announced that the vacancy in the electoral division of Soutpansberg had been filled with effect from 10 May 1983 by the election of the Hon. Stephanus Petrus Botha.

Mr. Chairman, right at the start of the discussion of these Votes I want to try to put a few matters and a few policy measures into perspective. We are living in difficult times. We know that major fluctuations are taking place in the gold price. We know that there is still a very serious depression in the world economy and we are also experiencing a very serious drought here in South Africa. Under these circumstances I think it is necessary for us also to see a few prospects in perspective.

I think it is indeed true that there is something about long-term prospects that make them a popular pastime among the older economists rather than among the younger economists. Is this because we have more experience to take into account or a shorter future in which we can be called to account for our predictions? I do not know. It seems to me as if younger economists are more inclined to discuss short-term phenomena.

†Mr. Chairman, as far as the short-term prospects are concerned, I do not wish to discuss these at the moment because I think they were set out in considerable detail in my budget speech and I do not think that I can change anything that I said then. We know that under the conditions prevailing our economy has performed very favourably compared with most, and more favourable than many. We know, for instance, that as a result of the fiscal and monetary policies we have been following, the balance of payments position has improved very substantially and more quickly than most observers had expected. The net foreign reserves have been rising over the past several months quite steadily, and that too is a very good sign. I think one can say that in the economy as a whole there is a considerable stability.

While we are talking of short-term prospects and short-term phenomena, it is true that the inflation rate is too high. I have always said that for the last few years, and I say it again, but I also say again what I said in an earlier debate this session: We must be careful what comparisons we make in this respect. South Africa is not one of the world’s mature highly developed economies as yet. South Africa is, in fact, classified by the International Monetary Fund as a non-oil producing developing country. It is very important when we compare various aggregates that we should try to compare like with like. To compare South Africa, with all the challenges it has in the way of development, with countries like the USA, Britain, Germany or Switzerland for example in the matter of inflation, is in my opinion unrealistic.

I should like to refer to a short report which I have just seen and in which it is pointed out that consumer prices in the nonoil developing countries—these are now taken together—have jumped 34,5% in 1982, but the non-oil developing countries in the Western hemisphere have had increases in their consumer prices on average of 75% in 1982. They say the situation is particularly troubling in the whole of Latin America. In this connection they say—

They point out that even as recently as the last few years the average was 4%. They say further—

There are real terms—

What is important to remember is that in these figures one finds included Mexico and Brazil which as recently as three years ago were being held up to the world as economies which should be watched and whose performances one should try to emulate.

I should merely like to say that I think an inflation rate of 13,5% which is our latest figure, although it is too high, is by no means unreasonable compared with all the countries that fall within our group, and there are many of them. I also say that we must remember that this inflation rate has not done what it has in so many countries—it has not gone through the roof; for nearly five years it has in fact moved in a narrow band of between something like 11% and 15% with an average of less than 13,5%, at which it is today.

I realize that there are hardships which inflation causes, but I say again if ever we need to keep a sense of perspective it is in this matter.

I hope to say later in the debate just briefly something about gold. There has been a great volatility in the price of gold and it is still taking place, but since the middle of last year the tendency has certainly been upward, although it has been interrupted a couple of times. The fact is that I take a sanguine view on the longer term price of gold. I think that is extremely important for South Africa. Looking at the shorter term, I should say there is no reason for pessimism. There is no doubt that in the USA, which has an enormous effect on the economy of the world, there are signs of improvement. The huge construction industry is certainly improving. The huge automobile industry is showing signs of distinct recovery. Recovery is also noticed in other spheres. This will spill over and is in fact already spilling over into the European economy. I think as a result of the policy measures we have taken, the basic strength we have tried to maintain and the realistic fiscal and monetary policies among others, we are well geared to take advantage of this gradual improvement in the world economy very quickly. That is why I still think that by the end of this year we are going to see distinct signs of that recovery in South Africa, and I think it is going to move much faster than it usually does.

*As far as the longer term is concerned, I want to say that when we discuss the longer term, we must of course keep structural adjustments in mind. In the longer term there are great challenges and also great opportunities being created. I should like to say a few words about this, and ask the question whether we have the ability to meet those challenges and what the role of the Treasury can be. I shall try to react to this briefly.

In the first place I want to dwell on the challenges arising from the expected structural changes in South Africa—this is over the longer term. There are probably many ways in which one can try to summarize the crux of South Africa’s most important structural problems. In my own career as an economist in the academic field and today in the political sphere, I have always found the key to this matter in the concept of “economic dualism”. Since the beginning of this century the South African economy has been characterized by this dualism: A strong developing European-orientated core surrounded by an economically relatively dormant but demo-graphically numerous periphery with its roots in the traditional customs of Africa. The history of the dramatic economic growth, the industrial revolution and the urbanization of the White population of this core between 1925 and, say, 1970, is an enthralling story, but it is the story of the achievements which lie behind us. I think what lies ahead of us is the third major industrial revolution. I said recently in a speech that it was perhaps the second revolution, but the more I think about the matter, the more convinced I become that it may be the third major industrial revolution lying ahead of us as the backbone of the continued economic development of South Africa in the two remaining decades of this century. Perhaps we should not go further than the year 2000 at this stage.

†I might just say, talking about industrial revolutions, that I think the first was really what followed upon the discovery of diamonds and gold round about 1870 up to, say, the end of the century. There was a take-off then into a modern economy as a result of mining and minerals. After that, of course, gradually industrialization set in. Then, from about the time of the Second World War to roughly 1970, one might say we had the second industrial revolution. During that period there was a vast application of modern technology and South Africa’s manufacturing sector went ahead at a tremendous rate. I think from roughly the 1970s up to the present and for the next several years ahead we have probably found and will be finding ourselves in the third industrial revolution characterized by the so-called nuclear and space age electronics and, of course, automation. That is also something in which South Africa is taking part in a very full and effective way.

*As I have already mentioned, what lies ahead of us is the third major revolution and it is, I think, the backbone of the continued development of South Africa up to the year 2000. This industrial revolution involves the partial crumbling of the old economic dualism in the South African economy and the industrialization and urbanization of a large number of people, including members of the Black community; and at the same time there is the major effort now being made to speed up the decentralization of economic activities in various parts of South Africa. We therefore have the phenomenon of continued urbanization among a population that is growing rapidly and at the same time decentralization as a result of the Government’s deliberate policy. Some population experts and economists allege that it is expected that between 15 million and 20 million Black people from the rural areas and the Black homelands of South Africa will become urbanized during the next two decades in one way or another. Of course, this will not of necessity be in our present cities, but also in new cities which will be built as a result of decentralization. This will increase the percentage of urbanization among Black people from the present 35% to between 66% and 70% by the year 2000, in comparison with the approximately 90% urbanization of Whites and Asians in South Africa. This urbanization will also increase rapidly among the Coloureds, from the present 70% to approximately 80% or 85%, or more, over two decades. Of course, these are predictions, and we shall have to wait and see how accurate they are.

It is out of this process of urbanization that the economic problems and opportunities—and I emphasize “opportunities”—will arise in the future in South Africa. We are not faced with the choice of whether or not there will be further urbanization; the choices which still exist concern where urbanization reasonably can and should take place and what the quality of that urbanization can and ought to be.

As far as geographic settlement prospects are concerned, the present trend is still strongly in the direction of migration to existing metropolitan areas in the Republic. I want to re-emphasize the importance of the decentralization policy.

†I do not say decentralization will reverse the process of urbanization in the existing metropolitan areas. However, what I do say is that the chances that this realistic and very energetically pursued policy will arrest the recent flow of migration to the big metropolitan areas, are very good indeed. It will slow it down and that will mean more urbanization in the rural areas, to use that term.

*On the debit side of the prospects in this connection it should be clearly stated that serious economic problems will crop up in connection with meeting the needs of these new city dwellers of all population groups. In my portfolio as Minister of Finance I have to, in the first place, take note of the effect of this on the economic stability at the core of the economy of the Republic. When people move to large cities, or to new cities, a whole series of basic material requirements immediately arise. The first effect of this is to place tremendous pressure on the existing production capacity of the economy, and this in turn promotes inflation. One always has to be mindful of the effects of inflation as well.

The expected structural changes also have an asset side, of course, a very large asset side. Indeed, extremely important economic opportunities ought to stem from this expected process of industrial development, both in the cities and in the decentralized areas. In particular these opportunities are going to result, in the first place, from the mighty programme of education and training which is being envisaged for the next two decades. Education is already the largest single item on our budget. Opportunities are also going to stem from, in the second place, the induction of these very large numbers in the skilled functions of the industrial production structure, and in the third place, from the stimulation of production owing to the rapidly increasing expenditure by this large population. In other words, there will be a rapidly developing market in which continued expansion will take place, and this will have many advantages.

A single figure will immediately illuminate the amazing change, and that is the number of people from the Black communities who will be matriculating every year. According to the latest report of the National Manpower Commission, the number of Black matriculants in 1970 was 2 300 as against 36 000 White matriculants. In 1980 the total number of Black matriculants had increased tenfold to 23 000, as against 49 000 Whites, and in 1990 the figures will very possibly be in the vicinity of 70 000 Blacks and in the vicinity of 60 000 Whites. These are the facts of life which we have to take into account. The Black matriculants are, however, only a minor part of the toal trained Black labour force who will act as consumers and producers of goods and services in the new cities. By the year 2000 the annual increase in the labour force will be approximately 430 000 as against about 280 000 in 1980 and possibly 300 000 today.

The third industrial revolution during the next generation will therefore be far greater in size than any previous industrial revolution in this country. The total urban population of the country will probably increase at a rate of about 6% per annum. The expansion of the local market for basic products such as clothing, shoes, food, transport, construction material, etc., should therefore be phenomenal in this phase.

Such an explosion in the local market should also have a favourable effect on the export potential of our local products. It is a fairly widely recognized principle that the international trade in factory products is very competitive. The successful participants are usually those with a solid so-called local base for the sale of their products. Note, too, that as regards the basic products for which a large large local market ought to develop in the future, a decade or two hence there should be a major demand for them as well in the African countries around us.

Among the present leaders in international trade, and particularly the exporting countries in the East, we also have the important phenomenon that the rapidly rising quality of the labour force in those countries requires a shift in production from basic consumer goods to products of high quality for their own markets and those of developing Western countries. I therefore foresee the dawning in the near future of a golden opportunity for the South African manufacturing industry, with its developing Black labour force, to place itself on the first rung of the ladder of industrial exporting countries and to follow in the footsteps of countries like Japan, South Korea and Taiwan—all countries that have achieved tremendous successes in the economic and social upliftment of their urban population by means of export-led economic development.

Up to now I have not, of course, said anything yet about the challenge we have to face to keep this country safe. Our defence budget alone is already reaching virtually R3 500 million per annum. This is also something we have to ensure at all times, because nothing will come of the wonderful opportunities I have mentioned if we cannot keep this country absolutely safe and maintain law and order every day. This is therefore a further challenge, and I think we have proved that under difficult conditions we can definitely overcome that challenge.

