjustment Programme for the Motor Industry

The new local content programme announced for the motor industry is based on value instead of mass. Higher excise duties will be levied on participants that do not comply with the local content requirement. It is estimated that the Exchequer will obtain additional income of R70 million as a result, which will be applied wholly as an incentive measure for this adjustment programme.

It is therefore proposed that a sum of R70 million be included in the Supplementary Estimates for this programme.

Small Business Development

The Small Business Development Corporation continues as a pioneer in spreading the concept of private initiative and in developing entrepreneurship among all South Africans. In the corporation’s last financial year, for example, its contribution helped to create some 50 000 additional job opportunities.

The SBDC proposes the introduction of a bank guarantee scheme which will be viable only with annual State assistance of R2 million. Loss cover will be limited to a maximum of 60% of the loan sum. Since this is a deserving co-operative project between the public and the private sector, it is proposed that the State’s contribution of R2 million for 1989-90 be voted in the Supplementary Estimates.

The provision of further development capital for the SBDC and similar development institutions elsewhere involved in the promotion of inter alia small business continues, however, to receive the attention of the Government.

Adjusted Expenditure Total

Taking into account the proposed supplementary expenditures, total expenditure for 1989-90 comes to R64,017 billion.

From year to year, however, unforeseen expenditures appear, such as financial help arising from disasters, while in times of rising interest rates higher public debt costs cannot be avoided. The criticism is even made that the main Budget is kept low on purpose, and that the budget deficit is therefore not realistic. In an attempt to improve still further the accuracy of the budget figures an ex ante sum of R1 billion is now being included in the budget structure for possible unforeseen expenditures.

The total expenditures after provision of this expenditure reserve are thus R65,017 billion or 15% more than the revised expenditure total for last year. It is the expectation therefore that, in accordance with the long-term economic strategy, State expenditure should show no real growth in 1989-90.

TAX PROPOSALS

Customs and Excise Duties

In contrast to ad valorem duties, whose yield is linked to the value of transactions, there is no similar built-in mechanism in specific duties. To maintain equilibrium between the different types of duty, therefore, adjustments are needed from time to time.

In the White Paper on the Margo Report the Government thus indicated that it accepted the recommendation for regular adjustments to excise duty. As a first step moderate increases in customs and excise duties on spirits, cigarettes and beer were announced during last year’s Budget address.

The International Monetary Fund too has found recently that in comparison with most other countries South Africa’s excise duties are relatively low on account of irregular adjustment.

The following further increases in customs and excise duties are therefore proposed for the 1989-90 financial year:

Beer

The duty on beer, whether locally produced or imported but excluding sorghum beer, is to be raised by a little less than 1 cent per 375ml bottle or “pint” as it is known, that is 2,4 cents per litre. This increase should yield an extra R45 million in 1989-90.

Spirits

The customs and excise duty on spirits such as whisky, brandy and gin is to be raised by somewhat less than 1 cent per tot or 25,2 cents per 750 ml bottle. The extra revenue for 1989-90 is estimated at R31 million.

Cigarettes and Cigarette Tobacco

The customs and excise duty on cigarettes is to be increased by 1 cent per 10 cigarettes and on cigarette tobacco by 1 cent per 50g. This should yield an extra R38 million for the coming year.

Pipe Tobacco and Cigars

The customs and excise duty on pipe tobacco and cigars is to be increased by 10 cents per kg. The extra revenue for 1989-90 is estimated at about R1 million.

Cold Drinks

The customs and excise duty on cold drinks was introduced during 1966 and has not subsequently been increased. With the passage of time the duty component has not kept pace with substantial price increases, and it will therefore now be raised by somewhat less than one cent per 340 ml can, that is 2,6 cents per litre. It should be stressed that pure fruit juices are not excisable products and will thus not be affected by this increase. The estimated extra revenue will be in the region of R35 million for the 1989-90 financial year.

General

The above-mentioned increases take immediate effect and apply to all goods not yet cleared for domestic consumption, in other words not yet removed from warehouses and premises of manufacturers licensed by the Commissioner of Customs and Excise. Traders are urged as usual to dispose of stocks purchased at previous duties at current prices and to adjust their prices for new stocks only.

The increased customs and excise duties should in total raise about R150 million in extra revenue. In accordance with section 58(1) of the Customs and Excise Act of 1964 the formal tax proposals concerning customs and excise duties are now tabled for consideration by Parliament.

Inland Revenue

Stamp Duties

In line with the decision that specific duties be adjusted more regularly a limited range of stamp duty tariffs will be increased. As these are merely of a structural nature they will yield only about R1 million in additional revenue in a full year.