The second question I want to dwell on very briefly is whether South Africa has the necessary resources to handle the industrial revolution I have referred to without it degenerating into a fruitless hyperinflation. In this connection I want to refer to a very interesting study published by the Bureau for Economic Policy and Analysis of the University of Pretoria in October 1981. In this study it was found, inter alia, that if the economy grows by an average of about 4,5% per annum in real terms, sufficient economic space will be created to narrow the gap between the average standard of living of Whites and people of colour as regards the basic economic qualities of life such as education, food and housing to a surprising extent without the average quality of life of the Whites declining in the process. I think this is an extremely important study, which still deserves a great deal of attention today.

In the third place it is very important to emphasize that although the economic potential is capable of these achievements, they certainly cannot all be financed by State financing, in other words, by the budget of the Minister of Finance. I do not think it is reasonable to expect the Government to find all the funds for these wonderful challenges in the future. The study I have just referred to indicates that parity in education, as they see it, can be achieved for everyone during the next two decades without the percentage claim of education on the total income of the country needing to rise much. They refer to a possible increase of 4% in the GDP to approximately 7% by the year 2000. This may well be the case, but I should like to make it quite clear on the other hand that the pressure of this on the Treasury’s tax revenue will be quite another story. In my opinion it has therefore become necessary to ask fundamental questions regarding what the role of State finance should be in this major economic and social revolution facing us. It goes without saying that State finance will have to remain involved in these matters. That goes without saying. The involvement of members of the community as a whole, and particularly the so-called private sector, in the financing of the control over their own affairs, will, however, have to be expanded fundamentally.

†I have very strong ideas on this subject. I think the private sector has done a very great deal to develop this country and is doing so every day, but I sometimes wonder whether the private sector, or important parts of it, realize, firstly, the magnitude of the challenges that lie ahead and, secondly, the necessity for the whole country to make an effort to finance the essential things I have been trying to talk about. I believe the private sector is going to have to play an increasingly important part in this respect. Let us take just one aspect. We talk about developments in education. I think it will mean that the days of free education will run out. I do not think that will be a calamity. It will simply mean that parents and the private sector will have to help the Government to finance these extremely important services. I want to draw attention to this, because it is easy for the Government to increase taxes. We have the power to do it. But the question is: How will the private sector come out of it? We can borrow money until we find ourselves in the same position as countries like Mexico and Brazil where they cannot even pay back the interest on the debts they have incurred. What sort of a country would we be then? We have never been in such a position.

I think that as long as we are all aware of these magnificent opportunities and realize that this requires an absolutely national effort as far as financing is concerned—it can be done—I think our future is assured and that this country will go from strength to strength. This is the message I have tried to put across in these brief few minutes. I thought this might give some idea of how we stand and how, if I am correct, the future might possibly look in important respects. I think it needs a very responsible view of the financial challenges lying ahead and our methods of financing them. As far as matters like these are concerned, I am sure that this House will approach this matter with great responsibility and that we will try to help each other to find the right solution, so that we can, with the aid of the increasingly more effective co-operation between the Government and the private sector which has been taking place during the last few years under the hon. the Prime Minister’s initiative—for example the Carlton meeting, the Good Hope meeting and in other ways—find solutions for these problems.

Mr. Chairman, I claim the privilege of the half hour.

I intend coming to the issues that the hon. the Minister has raised because I think they are extremely important, but I hope he will permit me to first of all deal with a few other matters.

Firstly, I should like to express my thanks to the various heads of the department who are concerned with this Vote and also to the officials who serve under them. In particular I want to thank them for the co-operation that we receive from them. If I do not single them out by name, I want to specifically refer to the whole department and the manner in which they render their services.

One does pay tribute to people when they retire, and there are a number of people who are on the edge of retirement whom we hope are going to stay on. Therefore I do not intend to say goodbye to them or pay any tribute to them because I hope to be able to say that they have decided to stay on. However, there is one official, and that is the Registrar of Financial Institutions, who is to retire in June. I would particularly like to express my thanks to him. I have had a long personal association with him, an association going back to the days when that office was in grave difficulty with some of the institutions and when he was only an inspector there. He grew up in that department. So I am particularly appreciative of the services that Mr. Van Staden has rendered to the office of the Registrar of Financial Institutions in that particular capacity.

I should also like to express our thanks for the new concept of having explanatory memoranda, not just for this department, but also for each one of the Votes, which I think makes the whole budget a little bit more meaningful and draws more attention to the financial aspects as opposed to the political and policy aspects that are always debated. While I am on this subject, I particularly want to refer to another publication which we have received and which I am sure has not been bedtime reading for every hon. member of this House. It is called Inland Revenue Statistical Bulletin. If people took the trouble to read this they would learn a lot more about what goes on. I should like to thank the Secretary for Inland Revenue for this publication and to tell him that I have used it to great effect. I want to quote just two things to the hon. the Minister, things which I have analyzed from this book and which I think are very important. Firstly, I took two dates, namely 1973 and 1982. What is interesting is that the number of employees in Inland Revenue during that period increased by 424 while the salary bill rose by R16 076 301. In other words, 424 extra employees brought about an increase of more than R16 million in the salary bill and an increase in the other costs of R4 007 061. In comparison with that the revenue that was collected during that period increased by R10 452 872 950. Therefore 424 extra people—and I wish to add that the hon. the Minister and his laws had something to do with it—actually collected R10 452 872 950 more from us poor taxpayers. That is a very interesting statistic, bearing in mind the degree of mechanization that there has been, the degree of change that has taken place and the problems that there have been in this particular department.

There is another set of statistics that I do not think the hon. the Minister is going to like quite as much as these and these figures illustrate the fiscal drag that has taken place. These figures illustrate how people are being moved into higher tax brackets and then take more money from them while not adjusting the taxation to the levels of inflation. Here I have taken 1976, because that was the starting year of these statistics, and 1981, which was the ending year for it.

The number of people who have earned over R28 000 in 1976 was 12 440. By 1981 that figure had risen to 29 209. That was not because people had grown richer but because money bought less. During the same period the amount of taxation in that group increased from R193 million to R327 million. More significant, however, is the fact—I am talking now about married taxpayers—that in the group earning from R14 000 to R15 000, the number of taxpayers increased from 16 548 to 50 642. When we look at the lower levels of taxation for married taxpayers, however, we see that in the group earning between R7 000 and R8 000 the number of taxpayers decreased from 111 990 to 58 992. Nothing illustrates more clearly the concept of fiscal drag. Nothing illustrates more clearly the way in which inflation has hit people. Nothing illustrates more clearly how the fiscus benefits from inflation. This is, to my mind, a matter which certainly requires the hon. the Minister’s attention because fiscal drag is definitely unfair to the taxpayer in South Africa.

Mr. Chairman, I should like to come now to the very matter upon which the hon. the Minister also touched. I want to tackle it, however, in a slightly different manner. There have been four political issues, which, I believe have had an effect on the finances of this country and on the economy of this country. Firstly there have been the by-elections. Secondly, there is the threat of sanctions from the Security Council. Thirdly there is the matter of the new constitution and of what might flow from it. Fourthly there is also the whole new issue of the rising expectations of our whole community, something to which the hon. the Minister also referred.

The by-elections are over and gone, and I want to say only one thing still in relation to them. That is that if the hon. the Minister indeed wants to be able to offer a solution to some of the problems to which he has referred he must bear in mind that if the Government were, as a result of this tendency in politics to swing to the right and to abandon reform in South Africa, either discouraged or hamstrung it would have very adverse effects on the economy of South Africa, on overseas investments in South Africa, etc., because the reality is that our trading partners and our friends in the West are looking for reform in South Africa. They are looking for reform in South Africa and if they do not see that reform it is indeed going to have serious economic consequences for this country.

Therefore, whatever may be the victory of the hon. member for Waterberg, whatever may be the contents and the meaning of the congratulations which I must extend to him as a person, I must make it clear to him that if his policies are to prevail they are going to have adverse economic effects on South Africa. [Interjections.]

Your policies will have a far more devastating effect on the economy of South Africa. [Interjections.]

That is the reality of our situation, Mr. Chairman. [Interjections.]

The second matter is the question of the threat of sanctions on the part of the Security Council. In this respect I believe that nobody should bluff himself by trying to believe that that threat is not real. The reality is that there are substantial forces …

You should have listened to Pik on the radio. Forty minutes and a good “Spiel”.

There are substantial forces, Sir, which are at work. I have some of the pamphlets here, which are being issued, and I believe that people who underestimate and who understate that potential threat to South Africa are not doing us a service. What we have to do is to see to it that we are not only prepared to meet that situation but that we also take steps to the best of our ability to make sure that that situation does not occur and that we have the right relationship with the people who can excercise their veto in the Security Council.

The third matter, Mr. Chairman, is that of the constitution. Here I must say that I do not want to anticipate Monday’s debate. You, Mr. Chairman, will also not permit me to do so. What is important, however, is that I believe—and I am sure you will agree with me, Mr. Chairman—that there will indeed have to be very substantial financial changes in South Africa. There is going to have to be changes in legislation relating to finance, and I believe it is important that we should actually have the opportunity of debating those financial changes because the draft constitution merely provides the skeleton. There is going to have to be a lot more in this regard and we have to deal with it. The reality of the situation is that the major issue that arises is that throughout the history of Western democracies, the control of money and the ability to raise taxes have been weapons by means of which the people have established themselves in a democracy and obtained their rights. This is going to be the struggle under the new constitution. It is going to involve the issue of competing interests for a share of the cake. The question is: Who is going to hold the knife that cuts the cake, who is going to determine the size of the slices and how are they going to be handed out? That is one of the major issues confronting South Africa. In many respects it is far more important than many of the political aspects that people discuss. It is the opportunity for that debate that is being sought, and perhaps this is the occasion on which we should seek to talk about it because whatever may be said by the hon. the Minister in regard to how we are going to deal with education and how we are going to have to deal with social services, the demand for equality in social services is going to come. Whereas it is necessary to have a sharing between the private and public sectors in respect of this matter, one cannot say to people: We are going to reduce social services because you are coming into the field. I want to appeal to the hon. the Minister to adopt a particular approach in respect of the financing of social services. I maintain that we should hold out to the people concerned not merely a hope but a reality that they are going to find themselves in a non-discriminatory position in regard to social services within a reasonable period of time. The hon. the Minister referred to a survey that was held. This survey was also referred to at an earlier stage. It was a survey that was published by Mercabank and it demonstrated that the country had the capacity to deliver the goods. It has the capacity to deliver the goods. With respect, I do not like referring to the fact that we are going to enter another industrial revolution. To my mind the word “revolution” is not quite appropriate to the circumstances. I think that we are entering a dramatic era of social change where the issue is going to be the extension of the benefits of modern living to the population as a whole. That is the real issue that we have to face.

In this respect three points arise. The first is, can we produce to meet the expectations of the people? I believe that this country can produce to meet those expectations. We do have the capacity to do so. Secondly, do we have the skilled manpower to enable us to effect that production? I say that we have to train people in order to enable them to produce. Unless we train them to produce, we are not going to find ourselves in a situation where we can fulfil those expectations. The third point is that one cannot expect expectations to be fulfilled without working for them. People have got to be able to earn in order to fulful their own expectations. Therefore, one produces but one has also to have the capacity to buy what is produced and one has to be trained in order to do that. That is as I see the challenges that face us. I face these challenges personally with a high degree of confidence because I think that we are living in a country of opportunity and, as long as we can maintain stability in this country and show willingness to deal with these problems, we shall solve them. I think we do have the capacity to solve them and I am sure that if our people apply themselves to the task, we can do it.