Income Tax

Primary Rebates

The undertaking has frequently been given that the additional revenue from fringe benefits tax was aimed not at raising State revenue but only at a fairer spread of the tax burden.

At the same time, the Government has repeatedly expressed its concern at the built-in tax increase involved in fiscal drag. Steps have therefore been taken on many occasions to soften its impact. On account of extremely limited capability, no significant proposals could be made to counter fiscal drag. Nonetheless, it is now proposed that the primary rebate be increased from R1 100 to R1 250 for married taxpayers and from R750 to R850 for other taxpayers.

Taxpayers over 65 years of age frequently find it difficult to safeguard themselves adequately against the impact of inflation. To provide them with further help it is proposed that, in addition to the abovementioned general rebate, their present additional rebate be raised from R500 to no less than R1 450.

The effect of the foregoing proposals is that the tax threshold will rise for an unmarried person from R5 357 to R6 071, for a married person with three children from R10 000 to R11 071, and for a married person older than 65 years from R11 428 to R17 304.

The general increase in the rebate will cost R358 million in the 1989-90 financial year, and that in the rebate for those above 65 years of age will cost R23 million.

Provisional Tax

People above 65 years of age are presently exempted from the submission of provisional tax returns if their taxable income does not exceed R20 000 for the year of assessment and consists only of salary, pension and investment income. To assist them it has been decided to raise the exemption limit to R25 000. Although this does not mean an actual loss of tax it will cause a temporary cash-flow loss of R9 million in the coming year.

To raise the exemption limit for other provisional taxpayers would involve a very considerable cash-flow loss, and this could therefore unfortunately not be favourably considered in view of the lack of financial room for manoeuvre.

Standard Income Tax on Employees

Under the standard income tax on employees—the so-called SITE system—the tax liability in respect of remuneration up to R12 000 a year for a man or unmarried woman, or R20 000 a year in the case of a married woman, is finally determined at the end of a tax period, and no income-tax returns need to be submitted.

Married women in this category enjoy in relative terms considerable tax relief vis-à-vis other married women with incomes higher than the present ceiling of R20 000 and whose income is still lumped with that of their husbands, with the upshot that large extra amounts of tax have frequently to be paid by couples on assessment. To provide further relief for this group and indeed henceforth to tax working wives separately, it is now proposed that SITE be applied to all married women receiving remuneration. This concession should be welcomed by all working married couples.

The other result of the SITE system, namely that men and unmarried women with a remuneration not exceeding R12 000 per year are released from the obligation to submit annual tax returns, entails considerable benefit for both Inland Revenue and the taxpayers, and it has therefore been decided to raise this ceiling from R12 000 to R20 000.

Although no tax loss is expected for the 1989-90 financial year, these concessions—and mainly the one involving working women—will involve an estimated loss of R139 million in the 1990-91 financial year.

This concession marks the attainment of an ideal long cherished by great numbers of taxpayers who in their various spheres of work actively contribute to building up the economy of South Africa. The Government is grateful that this particular goal could be reached so soon as this year despite the many other justified claims for tax relief.

Mining Taxation

As already indicated, a start is being made this year with the implementation of those proposals of the Marais Technical Committee on mining taxation as accepted by the Government—proposals aimed at promotion of this vital industry. A new comprehensive tax formula is therefore being introduced, in which the existing formula tax and the surcharge of 25% is first consolidated and then slightly reduced. The maximum theoretical marginal rate, for example, will then fall from 70,5% to 68,72%.

For non-gold mines the surcharge of 15% above and beyond the normal tax will be reduced to 12%.

Furthermore, the statutory tax rate for diamond mines will be raised to the standard company rate of 50%, but the surcharge will be reduced from 25% to 12%, which will mean a small reduction in the effective tax rate.

The cost to the Exchequer of these adjustments will be R31 million for gold mines and R22 million for other mines.

Long-term Insurers

It has already been stated that from 1 April this year long-term insurers will be taxed according to a new formula that was proposed by the Margo Commission. In terms of this, the tax of a long-term insurer will be calculated by multiplying the tax rate by the expression (I-E), where I represents insurer’s income as defined and E his expenses as defined.

For the 1989-90 financial year the tax rate will be equal to 45%, which is the maximum marginal rate for individuals.

It has also been decided to allow long-term insurers at this stage to deduct from their income only 55% of their expenses as defined for purposes of calculating their taxable income.

The industry holds the view that the tax rate of 45% should be a good deal lower so as to reflect an average marginal rate for the policyholders, and that more than only 55% of their expenses should be deductible.