There is another thing that we have to realize and that is that these things are not going to happen overnight. The hon. the Minister talked about some of the younger economists only worrying about short-term considerations and others worrying about long-term considerations. The relative meanings of “short term” and “long term” have changed. Sometimes tomorrow is long term in economic terms and the hon. the Minister will know that the whole concept of what is short and long term has changed dramatically over the past while. People will have to realize that these changes are going to have to come step by step. They cannot come overnight. However, people have to be told that they are going to come and they have to be able to see that those changes are going to come.

Economic and other changes?

I am talking about economic changes. One has to tell people that things are going to be different and they have to be shown that there is a real possibility of things being different. I say this because if vain hopes are generated that cannot be realized, one is going to have frustration and a very serious problem.

The other matter the hon. the Minister raised is the question of the joint effort between the State and private enterprise. We agree with him; there is no question. The State cannot finance it all, the State cannot meet it all and private enterprise has to meet part of it.

I should like to say, however, that education is to my mind not the matter to start with. I think there are lots of other things which could be done, but the State, I think, should maintain its situation in regard to the provision of education. I wish to quote here statistics which will demonstrate how expectations are to be fulfilled. These come from an article called “The view from the homelands” which appeared in a publication called Energos. There is said what one has to do to increase the kwaZulu education budget in order to bring it into line with the per capita expenditure and the quality standard in the Natal provincial education department. This is not an unfair comparison because the two are together. The hon. the Minister should be aware of that situation there.

It takes time.

That is why I say “step by step”. If one wants to bring them to the same level, teachers’ salaries, assuming that all are qualified, in kwaZulu would have to be increased 10-fold; services, books, printing and equipment have to be increased 16-fold; the expenditure on hostels would have to be increased 18-fold; capital works would have to be increased 23-fold; and loans and bursaries for student teachers would have to be increased 400-fold. We cannot say to these people that we are now going to wash our hands off education. One cannot do that. In fact, one has to say to them that we are going to try to bring them on to the same level as everybody else, but, as the hon. the Minister has interjected, it takes time. They must see that we are really trying to do that and trying to achieve that.

I should like to turn to some of the other problems which face us. I want to deal with a couple of them because they are relevant to this debate. Let us take Black taxation, the fact that we are now going to have one system of taxation for everyone. I think one needs to say that we welcome it that we have now got to that stage. We are waiting for the legislation to see how it is going to be implemented. We should also like to make sure that there is no change-over period where there are harsh changes for any particular people who are adversely affected. We hope that will be done in these circumstances. We must draw attention to the fact that in his announcement in the course of his budget speech, the hon. the Minister made it clear that there is still a concept of taxation which is based on a form of citizenship, whether it is self-governing national States or other States which are concerned, as opposed to residence or source. In our view taxation should be based on source or residence. As far as I am aware in the Western World with the USA being one of the few countries where taxation is related not only to residence but also to citizenship, the concept of source or residence is the one which should be accepted. I do not believe we should tax people on the basis of their citizenship, I think it is source or residence which is the real issue.

The hon. the Minister dealt with the economy, and I should like to touch briefly on that subject too. The hon. the Minister keeps on falling into the trap—I do not know whether it is a trap that he falls in or a trap which he wants to set for me—of comparing our inflationary situation with that in South America. That is not the test. The real test, as he as an economist knows—that is why he really should not make these comparisons—is to compare our inflation rate with the inflation rate of our major trading partners. [Interjections.] That is what the test is. Our currency is related to that, all the matters which are important are related to that. I knew that the hon. the Minister would raise this; I just had that feeling. I therefore brought with me a publication called Trends which analyses all the statistics which come from the Bureau of Economic Research. If one looks at the publication, one sees that there is a graph which illustrates quite clearly that we have had consistently on average a higher annual inflation rate than the inflation rate of our major trading partners. This has been the situation ever since the hon. the Minister has been in charge of the portfolio. That is the test.

It must be.

How can you say it must be? With great respect, we cannot accept an inflation rate at the level that it is now. It is harmful to the country and it has all sorts of other repercussions.

Let us take the question of interest rates. The hon. the Minister got up in this House and he held forth at great length, going back to not so very long ago, saying that at last we were showing real returns on interest rates. Where is the real return on interest rates today? It is not there. And why is it not there? Because the inflation rate is too high and there is a high degree of liquidity which has, in fact, caused the interest rates to go down. One cannot say to people that they should save when they are not getting real returns on their interest rates. One cannot tell them to save. What then happens, is that you complain that the public of South Africa are not saving enough and that the ratios in respect of savings are down, when in fact you are not giving them real returns. That is not a logical basis and it is something which we cannot accept.

I want to raise this question of the drought which the hon. the Minister has referred to specifically, because the drought has not only had an impact on the farmers, but it has also had an impact, as everybody knows, on the economy as a whole. There are some pertinent questions that I want to put to the hon. the Minister, that he should give us an answer to in this debate. Firstly, what does he anticipate will be the total cost of direct assistance which is being given to farmers during the current financial year, as a consequence of the drought? Secondly, by what amount does he anticipate, will tax revenue drop as a result of the drought? There is no doubt that it has an implication, not only for farmers, but for other sectors of the economy as well. Thirdly, what does he anticipate will be the effect on the current account of the balance of payments as a result of the changed position in respect of agriculture and in respect of our exports falling away, which means that we in fact have to import? This is a very important factor, especially in view of the planning that has to be done in connection with the money that becomes available from abroad. We have to take steps to ensure that there is not the degree of liquidity which can cause problems in respect of the money supply. This is a factor which has to be taken into account the other way, so that when the hon. the Minister comes with steps to be taken in regard to this, then we need to know what both sides of the picture look like.

Mr. Chairman, I want to put a question to the hon. the Minister very pertinently. At the present moment we have, for example, meat prices dropping, but what is going to happen in five or six months’ time? What is going to happen to the prices of foodstuffs in the next six months? At the moment we are already in a phase where certain foodstuffs have increased very substantially in price. You are going to have a very much more adverse effect in a short while. I want to know what the Government is doing now to anticipate that situation, because if you look at the indexes, you will see that in each case, because of the increase in the food part of the consumer price index, it is the poorer people, the lower-income groups in South Africa, who have the highest increase in the cost-of-living index. That is something which needs to be anticipated and needs to be dealt with.

The other factor which worries one, is that one would have assumed that with our kind of economy, there would be a drop in the consumer price index from natural forces which operate in a recessionary period. However, with the effect of the administered prices—including, for example, what the hon. the Minister of Transport Affairs and the hon. the Minister of Post and Telecommunications have done to us—that situation is going to change as that seeps through the economy. I would like to know how the hon. the Minister intends to deal with that or whether he just intends to leave it and let us pay as prices go up? How is the economy going to be handled in this way?

The other matter which I would like to touch on for just a moment, is the assistance which has been given—and this relates to the inflation—to people in respect of the purchase of houses. We have not yet seen the draft legislation, but the idea is that there is going to be a subsidy on interest on mortgage bonds up to R40 000 in respect of new homes for those who have not previously owned a flat or house. We welcome that because it is a step to help young people to buy their first home. However, I believe that it does need refinement, for a number of reasons. Firstly, it only applies to a first home. This means that if the family increases and a bigger home is needed the facility is not available. If the breadwinner is transferred to another town it will also not be available. Secondly, it only applies to new homes. It means that a person is debarred from buying the cheaper existing house which may be closer to work and which would be more convenient for the young people concerned. The fact that it only applies to a first purchase means that the elderly who had a house when they were young and had children at that time and who in later years want to purchase a flat to safeguard themselves against ever-increasing rentals—a phenomenon which we have to live with—cannot get this facility. I want to plead with the hon. the Minister that the subsidy should also be made available to those people over the age of 60 years who do not own any other immovable property and who want to buy a flat on sectional title, irrespective of whether they previously owned a home. In other words, allow the elderly people who are faced with eviction to buy a property and get this concession.

Is that not somewhat risky?

No, not at all. 1 think it is something which our elderly people need. If the hon. member studies the situation, he will end up agreeing with it.

The other matter which I should like to touch on in the time that is available to me, is the question of exchange control. When the financial rand and exchange control for non-residents was abolished it was said that it would have little effect on domestic liquidity. Whether in the long run that is going to be right or wrong I would like to reserve judgment on, even though one accepts that exchange control is an abnormal phenomenon that should not exist in an economy and that one should work to seek to abolish it. However, it does appear that the movement of capital as a result of this abolition of exchange control for non-residents is likely to be pro-cyclical rather than anti-cyclical. In other words, what may well happen is that at a time when capital inflows are required, the very opposite may occur. When there is an increase in the gold price we may find a situation that when we do not need the money we in fact have the money flowing into the country. To some extent the problems which may arise are not likely in an anti-cyclical phase.

The other thing of course is that the business cycle, as a result of this, is likely to become more unstable and is going to create perhaps greater difficulty in regard to the application of monetary policy. I want to say to the hon. the Minister that I would have preferred that the first step in the process of dismantling exchange control should have been a greater relaxation in respect of residents to enable them to invest abroad in a controlled fashion. This could have been so managed as to produce, where necessary, the contracyclical effects as money which was permitted to be invested abroad could not only be brought back in certain circumstances when it was needed, but the investment could bring returns to South Africa by way of interest and dividends. I have believed not merely in portfolio investment. At the moment I will be a little unhappy if exchange control were to be relaxed to allow portfolio investment abroad because stock exchange levels abroad are too high and the value of the rand in relation to the dollar and other currencies is to my mind of such a nature that this may be a time when people would burn their fingers. I want the kind of investment which helps us with trade and helps us bring money back here. One of the reasons why I suggest this is that if one looks at the statistics which have been produced in respect of our balance of payment on current account one finds that in respect of the services account we have a very interesting situation. We have a situation where we have a net deficit on services of more than R4 036 million for the 1982 year. One of the ways in which we could meet this is to have greater dividend income from abroad and investments which would produce a flow of money to South Africa. [Time expired.]

Mr. Chairman, I should like to associate myself with the hon. member for Yeoville who paid tribute to the officials of this department, and particular Mr. Van Staden whom we wish a well-earned period of rest. The hon. member made a comparison between the larger number of employees over a certain period and the larger amount collected by them in internal revenue. During last year, and even at the beginning of this year, doubts were expressed about the shortage of staff in the office of the Receiver of Revenue and the office of Customs and Excise. If the hon. member looks at programme 4, “Exchequer Financing”, he will see that an additional amount of R25 864 000 is being voted. For what is it being voted? Firstly, for improved conditions of service which were already introduced on 1 April 1982, secondly for the implementation of occupational differentiation, and thirdly in order to fill a large number of vacancies. This additional amount is also being welcomed in all quarters for the further improvement, streamlining and overhauling of the effective implementation of the provisions of the revenue, taxation and customs and excise legislation. For that reason we gladly support this additional expenditure.

The hon. member also referred to the new constitution. He lodged a plea for parity between the groups in the new dispensation. It is already Government policy to bring about parity step by step. We therefore do not need a new constitution for that purpose.

In addition the hon. member again rode the question of inflation to death, as we, who have known him for years now, could have expected. I do not want to put my foot in it the way he did, because I have already frequently dealt with this matter in the past. One of my colleagues on this side of the House will, however, elaborate on this, and I shall therefore not be doing so today.

The hon. member also referred to the drought. It is a pity the hon. member was not here this morning at question-time, because in reply to question 5 on the Question Paper, a question from the hon. member for Albany, the hon. the Minister of Agriculture replied fully to the questions the hon. member for Yeoville put in that connection. I see him shaking his head, but he was not in his bench. He therefore does not know what went on.

In the budget debate earlier this year the hon. member for Yeoville said (Hansard, 11 April 1983, col. 4387)—

He went on to say—

Then he quotes the indexes for the various foodstuffs. I want to tell him that it is not quite true that the cost increases were, to a very large extent, food-related increases. Time does not permit me to prove this in this debate, but on another occasion I shall prove that prices of agricultural products subject to price control only increased by an average of 175% over the period from 1972 to 1982, whilst the prices of agricultural products, determined by supply and demand, increased by an average of 224%, with the prices of foodstuffs such as tea, coffee and soft-drinks, which are freely sold, increased by an average of 215%. In contrast household necessities such as soap, candles and washing powder increased by an average of 239%. Even the prices of other products such as coal, petrol, cigarettes, beer, cement and tyres increased by an average of 318%. Why, then, highlight the cost increases on food? Is that to gain the sympathy of the consumer—that is the idea I was left with again this morning—or is it to get at our farmers? I am saying that it is irresponsible and dangerous to drive a wedge between the producers and consumers. Surely producers are also consumers.

The hon. member then went on to say, and I quote from Hansard, column 4387—

That is true, but surely that is not the complete picture. Why does the hon. member not refer to the other more important aspect? I shall get to that in a moment. In the same debate the hon. member for Sunnyside even went so far as to move an amendment in which his party alleges that the Government had, by means of price increases, inflation and inefficient management, drastically impoverished the consumer. Surely that is not true. One is merely playing cheap politics because one cannot really find fault with the budget. If members of the Opposition want to make such statements, why do they not compare South Africa to international standards? In spite of increasing prices, to which hon. members referred, and even in spite of the economic recession, South Africa is one of the cheapest countries in which to live, with South Africans maintaining one of the highest standards of living in the Western world. The hon. member for Yeoville is a world traveller, and as such he is aware of this, but now he is trying to make cheap politics here.

From a study made by the Union Bank of Switzerland, which compared the prices of consumer goods and salaries in 25 business centres in the Western world last year, it appears that South Africans pay the least for consumer goods and services, because if the packet costs of employees in South African cities is given an index figure of 100, they are fifth on the list of world cities, with Los Angeles topping the list with 87,9; Zurich with 90,4; Toronto with 95,2 and Chicago with 96,4. Furthermore, if local packet costs are compared with those in other cities of the world, it appears that the employee in Amsterdam must work 17 hours longer to buy the same amount; in Düsseldorf 26 hours longer; in Sydney 28 hours longer and in Paris 55 hours longer, whilst an employee in London must work 163 hours longer to be able to buy the same amount. Employees in South Africa only have to work half as long, for the same basic amount, as for example inhabitants of Tokyo, Rio de Janeiro or Hong Kong. An employee in Singapore must work virtually 7 times longer than the employee in South Africa in order to buy the same basic package. The true picture of the privileged position in which South Africans find themselves, with the standard of living they maintain, only really becomes clear when the costs of foodstuffs, accommodation, fuel, clothing, transport and other means are compared with those in other countries. A moment ago I referred to Los Angeles where employees have to work the least amount of time for the maximum amount of money. There, however, an inhabitant of that city has to pay an average of R1 659, as compared with an average of R1 082 in South Africa, for the same consumer goods. In other words, in Los Angeles they pay 56% more. For the same consumer goods the inhabitants of Zurich—the city second on the packet cost list—pay 61% more.

But what are the salaries of the people there?

Listen and grow wise. If the hon. member had been listening from the start, he would have heard that I had already compared the salaries. At that stage, however, he was sitting talking to the hon. member for Hillbrow. If they had both been listening they would now have been better informed. The inhabitants of Toronto, which was third on the list, pay 34% more. In Amsterdam, which is below South Africa on this list, the inhabitants pay 1% more. In Düsseldorf people pay 38% more, in London 53% more, in Paris 40% more and in Sydney 54% more.

Now I come to foodstuffs. As far as foodstuffs are concerned, there are three world cities, of the 25 included in this study, where the prices are lower, i.e. Amsterdam, Manilla and Tel Aviv. In the majority of American cities food prices are almost twice that in South Africa, and in the case of accommodation only Tel Aviv is cheaper than South African cities.

Order! I am sorry, but the hon. member’s time has expired.

Mr. Chairman, I merely arise to afford the hon. member an opportunity to continue with his speech.

Mr. Chairman, I thank the hon. member for the opportunity. In only three cities is the cost of hotel accommodation cheaper, i.e. in Madrid, Rio de Janeiro and Tel Aviv. Let us go further. In twelve countries the prices of fuel are higher than in South Africa, and which countries are these? They are the Netherlands, Spain, Italy, France, Sweden and Japan. The hon. member for Yeoville said we should draw a comparison with our trading partners, but these countries are our trading partners, are they not? Even in the case of telephone services, South Africa is—with the exception of Brazil—the cheapest in the world.

I also want to refer to the hon. Minister’s budget speech in which he mentioned initial and investment allowances. I want to refer briefly to what the report of the Standing Commission of Inquiry into the Taxation Policy has to say on the question of the system of initial and investment allowances. The initial allowances were originally instituted, for a period of two years, in the 1945-’46 budget. This was put into operation without any indication of a time limit, and the percentage of the allowance has been amended and increased on several occasions, and since 1947 it has been fixed at 25%. The initial allowance represents an accelerated wear and tear allowance during the year in which the asset is put into use. The balance of 75% of the cost is written off in correspondingly smaller annual wear and tear allowances over the agreed life of the asset. This initial allowance therefore accelerates the write-off, but it does not cause the write-off to exceed the cost of the asset. The introduction of the investment allowance, on the other hand, was only announced in the 1960-’61 budget, and the then Minister declared that this powerful instrument was being introduced to stimulate the economy. At the time the investment allowance was granted in addition to the initial allowance, and the rate of that allowance was fixed at 30% in 1975. These two allowances fulfil a dual function. In the first place they reduce the effective rate of taxation payable by companies and, secondly, bring relief when the depreciation and write-off of assets is based on historical costs. There are some people who feel that these allowances, intended to encourage investment, actually tend to increase industrial capital, a development that ought not normally to be damped. Over and above that, it is also felt and argued that the possible encouragement of capital-intensive businesses in this way is not beneficial to the provision of adequate labour opportunities and that a better incentive balance ought to be sought between capital on the one hand and labour-intensive undertakings on the other hand. Others, again, express concern at the large amounts in revenue that are lost or forfeited. For example, the benefits and allowances drawn by a group of firms in the 1976 assessment year are calculated, by the Department of Internal Revenue, at between R270 million and R500 million. A similar estimate by the Reserve Bank of the tax revenue relinquished as a result of these allowances, gave an amount of R182 million in 1975 and as much as R549 million in 1981. As I have already stated, the original point of departure, with the introduction of the allowances, was the encouragement of investment and the stimulation of economic development. The present allowances enable the South Africa manufacturer—over and above normal wear and tear—to deduct an amount equal to 55% of an investment from the profits of the particular year. On a tax scale figure of 46,2%, this means that the Government’s contribution to the investment funds for that year amounted to more than 25%. If a company has an effective tax rate of less than 30%, and if growth industries have a tax rate of 20% or even less, other tax-payers must carry the burden of the additional tax in order to finance the subsidies. These fiscal allowances can also—and do in fact—give rise to capital intensification at the cost of new job opportunities, and as far as incentives based on capital investment are concerned, there is a tendency to promote the capital-intensive industries.

Although capital-intensity is a predominant characteristic of modern industry, it is not necessarily reconcilable with the most beneficial allocation of resources in a developing country where there is a surplus of unskilled labour available. It could possibly be true that allowances do indeed strengthen the investment capabilities of undertakings by lowering the effective tax rate to which undertakings are subject, thereby increasing their ability to save. If it is regarded in this light, however, it strikes one immediately that investment allowances and initial allowances are not the only or even the best way in which an undertaking’s ability to save can be strengthened. This ability to save can be strengthened in a simpler and more efficient manner by simply keeping the nominal tax rate low enough than initially taxing entrepreneurs at a higher rate and then subsequently catering for an effective reduction by way of allowances.

Unfortunately time does not allow me to deal comprehensively with alternative incentive schemes that could be implemented. I just briefly want to refer to a few. Investment allowances based on a sliding scale are one of them. There are also, of course, stricter concessions in regard to increased investment, a reinvestment allowance, internal components as a basis, tax credit in regard to investment, a 100% write-off, replacement of an investment allowance by an increased initial allowance, etc. So one could, of course, go on. I want to agree with the commission, however, that every revised incentive scheme must contain certain principles. Firstly it must preserve the balance without having capital-intensive industries over-stimulated in corporation with labour-intensive industries. Secondly this must embody a fairly reasonable incentive for physical investment, without detracting from the investment of human capital. Thirdly the scheme has to be more cost-effective than it is at present and, fourthly, the abuses of the present system must be avoided.

I therefore support the recommendations of the commission, as set out in its report. I support them wholeheartedly.

Mr. Chairman, in any and every country the Minister of Finance is a very important man; not only in Parliament, but also in the country as a whole and even overseas. I do want to state today, however, that at the moment there is one man who, in this House, in the country at large, and also overseas, is gripping the imagination of people, who is rising above his fellowmen and commanding their attention. I am referring here to the hon. member for Waterberg. [Interjections.]

On behalf of the CP, I also want to say thank you very much to Mr. Van Staden for the many years of good service he has rendered. We also wish him a very pleasant and prosperous period of rest. He is not yet an old man, however, and we therefore hope that he will not simply go and sit still and rest. He can still render good service to South Africa, and we look forward to his doing so.

Mr. Chairman, I was unfortunately not present here when the hon. the Minister furnished his reply to the Second Reading debate of the Budget Vote. I therefore want to react now to the replies the hon. the Minister gave then to the questions I put to him earlier. At the same time I should also like to quote what the hon. the Minister said in this House on 19 April of this year (Hansard, 1983, col. 5046)—

That is what the hon. Minister said in regard to my contention that not enough had been budgeted for agriculture. I quote further—

We are grateful for that. I have told the hon. the Minister that I would praise him where necessary, and also criticize him where necessary. The hon. the Minister went on to say—

I accept the hon. the Minister’s word. I do, however, want to ask the hon. the Minister how on earth, in this critical situation in which South Africa finds itself today, he can budget for R78 million less? There in the Waterberg area and the hon. member for Rustenburg went around saying they are not going to give extra money now; the farmers must first ask for it. They first want to hear what the farmers need. [Interjections.] If that is true, we say it is not right.

The hon. member is talking through his neck.