These percentages have, however, been determined taking into account the following: Firstly, the tax that long-term insurers presently pay; secondly, the fact that all capital gains of these institutions are at this stage completely excluded in the determination of their income; thirdly, the fact that the long-term life insurance business is not at this stage divided between the part accruing to the policy holders and the part going to the institutions as corporate undertakings; and lastly, the benefits that financial institutions are in any event now to receive from other adjustments in financial requirements, for example the abolition of the prescribed investment requirements.

It is not expected that the change-over from the old to the new formula will mean any notable change in the tax of long-term insurers in the 1989-90 financial year.

General Sales Tax

From the limitation of the level of State expenditure for 1989-90 to 15% above the previous year, including the reserve of R1 billion, it will be apparent that the Government is serious in its commitment to fiscal discipline, and that at this particular time this level of expenditure cannot be further pruned without serious problems.

As far as the tax and loan proposals are concerned, furthermore, the Government is convinced that they are not only economically but also politically sound and therefore able to be justified.

In the determination of the loan requirement, which will be dealt with shortly, regard has therefore been had to both the likely needs of all other borrowers and the possible effect on interest rates of an excessive deficit before borrowing to avoid placing any further pressure on the capital markets.

The same sense of responsibility also marks the Government’s decisions in the area of State revenue. The disincentive effect of too-high rates of individual and corporate tax and the imperative need of the country for a dynamic private sector as the key to economic growth have led the Government to avoid raising direct taxes. The tax relief stemming from the increase in the primary rebate is, indeed, smaller than the Government would have liked, but—as will be clear—it is the maximum that under the present circumstances could be justified on a responsible basis.

Against this background of the pursuit of the lowest possible level of State expenditure, the optimal degree of loan financing, the necessity of avoiding as far as possible further increases in the direct tax burden, and the restriction of demand in the economy which for the most part puts pressure on the balance of payments, it is clear that at this stage the Government has no choice but to raise the rate of general sales tax. The rise is however confined to one percentage point. The new rate, 13%, will come into force on Monday 20 March 1989.

This fiscal measure should reduce the pressure on monetary policy to counteract excessive demand in the economy. It means that upward pressure on interest rates will necessarily be reduced, which will benefit the whole economy—including bondholders, farmers and business undertakings.

The extra revenue is estimated at R1,150 billion for the 1989-90 financial year and R1,250 billion for a full year.

An objective evaluation of all the relevant factors, economic and other, as set out more fully in the Budget Review, shows the need for strict discipline on expenditure in order to limit the increase in the GST rate to one percentage point. The Government is convinced that these tax measures will be adequate to meet the needs of the economy.

Adjusted Revenue Total

After taking the foregoing tax proposals into account, the expected tax revenue for 1989-90 amounts to R55,068 billion.

FINANCING OF THE DEFICIT BEFORE BORROWING

After taking into account the supplementary budget proposals as well as the reserve for unforeseen expenditure, the total expenditure and revenue amount to R65,017 billion and R55,068 billion respectively. The estimated deficit before borrowing is therefore R9,949 billion. Expressed as a percentage of the estimated gross domestic product this is 4,1%, as against the 4,4% of the revised estimate for 1988-89. This comports with the Government’s strategy to reduce the deficit before borrowing gradually to a level of 3% of the GDP. Loan redemptions will be about R3,674 billion, which brings the total financing requirement of the State in 1989-90 to R13,623 billion.

It is proposed to finance this amount from the sales of stock of R5,200 billion to the Public Debt Commissioners; the rolling-over of Government stocks maturing, to the value of R3,211 billion; and the sale of Government stock (new funds) of R4,370 billion. The latter net claim of the State on the capital market is, however, much lower than the comparative figure of R6,515 billion in the revised Budget for 1988-89. Furthermore it is proposed to raise R100 million from the sale of bonds, R200 million from overseas and R250 million from the conversion of debt standstill funds to long-term loans outside the debt standstill net. The surplus of R294 million from the previous year is also being utilised. This leaves a small surplus of R2 million for 1989-90.

What is also of importance is the fact that this envisaged financing framework on the one hand already provides for a R1 billion reserve for unforeseen expenditure, while on the other hand no provision is made for privatisation revenue that may arise from the sale of State assets. Should such revenue indeed eventuate, it can be utilised in whole or in part to redeem existing loans or to market fewer stocks.

THE BUDGET IN PERSPECTIVE

In winding up, Mr Speaker, we need to look at the Budget in perspective. Earlier in this address reference was made to the strong growth in domestic expenditure during the past year and also to the need for moderating this growth. It was stated that fiscal policy had a particular responsibility in this regard.