There is no other budget vote in which the budgeting is done in accordance with whether people ask for certain amounts of money or not. I want to ask the hon. the Minister where the money is going to come from. The money has been voted, the budget must balance, and I want to know what the hon. the Minister is going to do. The hon. the Minister has a Reserve Fund from which a certain amount will be forthcoming, but why must we now tell the farmers of South Africa that they first have to ask? [Interjections.] There are authorities on the subject who have calculated that it will need as much as R2 000 million to keep these farmers going and to look after them in the future.

It is not, however, merely a matter of the farmers as such. This involves everyone in South Africa. If, at the moment, we allow the farmers in South Africa to despair of the future, how are they going to be able to produce food? We know it is NP policy to make people feel despondent. That was also the case in the Transvaal. Why has this reduced amount been budgeted for? The hon. the Minister should actually have budgeted for an increased amount of R500 million or R1 000 million.

Additional money comes from the Reserve Fund.

I have conceded, Sir, that the hon. the Minister is going to use some of that money.

I referred to it.

Yes. I am only asking why we did not budget for that amount of money for these people.

It is there.

No, Sir, it is not. [Interjections.] The amount is indeed there, but I am just asking what assurance we have that all that money will be spent on assisting the fanning community? [Interjections.] Hon. members may carry on and make as much noise as they like, but they cannot get away from that.

In column 5047 of Hansard the hon. the Minister goes on to say—

I agree with the hon. the Minister. That is how it should be. What I am saying, however, is that we cannot, in South Africa, come to light with a budget that looks like this. What, then, are we budgeting for? [Interjections.] Sir, one can expect this sort of flippancy, and I am not going to take any notice of it. In any budget one budgets, on the one hand, for revenue and, on the other hand, for expenditure. I want to ask the hon. the Minister whether the money in that Reserve Fund of his is the only money he is going to use. Is that all he is going to use? If he wanted to use more money, would he make it available by way of an additional appropriation? All of us in South Africa know how disastrous the drought conditions are.

Tell us when it is going to rain.

The hon. the Minister who made that interjection is entrusted with our water affairs. He sat here in this House and did nothing until the department had prepared a statement for him in connection with the state of emergency prevailing in the country. What did the hon. the Minister do prior to that? What did the hon. the Minister do by which the country could see that he was doing his duty and shouldering his responsibilities in this connection? [Interjections.] We shall, however, be talking about that at a later stage.

I challenge you to talk about that during the discussion of my budget vote, because if you talk as much nonsense there …

The hon. the Minister would do well not to start issuing challenges; after all, he saw what happened to the hon. the Minister of Manpower.

The hon. the Minister of Finance quoted certain statistics in connection with inflation, comparing us to other countries. It will be remembered that a few years ago our trading partners had a much higher inflation rate than South Africa. The comparison the hon. the Minister now makes between us and the countries in South America does not therefore hold any water. [Interjections.] One can, of course, compare us to any other country, but the fact remains that our inflation rate is far too high. We must, not, however, try—I have said this before and it is indeed the case—to force our high inflation rate down to zero in one year. That simply cannot be done, and if one were to try to do so, this would only lead to problems and to chaos.

The present drought conditions will result in soaring prices, particularly food prices. The hon. the Minister and other speakers referred to that, and it is possible. One of the best methods one can use to combat inflation is that of greater efficiency. I give the hon. the Minister credit for the fact that over the past year he has done his share to combat inflation, but what has the hon. the Minister of Industries, Commerce and Tourism done? We shall be getting round to his budget Vote in due course. As I have said, one of the best methods of combating inflation is by way of greater efficiency. One simply cannot receive more money for producing the same amount.

There is another question we shall have to look at, and that is the question of unemployment. If the present drought conditions last any longer, we shall find ourselves in the situation described by the hon. member for Yeoville. I am sorry I do not have more time at my disposal, because I would have liked to reply to another aspect of his speech as well. I agree with what he said about the drought conditions. I also agree with the Government as far as that is concerned; no one is disputing that. If the drought conditions continue, this is going to hit the economy—commerce, industry, all sectors of the economy. As a result of the economic recession, we already find that many people have been paid off and are now jobless. In large parts of the country people have also been paid off in the agricultural industry, specifically as a result of the drought conditions, because one cannot keep employing people if one does not have any money or any income either. What does the hon. the Minister envisage doing by way of the budget, etc., to combat unemployment? Here it is not a question of the training of people; what we are dealing with here are people who have already been trained, who had jobs, but who have now been paid off. [Time expired.]

Mr. Chairman, this morning we had the interesting phenomenon of the hon. member for Sunnyside burgeoning into a great speaker on agricultural matters. It is surely not true, as the hon. member said, that during the by-elections the hon. the Minister walked around there saying the farmers should first ask. The hon. member knows, does he not, that that is not true? He knows, does he not, that there is as little truth in that as in his gossip in Parys about the matter involving the President’s Council prayer. He also knows that if he were to continue with this, he would encounter the same problems …

Mr. Chairman, on a point of order: May the hon. member for Vasco distort my words? I said the hon. member for Rustenburg did so, not the hon. the Minister.

Order! The hon. member for Vasco may proceed.

If the hon. member persists with that, he will encounter the same problems he encountered in Parys. Since he helped us to win the by-election in Parys, I therefore do want to invite him to go on with such stories, this sort of untruth. It is specifically this type of untruth which, when disseminated, can be shown up for what it is, thus eventually leading the voters to realize that the NP has always been the bastion of the farming community in South Africa.

The S.A. Agricultural Union has, after all, reacted to the figures announced and the assistance granted by the Government. The Agricultural Union said that this would now enable every farmer to remain on his farm and meet his obligations. The hon. member surely knows this; he surely knows that that was the Agricultural Union’s reaction. Surely the Agricultural Union is a body of greater authority than the hon. member, so what is the source of the attack he launched here today? I leave the hon. member at that; the hon. the Minister and the hon. the Deputy Minister will themselves reply to the hon. member.

Today I should like to ask for more realistic commodity prices for agricultural products and for more equitable salaries and wages for workers and labourers of all races so that they can maintain a decent standard of living and afford decent accommodation. Today I also want to ask for the systematic abolition or phasing-out of unnecessary subsidies because this is highly inflationary. Today in South Africa we have four forms of intervention in the free-market system when it comes to the price-determination of commodities. Firstly, we have the direct price control of goods manufactured by the private sector; secondly, we have administered prices for Government and quasi-Government institutions such as Escom; thirdly, we have control boards, largely for agricultural products, and, fourthly, subsidies. As far as the first-mentioned example is concerned, we have, in the past two years, seen controlled prices abolished without detrimental results and mostly with beneficial results. When it comes to the second form of intervention to which I referred, we can, for the sake of interest, refer to the recent decrease in the Escom price-fixing by about 2%. One welcomes the possibility put forward by the Government, i.e. that it is considering channelling these quasi-Government institutions, to an ever-increasing extent, more towards the domain of private initiative in the future, and we hope that this becomes reality. As far as the third form of intervention is concerned, the well-known control boards, these days there is less dispute about their existence than about their effectiveness.

Today I actually want to speak to the hon. the Minister about subsidies, and I would appreciate it if he could put forward his views and those of the Government in this connection. Although the first three forms of intervention that I mentioned are also, for the most part, a basis for some or other form of subsidization, I do not want to elaborate further on this. Today I merely want to speak about this direct subsidizing that is in operation. I actually want to refer to two specific forms of this—which I think are the best-known—i.e. the subsidy on agricultural products and on housing. I do not want to furnish any opinion on the object of this. It is, of course, praiseworthy. It is something which is necessary and which, as such, can never really be completely abolished or eliminated. But if one looks at agricultural prices and one gets round to the bread price—which is of course a very emotional and political factor; whatever one says about it, could get one into trouble—I want to point out that it is interesting to note that the poorest section of our population does not always choose the cheapest bread. Secondly, the major portion of the poorest section of our population fives in the rural areas where bread is not always the staple foodstuff. If one notes the fact that over the past 10 years approximately R1,4 billion has been spent on agricultural subsidies, and if we bear in mind that the prices of agricultural products have not increased to the same extent as the prices of agricultural land and that these prices have increased more rapidly than commodity prices, one asks oneself whether the system of subsidies must still continue indefinitely at this stage. Another result is that owing to the inflationary effect of subsidizing, unsuitable land is used for the production of certain products, for example where wheat could been profitably produced on certain land, vines are cultivated. One asks oneself whether the time has not come to insist on the farmer getting a fair price for his commodities rather than being subsidized, so that a decent marketing system can be worked out in future, instead of the fluctuating system we have at the moment. I am not asking for the farmer to be diddled. On the contrary, I am asking for the price of agricultural products to be borne in mind. One should also look at aspects such as productivity and thrift. The farmer should be able to find his own price level. Thus the agriculturist’s products could quite possibly fetch much higher prices, giving him a reasonable return on those products.

The second aspect I want to touch upon is housing. It is well-known that the excessive and inhuman prices of houses can partly be ascribed to the past subsidizing of the prices of houses. In the past people were encouraged—I think the building societies made their contribution to this—to maintain excessively high standards in regard to housing, something which was not necessarily essential at all. This is not something that contributed to the supply of housing to the young people of tomorrow or the next day. On the contrary, I think we are ever more rapidly approaching a situation in which it is becoming impossible for the average young man and woman to acquire the necessary accommodation. A person asks oneself if the time has not come—I know that in the past year, particularly during the past session, this matter has been looked at with new insight—for this matter to be looked at again.

In this connection I want to say that I think that the hon. member for Yeoville made constructive proposals this morning in connection with the possible reshaping or changing of the system of subsidies in regard to the new system of housing announced this year. I believe that subsidies only have a right to exist on a short-term basis in order to achieve specific goals. It does not serve as a long-term solution and should also be applied as selectively as possible. The Government is focusing its attention on the free-market system. Prof. Hayek, during a visit recently, replied to a question about what solutions he could suggest for South Africa’s problems by saying: “Do what you have to do.” I want to say “Let’s do it.”

Mr. Chairman, at the outset I too, on behalf of my party, should like to wish Mr. Van Staden a very happy retirement. We also thank him for the years of loyal service and hard work in the Public Service. We appreciate it deeply.

I should also like to thank the hon. the Minister and his staff for the explanatory memorandum. I, like the hon. member for Yeoville, believe that this is a very important piece of information which has been given to us and I should just like to record our thanks for it.

I was pleased to hear the hon. the Minister say that he does still think that the inflation rate is too high, that he believes that it is a matter of importance which we should take cognisance of and that something should be done about it. The question is of course just how much is being done about it and just how effective have the steps which he has taken to try to combat it, proved to be. I do believe that his fiscal and monetary control has been good. We complimented him on that in the past. However, the fact is that we still have an inflation rate which is too high.

A number of people have spoken about this and about the cost of living. The hon. member for Smithfield fell into the trap of comparing South Africa with other countries. There is an old saying that comparisons are odious.

I was referring to the Union Bank of Switzerland.