The Budget for 1989-90 reflects the Government’s awareness of that responsibility as follows:

• — Provision is made for an increase in total expenditure of 15%. In real terms it means virtually no growth.
• — In the light of the high expenditure trends in the private sector this is not an appropriate time for tax concessions. Rather, limitation of expenditure is called for. For the personal sector the tax burden is to rise moderately in consequence of the increase in GST and the fact that no concessions have been made for fiscal drag.
• — Although the deficit before borrowing is still high, being 4,1% of GDP, success was nonetheless achieved (even taking the reserve for additional expenditure of R1 billion into account) in bringing it below last year’s 4,4%. It is 3,7% if the R1 billion is not taken into account.
• — No recourse is furthermore had to bank credit in the proposed programme for the financing of the deficit before borrowing.

It was also stated in the introduction that the Budget should meet the requirements of the Government’s Long-term Economic Strategy as far as possible.

The total gross domestic expenditure is estimated to increase in nominal terms by 16 to 17% in the coming year. State expenditure at 15% will, therefore, grow more slowly than the rest of the economy.

The tax burden does indeed rise somewhat for the personal sector. However, it is not easy in the present economic circumstances to reduce the tax burden for this sector. Even were it possible it would be stimulatory and therefore not advised from a policy viewpoint. The total tax burden, on the other hand, is estimated to show a marginal decline.

The estimated deficit before borrowing of R9,949 billion is equal to 4,1% of the anticipated gross domestic product, as against 4,4% last year, which is another step nearer to the proposed 3% of the Long-term Economic Strategy.

It remains, however, an unsatisfactory aspect of the Budget that the Government’s net borrowing requirement of R9,949 billion is still much larger than the estimated capital expenditure of R5,076 billion.

Moreover, much is being done in this Budget and in the implementation of the broad economic policy of the Government, to give effect to the needed structural adjustments in the economy:

• — Various important tax reforms as proposed by the Margo Commission are being taken further.
• — A package of important reforms in the financial structure has been announced.
• — Important structural adjustments in the industrial sector are being supported by the necessary fiscal measures.
• — Additional funds are being provided for the Development Bank of Southern Africa and for the Small Business Development Corporation.

This Budget therefore seeks, in difficult circumstances, to ensure that the South African economy moves forward on all fronts on a sound basis.

Before I express thanks to certain parties I should like to emphasise what I said in the beginning: that this is not a so-called “election budget” that brings good news in the short term but in the long term damages the economy. It is in truth a budget combining economic responsibility with political integrity.

CONCLUDING REMARKS

In closing I should like to express my sincere thanks to the following persons: In the first place, I thank the hon the State President, who has always been greatly interested in the finances and the economy of South Africa, that they be managed in the best interests of all the country’s people. I thank him for the understanding and the support I have always had from him, especially in this difficult period. In particular, we appreciate the fact that, after his good recovery, he has made his first appearance in Parliament this year at the delivery of the Budget Speech. We really value that.

I should also like to thank the hon the Minister of Constitutional Development and Planning, Mr J C Heunis, under whose guidance as Acting State President important decisions had to be made in rounding off this Budget.

I wish to thank the leader-in-chief of the NP, Mr F W de Klerk, with whom I recently consulted on a few occasions on aspects of the Budget.

I wish to thank colleagues in the Cabinet and Ministers’ Councils and their department heads. Without their understanding, co-operation and support the introduction of a responsible budget would definitely not have been possible.

I also thank my colleague the hon the Deputy Minister Dr Org Marais, who has made an outstanding contribution in dealing with the many problems in our sphere. He is a highly expert tower of strength.

In particular I thank the Director-General and the Department of Finance for the competent manner in which they are performing their difficult tasks in these times and for their almost superhuman dedication. They are an A-team. I thank all the members of the budget team who for a year now, but especially during the past few weeks, have laboured to prepare this Budget. The Central Economic Advisory Service too deserves our appreciation for its expert contribution and guidelines.

Neither can I neglect to say a word of thanks to members of our staff who retired during the past year, and those who will be retiring shortly. I would mention in particular Mr Clive Kingon, who shortly will lay down the yoke as Commissioner for Inland Revenue, and Mr S F van Zyl, who does likewise at the end of this month as chairman of the State Tender Board. Both these officers have given our country a lifetime of dedicated service. We thank them.

The South African Reserve Bank and the Land Bank, which as always performed wonders in their specialised fields in the past year, also deserve our thanks. I thank the Governor and the Deputy Governors of the Reserve Bank and the Managing Director of the Land Bank and all their staff for their selfless service. In particular, I value the policy and research inputs by the Reserve Bank.

I also wish to express a word of deep appreciation to the Joint Committee on Finance, which during the past year had to give much attention to important matters in the field of monetary and fiscal policy. Their thorough preparation and incisive questioning are to the country’s benefit. They make a splendid and indispensable contribution to the functioning of Parliament.