Fair enough, but comparisons can be odious. I am inclined to agree with the hon. member that the cost of living in South Africa in terms of hours of work required to buy certain products, in many cases is a lot lower and takes less time. However, the question which that hon. member and the hon. the Minister has to answer is the question of the underemployed and unemployed in South Africa. In other words, what I am saying is that life is fine in South Africa if one is fully employed and has a good job. However, if one is unemployed or underemployed and only works, say, six months a year instead of 12 months a year, then the cost of living is a lot higher. I put that to the hon. member.

[Inaudible.]

Not to the extent we have in South Africa.

It is more.

That hon. member is only referring to our official figures, and not to the masses of people in the rural areas who are underemployed or completely unemployed.

I think the hon. member for Yeoville hit the nail on the head when he said that, as we move into a new constitutional despensation, members of the new Parliament will represent many of the underprivileged people to whom we have referred. We must expect their representatives in this Parliament to do as much for them as possible to eliminate a lot of the discriminatory practices which may occur at the present time. To my mind, the answer to the problem we are facing lies in one thing only, namely growth in the economy. As we have said repeatedly, our economy must grow at, at least 5% per annum—that is growth in real terms—in order to provide for the wants and needs and to meet the aspirations of the people to whom we have referred. We know that inflation is an obstacle to growth. It negates the effort towards growth which we may put forth. Therefore I believe that, as we move into a new dispensation, there is going to be an even greater need for us to curb inflation.

The hon. member for Smithfield also referred, if I remember correctly, to tax incentives. He referred to the standing commission of inquiry into taxation. I want to say to the hon. the Minister that I find the relevant report very interesting reading. There are some points of view expressed there about the degree to which we should grant allowances as an incentive for investment. The hon. the Minister will recall that during the Second Reading I suggested there should be greater incentives for the employment of people and possibly not so many incentives in regard to investment in capital goods. Possibly the hon. the Minister could give us his views on this. This report says that, if one is going to provide incentives to promote human resources, it is better to give the incentives in respect of education and training in order to improve the output of human resources rather than simply to provide incentives for the employment of people who may not be very productive. I do believe, however, that we should review our thoughts in this regard and particularly our tax incentives. Possibly we should give more consideration to using these incentives so as to make better use of our human resources. If we are to achieve the growth we need in this country, we are going to have to make optimum use of all our assets—not just our capital assets, but especially our natural resources and also our human resources.

I am of the opinion that the tax incentives for capital investment have in many respects resulted in over-capitalization. The incentive through depreciation and investment allowances which are written into costs and which are recovered from the consumer in my views has possibly led to over-capitalization. In addition, that practice is adding to inflation, because possibly we did not necessarily need goods of such high capital cost. Seeing the hon. the Minister of Transport Affairs is here, I want to say that in cases where big transport companies base their rates on an administered cost structure—I think of the sugar industry, for example—those transport operators, because of the formula they work on, often purchase very-costly machines when possibly they could have purchased vehicles that were not quite as costly. This same reasoning can also apply to the S.A. Transport Services and I have the hon. the Minister of Transport Affairs to think that one out.

There is another matter I want to raise in the few minutes left to me which also has to do with taxation. I received a letter recently from a retired person who is over the age of 70. This man says he was brought up to believe that he had to take care of himself, that he must not become a burden upon the State. To this end he has contributed to a pension scheme and now, at the age of 70, he and his wife are living off their pension. However, he feels that he is being discriminated against, especially in the light of the very high inflation rate with which his pension cannot keep pace. He has made an appeal to the hon. the Minister. He emphasizes that he is not a burden on the State. However, if he and his wife were social pensioners, they would receive R3 600 per year from the State in pensions. He asks whether, seeing that he is not a burden on the State, he and many others like him, cannot be given more consideration when it comes to the deduction allowed for people over the age of 60.

He would not pay tax on that amount.

No, a married person over 70 who earns R6 800 per year does not pay tax. However, should a social pensioner who, with his pension of R3 600, have for example, a total income of R3 810 per year, he will pay R1 per year tax, but he is a burden on the State to the tune of R3 600 per year. The argument of this man is why this R3 600 per year which a social pensioner gets from the State, cannot be added to the minimum earnings of R3 800 per year which is non-taxable to make up a total of R7 400 a year before a person of 60 or 70 years of age is taxed.

We are very near that figure now.

True. However, if a person is earning R7 400 per year—I got this from the hon. the Minister’s department this morning—he would be paying R248,20 per year tax, which works out at R20 per month. This man asks that a further amount equivalent to the social pension should be added to the non-taxable income before you start taxing a person who is retired and who is not a burden on the State. [Time expired.]

Mr. Chairman, in connection with the inflation rate, the hon. members on the Opposition side, i.e. the hon. member for Yeoville and the hon. member for Amanzimtoti, again pointed a finger at the Government.

Hendrik, say a bit about estate duty too, man.

That is a fact, and at the commencement of the debate the hon. the Minister said that we were faced with a serious inflation problem in South Africa. It is no use, however, only pointing a finger at the Government or the hon. the Minister and blaming them for it. I think a good balance would be maintained if one also pointed a finger at the private sector, because it is not only the Government sector which is responsible for our inflation problem. Hon. members are not, however, very inclined to talk about that.

The hon. member for Amanzimtoti said that inflation problem hit the unemployed hardest, the person who was not fully employed throughout the year. That is so. He says, however, that a as soon as the inflation rate is brought down, things would be better for those people. He suggests, as a solution, that we should stimulate growth and that economy should grow so that those people can obtain work. Surely the hon. member knows that in the present economic and financial conditions in which we and the world as a whole, find ourselves, the stimulation of growth would, at this moment, specifically increase the inflation rate. That much the hon. member must concede. In other words, his solution means nothing to us and does not make any contribution towards solving our problem either.

It is a fact that at the moment inflation is our greatest enemy. No one has any doubts about that, because it decreases the purchasing power of our money and discourages saving. A nation that does not save can never become strong. These days many of our people unconsciously subscribe to the slogan: “Buy now, save later”. There are other detrimental results to international trade caused by our inflationary situation. On the overseas markets our manufactured goods are no longer competitive enough. The same applies to our mineral exports. In the agricultural sphere we also encounter problems on overseas markets, even with our agricultural products. This gives rise to other unhealthy situations, one of them being that the State, and eventually the taxpayer, has to finance the export losses on agricultural products. A further indirect result of this is that our farms are being abandoned because it is no longer an economic proposition for our farmers to produce. Thus many people are being hit by the inflation problem.

Another example is to be found in those persons who have, throughout their lives, saved in order to provide for their old age. Then, when they retire, they find that on the income from their savings they can no longer make a good living and that inflation is also eroding their capital. If we want to curb the inflation problem in South Africa once and for all, it is not only up to the authorities to give attention to the matter. There is also the private sector that we must involve, and individuals themselves, each individual personally, in an effort to make a greater contribution towards putting the matter to rights. I want to associate myself with an appeal made by some of our economists, i.e. that we should lauch a national anti-inflation campaign and also work out a national anti-inflation strategy. In order to facilitate this, it is necessary to have co-operation between the private sector and the authorities in an endeavour to combat the situation. The authorities cannot do it alone. The private sector must also make its contribution. If one looks at the country’s economy, one sees that these erudite people telling us that the present circumstances in which we find ourselves are specifically favourable for the establishment of such a national anti-inflation strategy. I should like to quote two sentences from the March 1983 issue of The Economic Review of the Afrikaanse Han-delsinstituut. On page 47 the following significant words appear—

With those sentiments I should very much like to associate myself. What tasks must be carried out at Government level in connection with the struggle against inflation? The first one that can be mentioned involves the monetary and fiscal measures the authorities can employ. I think this House is unanimous in its congratulations to the hon. the Minister of Finance and appreciation of the policy which he adopted in recent years and which has been so extremely successful in keeping South Africa’s inflation rate—as he said at the commencement of the debate—within reasonable limits. There are also other steps the authorities can take. The authorities can take steps to promote effective competition in the commercial and business world and in our industries, because the greater and keener the competition is, the better one can fight South Africa’s public enemy number one.

The private sector also has a task to perform in this regard. Firstly, the private sector can ensure greater productivity. Another matter the private sector can give attention to, particularly our larger organizations, is that of remunerating their employees on merit and in accordance with their production capabilities and not merely continuing to increase salaries and wages.

There is also a further matter that could safely enjoy the attention of the private sector. Here I am referring to the question of fringe benefits. The question that arises is whether it is really necessary, by way of unrealistic fringe benefits, to encourage personnel to do their work. I believe that we must put another method to the test, to convince the private sector to take serious note of the way in which fringe benefits are made available to employees and, indeed, to abolish them. We have become far too luxury-minded, have we not, Mr. Chairman?

Another matter to which the private sector must certainly devote some serious attention is the question of the mutual enticement of key personnel, from the Government sector as well. There is, after all, only one way that can be employed in carrying out this enticement successfully, and that is for the employer to outbid his competitor by offering a larger salary than the competitor can.

In this strategy which I believe we must introduce, one of the major tasks we have to tackle is the education of our public. In some or other way we shall have to launch an expert information campaign to encourage, for example, a sense of thrift amongst our people, to bring home to them once again the age-old truth that labour ennobles, getting them to realize that it is not a shame to do a good day’s honest, hard work. What we must also teach our people is not only not to waste their time, but not to waste the resources of our country either, thereby indirectly encouraging inflation.

The question of competition in our economy is, of course, equally important. After all, if we focus on the problem of cost push inflation, it appears that there are groups and individuals who increase prices, wages, interest, rents, etc., as they see fit, without this bearing any relation to supply and demand. [Time expired.]

Mr. Chairman, the hon. member for Ermelo gave an interesting discussion of the problem of inflation. I believe it would be advantageous if he could move the Government to concentrate on introducing and practising some of the philosophies it has been discussing of late, such as the establishment of a free market system with stronger competition as one of its features. The hon. member indeed mentioned these things, I believe, that ultimately that is where the crux of the problem lies. As far as stealing staff is concerned, people will always pinch staff. It is part and parcel of the free market in operation. One cannot solve that problem by pleading that they should not do so.

The hon. the Minister runs a vast and complex department, and he has to control the finances of the country in all sorts of places, circumstances and conditions over which he has no choice. He has to do it through people over whom the department frequently has very little control. I am very conscious of the problems which this must cause. Against this background I want to discuss briefly the control that is necessary, and also the question of whether the control of expenditure is not perhaps getting out of hand.

I am not speaking about people with their fingers in the till or people who steal and sell goods. That sort of thing will always be with us. In that respect we require a proper system of auditing, a proper system of control, and I believe we do indeed have these things. It is essential that these people, if they are caught, should be prosecuted and punished; not in any spirit of retribution but merely in order to maintain the high standards required in our Public Service. What I am interested in, however, is the control of expenditure of a capital nature, and that is why I ask the hon. the Minister whether he is not concerned that Central Government is increasingly losing control of huge funds and sources of revenue which are in the hands of government or semi-government bodies and public corporations. The discipline of central budget control by the Treasury and Parliament is not simply part of the power syndrome; it is a necessary regulatory mechanism that must be carried out. It enables the Government to cut back on expenditure, as it is doing now or, in other circumstances, possibly to pump money into the economy, and this becomes impossible if there are authorities sitting on vast resources and able to generate funds over which the Treasury has little or no control.