Mr Speaker, on account of the important role he played over many years in our economy, and particularly as a member of the State President’s Economic Advisory Council, I wish to refer to the tragic death last night of Dr Fred du Plessis. Our country is considerably poorer for his passing. He was not only one of our business giants, but also an academic and an economist of great standing. He had outstanding skills ranging from creative thought to effective and convincing communication. On top of this he had a deep sense of social responsibility. I will personally miss the in-depth and probing discussions we had from time to time.

TABLING

Mr Speaker, as is customary, I now lay upon the Table:

1. (1) Budget Review, 1989.
2. (2) Estimate of Expenditure to be defrayed from State Revenue Account during the financial year ending 31 March 1990 [RP 2—89],
3. (3) Estimate of Revenue for the financial year ending 31 March 1990 [RP 3—89].
4. (4) Statistical/Economic Review [WP B—89].
5. (5) Taxation proposals [P 1—89].
6. (6) Estimates of Revenue to be received for and Estimates of Expenditure to be defrayed from Accounts for Provincial Services during the financial year ending 31 March 1990:
   1. (a) Cape [RP 18—89];
   2. (b) Natal [RP 21—89];
   3. (c) Orange Free State [RP 24—89]; and
   4. (d) Transvaal [RP 27—89].

Bill, budget speech and papers tabled in respect of State Revenue Account referred to Joint Committee on Finance in terms of Rule 163 (1) (a).

Bill, budget speech and papers tabled in respect of Accounts for Provincial Services referred to joint committees on provincial affairs.

ANNEXURE 1: COMPARATIVE SUMMARY OF THE STATE REVENUE ACCOUNT

REVENUE—1988-89

REVENUE—1989-90 (On existing basis of taxation)

Mr Speaker, there is of course a great temptation to use this opportunity to deal with a budget speech that started in Churchillian phrases and ended in Attlee whimpers. However, I must resist the temptation to make such a remark and rather restrict myself to the Bill that is before us.

The particular measure which is before us here is of a technical nature but has considerable significance. Firstly, it is unfortunate that in our country it is necessary to make special provision in order to deal with certain insurance risks which are not insurable in the normal course of events. While we support the measure and believe that it is necessary to have such provisions and that such insurance should be available, we trust that the day will come—not so far from now—when it will be unnecessary to have that kind of insurance and when we will find ourselves in a society in which the threat of riots and damage caused from political risk will be no more and the widened provisions contained in this Bill will no longer be necessary in South Africa.

Secondly, in so far as the so-called independent homelands are concerned we anticipate that this is only a temporary measure and that those states will introduce their own legislation. We therefore support it on the basis that this is only of a temporary nature. With these words, we give our support to this measure.

Mr Chairman, the Finance Amendment Bill, dealing with the section that requires to be amended, concerns the obligation on the part of the Government which has been greatly extended. That amendment has been introduced to restrict the liability of the Government to pay in terms of the Insurance Act. We support the Bill.

Mr Chairman, the CP supports the Finance Amendment Bill. There are three points in particular which are of interest to insurers.

The area of operation is now defined as “in the Republic or in any state the territory of which previously formed part of the Republic”. It therefore leaves no doubt about the borders.

In addition insurers are also being protected, so that premiums due to them cannot be claimed by organisations if a middleman or agent is declared insolvent. Here we are thinking, for example, of a well-known company which was authorised to handle policies for other companies. When steps were instituted against it, the premiums due to other companies had been paid into this company’s insolvent estate.

Thirdly, concepts such as “public disorder” are being defined better, and this is welcomed. There is now clarity on this, and the insurance component of South Africa, and Sasria in particular, can carry on with its work with more peace of mind.

Mr Chairman, like the hon member for Witbank, we take pleasure in supporting this measure unconditionally.

The Finance Amendment Bill makes provision for the restriction of reinsurance cover in respect of South African property outside our country’s borders. The provisions of the existing section 6 of the Finance Act, 1978, could be interpreted as authorising the Minister of Finance to provide reinsurance cover in respect of property situated anywhere. The amendment in clause 1 now means that reinsurance cover will be limited to property situated in South Africa.

Order! Certain hon members are standing around in the aisles and talking too loudly. It makes it very difficult to speak from the podium.

Thank you, Mr Chairman. We shall carry on as if nothing had happened.

The amendment in clause 1 now means that reinsurance coverage will be limited to property situated in South Africa or in a state the territory of which previously formed part of South Africa. In this regard we are referring specifically to the TBVC states. I should like to know from the hon the Minister what is going to happen in the case of Namibia, although it did not form part of South Africa. After all we have built up many interests there over the years.

The Bill also specifies that premiums due to Sasria, but held by an intermediary, will, upon the insolvency of such other insurer or intermediary, in future fall into Sasria’s estate, and not into that of the insurer or intermediary. Of course this also gives Sasria far more peace of mind.

The term “public disorder” is being more fully defined in the proposed paragraph (bA) of section 6(2), because the short-term insurance industry has experienced considerable difficulty in interpreting this term, particularly during the unrest in 1984, 1985 and 1986. The new definition reads as follows:

Section 18(b) of the Financial Institutions Amendment Act of 1987, which defines “loss of or damage to property” is being deleted under the amending Bill. The reason given is that cover against damage resulting from all non-politically inspired riots, which includes these perils as well as other forms of riot, is not covered by this definition and is not available in South Africa. We take pleasure in supporting this measure.

Mr Chairman, I endorse what the previous speakers have said. This Bill clears up certain doubts, and it is a move in the right direction. It is a positive move, and we support the Bill.

Mr Chairman, we wish to say thank you to all the hon members of the joint committee who have been so efficient in assisting to prepare the legislation. We also say thank you very much to those hon members who support this Bill.

The amendments have already been spelt out repeatedly, and I shall therefore not dwell on them today. I merely wish to mention why Sasria came into existence. Public disorder insurance and reinsurance were very sensitive matters after 1976, and there was no reinsurance available either locally or abroad. Sasria was therefore born of necessity; the State had to intervene as the reinsurer.

Substantial progress has been made during the past 10 to 12 years towards a good management system and sound disciplines. The insurance industry and the office of the Registrar of Financial Institutions appoint those persons who serve on the board of this organisation. The administration is done by the insurers’ association as well as the insurance companies. This ensures an efficient, low-cost administration.

Sasria insures a client up to a maximum amount of R200 million. There may well be a shortfall in the case of giant organisations, which may quite probably be supplemented overseas. It is good to note, however, that this institution has built up a tidy nest-egg over the past number of years because it does its financing on the following basis. In the case of a mishap, some of the premiums that are collected during the year are utilised first. If there is a shortfall, those insurance companies that participate must also make a contribution.

Thirdly, Sasria’s remaining funds, which have already accumulated over the years, would be absorbed, after which the State would intervene in the last phase if there were still a shortfall. This risk to the State has therefore been restricted to a minimum.

We are pleased to support the amendments before the House because this Bill can make a sensible contribution towards enabling Sasria to play an even more important role in the South African insurance world. Public disorder is not only defined as riots, but also as labour disturbances and even lock-outs—where, for example, a gate is locked to either the employer or the employee and this could possibly give rise to public disorder.

We on this side of the House therefore lend our strongest support to the Bill.

Mr Chairman, I would like to start off with an analogy. There was an old farmer who lived in an old house. He found that the roof was shaky and wobbled in the wind. Each time a storm raged and the wind blew off a sheet of iron, he replaced it and it alone. So it is with the present Government.

The principal Act has only about 20 sections and is now being amended for the fourth time with specific reference to insurances outside South Africa. I would like to add to what the hon member for Yeoville said. It is unfortunate that the tax-payers of this country have to bear losses incurred by other countries which do not contribute to the tax of this country. For that we blame nobody else but this Government because of those vicious laws that they made and continue to retain on the Statute Book.

As I said, section 6 of the principal Act is rather ambiguous. As it reads now, if an insurer provides insurance in Zambia, Zimbabwe or Nairobi this Government is bound to pay. So far I accept their rectifying that formula which they produced in 1978. However, going through the principal Act one sees that section 3 reads as follows:

I question the wisdom of that section, Sir. Why is that part not being rectified? If section 6 is ambiguous we accept and admit it. We concede that it has to be rectified. However, in terms of section 3, if a person lends money to anybody outside South Africa—to foreigners—it is not specified whether the TBVC countries or the independent states of South Africa, which were formerly part of South Africa, are included. It clearly states “… granted by any person to a foreign government or foreign government institutions”. That deserves urgent attention and I do not see the hon the Minister of Finance here to make a note of this and pay attention to it. [Interjections.] I would like them to answer me in this regard.

This is another insult. It proves the fallacy of this debate. The hon the Minister of Finance spoke for an hour and his throat is dry, so he left to take a quick cup of tea, but where is his deputy? [Interjections.] I beg your pardon, Sir. I see that the hon the Deputy Minister is present. I would like him to address the existence of section 3 of the principal Act in this debate.

Mr Chairman, I wish to thank hon members supporting this Bill. Actually this Bill entails more technical adjustments although certain of the clauses have a long history. Let me take section 6 of the Act. It is now possible to drive through some of the national states, and if one is stoned while holding a Sasria policy, one will be refunded at home.