I should like to quote a statement that Dr. Mullins, an economist with the Economic Planning Branch of the Office of the hon. the Prime Minister, made recently. He said—

In other words, one cannot achieve co-ordinated direction of State and semi-State expenditure if the central authorities act with discipline but somebody down the line has developed his own great cash reserve or his own line of credit and is pursuing his own policy which he of course believes is right but which is beyond the control of the Treasury. Dr. Mullins goes on to say—

If a State corporation has a monopoly in respect of the production of a particular product or service, it can find itself in a very privileged position. It will virtually have been given a licence to levy its own tax from the public to service the funds it borrows or to create resources it needs for expansion. This would be the decision of a particular board of directors and in its own context might seem sound but perhaps not be equally sound from the hon. the Minister’s point of view when he looks at the economy as a whole. State corporations often appoint executives of great ability who are able to compete in any field, and these are the people most guilty of empire building. They have energy and ambition and they are prepared to put the necessary work into it. They inspire their staff and they are able to give that exciting leadership that is necessary to get a growing, forward-looking organization moving. If these organizations have the power through their own strength and position to fix rates or if the price of their product is controlled, they are not going to sit around waiting to be allocated funds for capital expenditure that they believe their services require. Price control is a licence to establish a rate for your product higher than can ever be obtained in the market-place. I think that as a method of keeping prices down, it has been an abysmal failure. We are left then with the situation where the managers of State corporations, whether they produce transport, steel, electricity or anything else, have more incentive to show high costs than surpluses in their organizations. They are able by means of the judicious use of depreciation with an allowance for increased replacement costs, inventory adjustments or other allowances to accumulate capital for the development of their own choosing. To quote a Government economist once again—

Business suspended at 12h45 and resumed at 14hl5.

Afternoon Sitting

Mr. Chairman, it is essential that we have a fresh look at the problem which these great State enterprises cause the private sector. Their position with one foot in the public sector and the other one in the private sector is ambivalent. It makes Government control of financing impossible, yet it replaces that control with none of the normal checks and balances that obtain in the private sector. The taxpayers, the shareholders in Government enterprise, are concerned because the economy and with it, of course, State enterprise has grown to such a degree that the system can no longer be managed in a centralized socialist manner. It is time to give effect to some of the things about which we have been talking so long. With one out of three in the White work force working in State or semi-State enterprises, let the Government start immediately with the systematic privatization of some of these great organizations. The benefits would be very far-reaching.

In the first place South Africa’s investment base would be greatly broadened. The pressure of the vast cash flows of the financial institutions would be less severe on the limited investment opportunities that are available. Additional opportunities for overseas investors would be created. The free-enterprise character of our economy could be strengthened. The tax base would be widened. Government financial statistics would become less obscure. Devolution of economic power, decision-making and responsibility would enable us to cut back Government activities to far more manageable levels. The Government would no longer be tempted to give hidden subsidies in the form of special tariffs. I believe these hidden subsidies distort the economy to a very considerable degree. We are not aware of the magnitude of these hidden subsidies. If subsidies were given in cash and came before the House once in the year Parliament would then have a chance of considering them. We would be able to assess them and we would be able to decide whether they were meeting the purpose for which they were originally designed. [Time expired.]

Mr. Chairman, the hon. member for Walmer referred to the State corporations and to empire-building in that respect. It is correct to say that we on this side of the Committee are committed to the principle of the free-market system, and we are working towards that end. What I should like to know from the hon. member is whether he has sound reason to believe—this also goes for the hon. member for Yeoville because he too referred to administered prices—that for instance Escom’s tariffs would come down once that concern is handed over to private enterprise.

*That is a very important point, because that is what it is all about. If those hon. members have good, well-founded reasons that they can present to us, they must not merely generalize, but in fact present us with that specific proof, because that could greatly facilitate the entire process.

As far as Escom is concerned, we dealt with the matter last year in the discussion of the relevant Budget vote. In the annual report there is an indication that Escom’s tariffs are the lowest electricity tariffs in the world, with the exception of only those countries that make use of hydro-electric schemes.

The hon. member for Yeoville referred to the so-called “fiscal drag”. As a subject this is becoming almost as popular as inflation. If someone wants to get at the Government but does not want to speak about inflation, then he speaks about “fiscal drag”.

Both are unpopular.

The hon. member tries to turn an unpopular matter into a popular one. When one talks of “fiscal drag” there are certain definite matters that have to be taken into consideration. The first is that many prior tax concessions were made specifically to safeguard people’s non-taxable incomes. The hon. member knows, does he not, that our tax rate—as well as the loan levy—has been reduced from 72 cents in the rand to 50 cents in the rand. If the Department is to ensure that people’s real incomes after tax never decrease at all, it is surely as clear as daylight that if we want to meet the necessary State expenditure, tariffs would have to be increased. Surely that is six of one and half a dozen of the other.

The other important point is that it is well-known that employees’ after-tax incomes have improved more than the inflation rate. This has frequently been said in the House. The hon. the Minister also said it.

He said it, but it is not so.

The hon. member for Yeoville always knows better, yet he never comes to light with anything convincing. [Interjections.]

I am referring to the Government’s own statistics.

I should rather like to come to a matter on which I agree with the hon. member. He expressed a very high degree of confidence in the future of this country, provided stability can be maintained. I agree with him wholeheartedly. I want to tell him that there is a higher priority in this country than political reform, and that is order and stability. The Government is equally committed to this.

You are doing well today.

I can return the compliment to a certain extent. [Interjections.] I can return only part though.

*There are a few important conditions attached to the question of housing assistance which were announced in the budget. The first is that it was introduced and designed to help young people, beginners. That is why a first home is mentioned. Secondly, the relevant house must be a new house because we want to reduce the pressure on house prices. Thirdly, the price must be limited to a certain amount, i.e. R40 000 because we want to help a certain group of people. I want to agree with the hon. member, however, that it is a matter that has, as yet, only been accepted in principle. We can therefore expect that as we progress there will be all kinds of matters to be rectified or ironed out.

It is generally known that the allocations in the budget, and particularly the allocation to agriculture, are being used in agricultural areas to create an atmosphere of opposition to the Government. The past by-election was no exception either.

Now you are talking nonsense.

This morning the hon. member for Sunnyside continued with the gossip-campaign about agriculture that he initiated in Waterberg. On the basis of the explanatory memorandum on the proposed budget for this year he went round telling people that with regard to the items about agricultural financing and industry subsidies, the Government had seen fit, in a crisis period, to come along with a reduction of R78 million.

That is true.

No, I cannot believe that. Did he really say that?

It is in the document.

The hon. member reveals his total ignorance of this whole matter. [Interjections.] I have not known the hon. member all that long, but those who have known him for a long time tell me that is just the way he is. [Interjections.] If the hon. member were to look at the explanatory memorandum, he would see that above the one column he was comparing is written “Voted 1982-’83” and above the other “Draft estimates 1983-’84”.

Well, what does that mean?

They are two different things. The hon. member is not comparing the same things.

[Inaudible.]

Rather keep quiet. You are just getting yourself deeper into it. [Interjections.]

The total amount voted for the financial year 1982-’83 consists of the original budget as contained in the thick White Book, plus that added in the additional appropriation. The hon. member is therefore comparing the basic appropriation on the one hand with the basic appropriation plus the additional appropriation on the other hand. Is the light now beginning to dawn? [Interjections.] He does not get it yet. Let me go further. The first column, the larger column, for example, includes the following from the additional appropriation: Relief of distress and animal fodder, R22,5 million; transport of fodder, R4,5 million; a bread subsidy of R36 million, of which there was not an inkling when the main budget was introduced and a maize price subsidy of R21 million of which there was no prior inkling either.

The hon. member only has one thing in his head and that is to blacken the name of the Government. [Interjections.] Because of the vicissitudes to which agriculture is subject, the printed budget proposals are seldom a true reflection of agricultural financing. In the proposals for 1982-’83 the initial appropriation for agriculture was R384 million, but the eventual amount voted was R527 million. The additional amount, provided for in the additional estimates, therefore amount to R142,8 million. That is the result of uncertainty factors. One cannot budget for droughts and disasters and drought and disaster aid because one cannot know the exact or the seriousness of such droughts and disasters. For the drought in the North Western Cape and certain other areas an amount of only R1 000—the hon. member can have another look at the little piece of paper he carries round in his pocket—was budgeted for last year. What, however, did the total expenditure amount to? It amounted to R32 million. Did he also tell the people that? [Interjections.]

[Inaudible.]

You are lying to the House.

Mr. Chairman, on a point of order: May the hon. member for Stilfontein say the hon. member is lying to the House?

But the hon. member for Sunnyside has just said it about the hon. the Deputy Minister.

Order! Did the hon. member say that?

Mr. Chairman, I said it because the hon. member for Sunnyside told the hon. the Deputy Minister that he was lying to the House.

Order! The hon. member must withdraw it.

I withdraw it, Mr. Chairman.

The hon. member for Sunnyside also said it.

Order! Did the hon. member for Sunnyside say it too?

Mr. Chairman, it is true, and I do say so.

Order! The hon. member must withdraw it.

I withdraw it, Sir.

The long-term drought-aid plan introduced elsewhere in the country is expected to amount to R37 million this year. An amount of R118 million has been allocated to the maize industry for storage and handling costs for the financial year 1983-’84. Last year the amount was R71 million. Last year an additional amount of R27 million was voted for the agricultural credit account, whilst short-term financing for agriculture amounted to R3 100 million for 1982-’83, this being financed by the Land Bank at favourable interest rates. For the reasons I have mentioned to the hon. member, the amount for 1983-’84 is unknown. The amount of financing for the long-term consolidation of debts in connection with Land Bank mortgage bonds cannot be determined at this stage either. The fact remains, however, that because farmers get a low rate of interest on mortgage loans from the Land Bank, they save more than R40 million per year in interest. Did the hon. member also tell people that?

In his budget speech the hon. the Minister said that R371 million was being transferred to the Tax Reserve Account for, amongst other things, drought aid.

Amongst other things. I did, however, say that.

As the hon. member knows, in his budget speech the hon. the Minister did not confine himself to any specific amount, because drought aid is an indeterminable factor. Let me quote the hon. the Minister’s specific words in connection with the drought. The hon. the Minister said the following, and I want the hon. member for Sunnyside to tell this to the electorate too—

He said that we would have to meet whatever emergency lay ahead. Agriculture is welcome to all this aid, and even more. The point I want to make, however, is that very little of this aid, or the measures I have just mentioned here, are reflected in the initial printed estimates. So to put this version of the estimates in one’s pocket and go bartering amongst the voters is indeed misleading, in fact a half-truth.

There is another point often used against the Government, especially during election campaigns. A conspicuous attempt is made to present the Government as the champion of big money in South Africa.

Tell us about the R40 million you guaranteed to Barclays Bank.

If the hon. member for Langlaagte is opposed to that, I want to ask him to say it here. He is too scared to say it. That hon. member is talking nonsense, and the allegation that the Government holds a brief for big money in South Africa is also the biggest nonsense under the sun. For this purpose the Carlton and Good Hope conferences are normally presented as proof that the Government is allowing itself to be dictated to or prompted by large undertakings in this country. It is, of course, a misrepresentation because the small entrepreneurs were also represented at those conferences, especially by their business organizations. The Carlton and Good Hope conferences are part of a deliberate effort, on the part of the Government, to obtain the co-operation of the private sector, large and small entrepreneurs, in its imaginative effort to develop the country on a regional basis, away from metropolitan points of concentration. The Government is asking no one’s pardon for doing this, because if we do not succeed in this endeavour, South Africa simply cannot succeed in the long term, and it is only a dimwit who cannot understand the logic in that.