*I think few people realise the interest value of this clause or the value associated with the fact that we also have agreements with the national states. However, there was a problem in the original clause because what we meant by only that property which was situated in South Africa or in a territory which formerly belonged to us, was not clearly defined.

†I had a problem with the hon member for Camperdown, because he talked about section 3 and I could not figure it out as we are actually not discussing section 3. However, I would like to personally discuss this problem with him later on.

*A further aspect which is of importance here is what is to become of the money which ought to be paid over to Sasria upon the insolvency of a certain intermediary. A good example of this is the AA Mutual. When the AA Mutual became insolvent Sasria was entitled to those premiums which were in the hands of the AA Mutual. This clause also provides that those premiums must be paid over. One must remember that Sasria is a non-profit organisation. Sasria is striving to render a service, and they do not pay tax either. I think it is only fair that premiums which are due to Sasria should be paid over whenever an intermediary becomes insolvent.

†I would also like to refer to the hon member Mr Douw. We are in discussions with Namibia. They have a new organisation with a beautiful name. We have the name Sasria, and they have the name Nasria. We hope that the moment this organisation is constituted, we will have the same agreement with Nasria as we have at present with the national states.

*I also want to refer to the amendment of section 18. The hon member for Yeoville paid a great deal of attention to this section of the principal Act. I think the two of us have come a long way together with regard to this section. The hon member’s view was that Sasria ought not to interfere with—I am tempted to say encroach upon—the private sector. I want to put it differently. There are certain types of policy activities which may be dealt with by the private insurance world. Evidence was given before the joint committee that the possibility exists in the private sector that the insurance world could, in fact, deal with these types of policies.

The whole problem lies with the definition of political unrest, political troubles, and so on. For example, how does one classify labour unrest, etc? I happen to remember that the hon member quoted the case of Ellis Park. I think he will agree with me that if a problem arises with regard to Ellis Park, the problem should not be dealt with by the private sector.

I am informed that our office is experiencing tremendous difficulty in implementing the amendment which was proposed by the hon member for Yeoville, and which we have accepted. Consequently, it has been asked whether this amendment could not be left out for the moment. I think this will tremendously simplify the administration.

I want to thank hon members once again for their support. This is unfortunately the type of legislation which we have to deal with every year.

Debate concluded.

Quorum

Order! Before I proceed to put the question, I ask the Secretary to determine whether there is a quorum present in each of the three Houses.

My attention has been drawn to the fact that a quorum is not present in the House of Assembly, and I order the division bells to be rung.

A quorum being present, the question was put to each of the three Houses.

Question agreed to.

Bill read a second time.

Mr Chairman, the Alexander Bay Development Corporation Bill was referred back to the Joint Committee on Manpower and Mineral and Energy Affairs for amendments. I must thank hon members and the hon the Minister for appreciating our hon member’s views with regard to the circumstances relating to this legislation.

The main object of the amendments to clauses 3, 4 and 5 is to obtain certainty with regard to the future of our people in that area, as well as to make contributions to the growth and development of this corporation.

We accept the Bill with amendments as introduced.

Mr Chairman, the CP supports the amendments that have been made to this legislation. They empower the Minister, after consultation with the board, to undertake mining, agriculture, trade, industrial settlement, town development as well as any economic and socio-economic development in the State Diggings or in the surrounding areas.

I merely want to refer to the new clause which provides for certain measures for the recovery of money in cases where a person has caused the corporation damage. After the person has been informed, the accounting officer has the right to inform that person, by notice in writing and within 30 days, where the amount must be paid. Subsection (2) also provides that this money may be recovered, and where a person is still in the employment of the corporation, that this money be deducted from his salary, provided that such deduction shall not exceed a quarter of his monthly salary. If the person is not satisfied, provision is also made for him to appeal to the board within 30 days. He may also avail himself of an open court in an attempt to have the amount reduced or to change the period that has been granted. It is a privilege for me to support this legislation.

Mr Chairman, this Bill was thoroughly debated in the joint committee for many days. The Bill before the House is the amended version. It provides for the establishment of a corporation which will be empowered to promote economic and socio-economic development for the benefit of the inhabitants of Alexander Bay. I therefore support this Bill.

Mr Chairman, in the debate in the extended public committee we said that we would support this Bill. We do, as well as the amendments which have been moved.

Mr Chairman, I should like to support the amendments to the Alexander Bay Development Corporation Bill. In the short time I have at my disposal I want to make a few comments on clauses 3, 4 and 5.

In clause 3, which defines the objects of the corporation, the term “vicinity” is used for the area which the corporation intends to serve. This term is very wide and vague, however, and lends itself to misinterpretation. It was necessary to amend this clause to ensure that the rural area known as the Richtersveld will not, because of this term in the Bill, be overlooked in respect of development as has been the case in the past.

I am not keen to call the past as a witness, because one can easily become bogged down and trapped in it, but in this case I have no option but to point out that the people of the Richtersveld have been helping the Whites for many years to build up Alexander Bay into the prosperous and progressive town which it is today.

In spite of this, the people of the Richtersveld have up to now never been permitted to share in this prosperity. They are still the hewers of wood and drawers of water in the State Diggings. With this amendment we hope to improve their position in this region.

The following passage had to be inserted on page 4, in line 11, after the word “development” in clause 4:

This clause determines the powers of the corporation. Since this clause provides that the corporation may, with the approval of the Minister, initiate and promote town development, it has become essential that the Ministers’ Councils of the Houses whose voters are affected by this legislation should be consulted, particularly in respect of community development and town development.

I could not find any provision in the legislation under which the State Diggings have been administered up to now which prohibited Coloured workers on the diggings from living there with their families. Nor could I find any proclamation or ordinance in this connection, yet up to now no provision has been made for accommodation so that Coloured workers and their families may live there. This legislation will enable the Ministers’ Council of the House of Representatives to get a foot in the door in order to correct this deficiency.

The amendment to clause 5 relates to the composition of the board of the corporation. This is another case in which the Ministers’ Councils of the House of Representatives and the House of Assembly will have to be consulted about the composition of the board. Hon members know that we are now moving forward in the direction of a new South Africa and therefore our legislation has to be adapted to keep pace with this change.

Mr Chairman, I consider it a privilege to support the amendments to the Alexander Bay Development Corporation Bill today. We debated the Bill on a previous occasion and at that stage I appealed that we place the interests of the people in that vicinity first. After consultation and further discussion, the joint committee considered certain amendments inter alia and those amendments led to the amendments which we see before us here today. Those amendments were approved and accepted unanimously by the various representatives. In my opinion the amendments, together with the original Bill, comply with the object, which is of putting the interests of the people of that vicinity first. People of the Richtersveld felt that this area should be mentioned specifically in the Act and we shall be doing this now if this Bill is passed here today.

Other amendments are of a more legal-technical nature in the first place, whereas other proposed amendments meet certain prescriptions and recommendations of the Auditor-General, including the principle of performance audits.

†During our deliberations on the suggested amendments it was quite correctly pointed out to us by the hon members of the House of Delegates that the Bill referred to only two Houses of Parliament in the amended clauses 4 and 5. The committee agreed with the view that one may find voters from the third House of Parliament either moving into free settlement areas in the region or perhaps creating their own settlements in the surrounding areas. May I as a member of the committee express my appreciation to the hon members of the House of Delegates for the responsible way in which they assisted us in eventually coming to an agreement.

Instead of again delaying the Bill, we reached consensus on requesting that the Bill should be amended when it became apparent that the House of Delegates also had a vested interest in the area. I fully endorse the request.

It is often said that diamonds are a girl’s best friend. I can truly state today that although diamonds will still be a girl’s best friend in the future, diamonds will in the future also be the best friend of all the peoples of Alexander Bay and surrounding areas. We support the amendments.

Mr Chairman, the Alexander Bay Development Corporation Bill is no doubt a Bill that directs itself towards a programme of development in the mainstream of the economy of our country. It represents growth and a direct involvement in the improvement of the quality of life of our people.

I am glad that the chairman of our joint committee referred very positively here to our observation in regard to clauses 4 and 5.

I believe that in terms of the constitutional structures of the three-tier Government we cannot legislate leaving one tier out. In terms of the imminent free settlement areas it may be that this Bill can pre-empt the desires of this expansion in that direction. Therefore I am very grateful for the incorporation of that provision. When the time comes for such representation to be made, this should involve not only the House of Delegates but perhaps even the fourth chamber that may be joining us very shortly. With this I wish to support the Bill.

Mr Chairman, I want to sincerely thank all the hon members who participated in the debate for the fact that they supported these amendments which were proposed. I also want to say thank you to the joint committee for the positive and hard work which they did in order to have these amendments accepted. In particular, thank you very much to the chairman of this committee for the understanding which he showed. We had very long discussions.

†As far as the last issue about clauses 4 and 5 is concerned, I was quite disturbed to see that the Ministers’ Council of the House of Delegates was not included in these clauses. I hope that we will be able to add that as soon as possible.

*I once again thank hon members for their support for this Bill.

Debate concluded.

Amendments agreed to.

Mr Chairman, I move the motion printed in my name on the Order Paper, as follows:

Agreed to.