Tell us about the liquor concessions.

The incentives offered by the Government in this connection represent money well invested. For the period of 11 months up to 28 February 1983 applications valued at R1 452 million were approved, providing work for 56 000 people. Not only does this provide a livelihood for 56 000 people, but most probably for six times that number. Some of the criticism about this so-called big money is based on a total lack of knowledge, as the hon. member for Sunnyside demonstrated. In a political handbill distributed during the by-elections, it was alleged that certain companies had made large profits and paid no tax, or at least a negligible amount. It is obvious, without going into particulars, that these companies are parent companies whose only or chief source of income is derived from dividends from their subsidiary companies. The profits from which those dividends are declared have already been taxed in the hands of the subsidiary companies, and the dividends are taxed further in the hands of the shareholders to whom the parent companies have paid out dividends.

In that same political document the further allegation is made that during 1980-’81 the manufacturing sector paid R1 400 million less in tax than it should have, judging by its turnover. Firstly, income tax is not paid on turnover, but on net profit. Secondly, factories chiefly sell to merchants who buy to re-sell. Consequently factories do not collect general sales tax on those transactions. The trade collects general sales tax when they sell to the end-consumer. So there is nothing irregular taking place in this connection. These instances are, however, presented to the public as tax scandals in order to place the tax collectors and the Department of Finance under suspicion and to defame them. There is no country in the world with a tax collection figure of 100%. In the main South Africa’s taxpayers meet their obligations to the State in an honest and honourable way. The department is continually improving its inspection services in order to combat tax-evasion. Professional differentiation enables us, in this connection, to be more competitive when it comes to obtaining tax officers. The department has recently appointed the first chartered accountants to assist us, particularly in connection with tax avoidance. I only hope they will not be auditors in the hon. member for Sunnyside’s class.

There is probably no facet of the activities of this House for which there is more time and opportunity set aside for debates than specifically finance.

How many people come to listen to you at Koedoeskop?

Why did the hon. member not come along to Koedoeskop? There were almost 100 people. [Interjections.] I was saying that there is no subject that has to be discussed by this House for which more time is allocated for debate than specifically the question of finance.

†I am not complaining about it and I find no fault with it. It is a fact that the way in which a country’s finances are handled is vital to the well-being of the country and all its peoples, be it public or private sector. I must admit however that over a couple of years relatively few real financial debates took place in this House, while the financial part of the debate seems to be getting shorter every year. The reason for that is definitely not the inability of hon. members in this House to make valuable contributions, contributions of a very high standard. The reason to my mind for this was advanced on several occasions by people of high economic and commercial standing, in South Africa and abroad. This is that the economy of South Africa is exceptionally well managed, and the flow of foreign money to South Africa is clear evidence of the correctness of this statement.

*The financial challenge to this country becomes clear if one simply looks at the printed estimates before us in which provision is made for an estimated expenditure of R21 000 million. Enormous sums of money are being allocated to various departments under various heads. I am not singling out any specific amount, because each department gets its allocation in accordance with its deserved priority ranking. In general it can be said that these allocations have two important characteristics in common. Firstly they are increasing annually and, secondly, they are all too small. These are two important factors, because they are directly related to the financial capabilities of the people of this country, and it is of the utmost importance that people’s ability to make a contribution is not overtaxed. Criticism must therefore be levelled against this background. During the past week an industrialist made an interesting remark to me. He said that he would be prepared to pay more tax if the State would employ that revenue to train more people so as to reduce unemployment. If the Republic were to get bogged down, it would not be for political reasons, but rather for financial reasons, because the demands made on the Treasury are tremendously severe demands. We will get our political sums right if we have the necessary finance to do so, and for that reason every responsible citizen in the country should temper his demands on the Treasury and be prepared to make the fullest possible contribution.

Mr. Chairman, I naturally love the applause coming from hon. members on the Government side. [Interjections.]

*Yes, it is nice to stand up and speak to such applause. [Interjections.] Mr. Chairman, I think it is important, in the first place, to point out that … [Interjections.] Yes, I should prefer not to talk politics now. Indeed, I am a person who usually keeps out of politics. [Interjections.] However, I do want to point out that the people of Water-berg, where the hon. member for Sunnyside happened to tell the story, believed that story. However, they did not believe the NP people. Therefore a good job was done of convincing them.

But what was right?

The farmers were right. After all, it is said that the hon. member’s story concerning what is being given to the farmers, is not correct. [Interjections.] Yes, the farmers understand the hon. member for Sunnyside. The farmers are having a hard time of it and they therefore understand what the hon. member for Sunnyside told them. [Interjections.]

However, Mr. Chairman, I wish to say a few words today to the hon. the Minister of Finance. [Interjections.]

Order!

Mr. Chairman, if ever there has been a Minister of Finance, who, I believe, has been worth his salt, it is really this hon. Minister. I have always believed, and I am still convinced that one has to have the right man doing the right job. Sometimes, however, it is very difficult for the right man in the right job to work within the framework of the philosophy of the Government, particularly the Government this hon. Minister has to work for. It is very difficult indeed.

In addressing the House earlier today, the hon. the Minister sounded an apt warning. I really took note of that warning. The hon. the Minister said that in the very near future we would no longer have free education. He said it was quite possible that free education would no longer be offered in this country. What does that mean?

Do you agree with him?

Yes, I do agree with him indeed. There will definitely no longer be free education available in South Africa, except if the CP should take over. Wait till we take over, Mr. Chairman, and you will again see things happening in this country. [Interjections.]

Order!

The hon. the Minister made the point here today that there were people who were dishing out moneys which the State could not possibly afford; moneys the State could not even recover from the ordinary public by way of taxation. This is a very important point.

Who are those people?

No, Harry, you have had your chance. Do not try to interfere with me while I am speaking. [Interjections.]

Order!

The important point is that the hon. the Minister, in saying that, was 150% correct. I should really want to congratulate the hon. the Minister and his department today because in the most difficult and troubled economical times in this country they have done a magnificent job.

Kiss of death! [Interjections.]

I am referring of course to what they have achieved within the confines of the philosophy of the Government, a philosophy which, I must honestly say, I do not like a bit. Unfortunately the hon. the Minister has to work within that framework. He does not really have any choice.

In the first instance, of course, as a result of international pressure, the hon. the Minister had to abolish the system of exchange control. When this happened everybody was, of course, singing hallelujah. People initially rejoiced because, in February, millions of rands flowed into the country and the big boys and the fat cats exchanged an amount of 78 cent for 92 cents. The financial rand and the ordinary rand were both involved, of course, and big profits were made. It was indeed good money and everybody was quite happy.

Then came the month of May, however, and what happened? R1,1 billion flowed out of the country. It happened just like that. This, Mr. Chairman, spells danger to the country. I think I can already tell what is going to happen in this country. We have a very strong economy indeed. I must just point out in passing that at some stage during the hon. the Minister’s speech this morning, I was not in the House. I do not know, therefore, whether he dealt with this matter then or not. The question is, however, whether some changes took place in the foreign exchange inflow and outflow during April; and if so, what did that change entail. We all understand that money is quite a fickle thing. We have to contend with changes in the monetary system of the world, and we also have difficulties selling our gold at the moment.

Therefore, when people are in short supply they always look to the hon. the Minister because he is the man with the whip, and so they play a different kind of game. What is important to my mind today is that I am afraid that the Government—and in this regard I am not speaking about the hon. the Minister of Finance or his department—try to satisfy the big boys and persuade them that if things do go wrong here there will be a change for them to take their money out of the country. Therefore, they tell them to stay here and vote for the Government because, when it becomes necessary to do so, they will be able to take their money out of the country and everyone will be happy. [Interjections.] This is something that is worrying me. However, what worries me more is that people are saying now that the R1,1 billion that flowed out of the country, did so because of Andries Treurnicht. It did so because there was a chance that he would win the Waterberg constituency. They say that this is an indication of the danger that the CP presents to the country, and the people who are telling these tales are Nationalists, red-blooded Nationalists. They are the ones who spread this sort of tale among people visiting this country. They are the scaremongers who say that if the CP wins in this country, everything will go down the drain. Nobody will have a chance. However, to the big boys, to the moneyed people, the “geld” people, the people with a great deal of money they say: Stay where you are. We can lose 124 seats but this Government will not change because we are in power here.

I would very much have liked to have been invited to the Stellenbosch talks to which only a few people were admitted about 14 days ago. [Interjections.] I do not like it. However, the important matter in South Africa today is that the future of the working man is at stake. What is his future going to be in this country tomorrow? What are the chances of the children of my people being able to enjoy free education tomorrow? When I talk about “my people”, I mean that all children are my people. The NP came into power in this country in 1948 and has fought all the wars of Pik Botha and this gentleman Johan Pretorius. I am sorry, but I must mention it because they were the two who were on the radio for 40 minutes. We heard all about death, doom and destruction and about all the plagues of Egypt over the radio and television for 40 minutes. [Interjections.]

*We heard all about the plagues of Egypt for 40 minutes. [Interjections.] I say that that hon. Minister is one of the Ministers who is building up tremendous problems for this country in that he uses 40 to 50 minutes in this way in radio and television broadcasts. I am a taxpayer, and I and the other taxpayers had to sit and listen to that. [Interjections.]

†Mr. Chairman, in my constituency of Langlaagte I have a suburb called Crown Gardens. The people there bought their homes under a scheme which was promised to them in 1976. The hon. the Minister and everybody else have worked very well together, matters are progressing and some people have already signed their contracts. I appeal to the hon. the Minister to help the people of Crown Gardens. Most of the people who have bought houses there are elderly and have put their life’s savings into their homes. These are not newly-built houses. They were built many years ago. I have already made a similar request to the hon. the Minister of Community Development and I want now to ask the hon. the Minister of Finance not to let the whole subsidy for housing boil down to a date. I want to ask the hon. the Minister please not to bring about the doom of all these people by insisting on 1 July as the only date when a subsidy would be paid to people who bought a new house from the department. He must please ensure that those people of Crown Gardens receive the same rights as other people who are buying homes at present. Time expired.]

Mr. Chairman, I listened very carefully to the hon. member for Langlaagte. On one thing which he says I agree with him. I agree that should the CP win, the country would go down the drain. He is quite correct, the country would go down the drain if the CP should win.

It is a forecast.

Now he says it is a forecast. Let me assure him it is an accurate forecast. If the CP should have massive gains …

As has happened in Waterberg.

What about the other by-elections? In Malmesbury they did not even fight and three other by-elections they lost. So, what is so special about Waterberg? [Interjections.]

Order!

It is quite correct that the country would go down the drain should the CP win. It is quite correct for the simple reason that investors would lose confidence, both local and foreign investors would lose confidence. One would then find that there would be massive unemployment in South Africa. The people of the right are the lunatic fringe of South Africa, and nobody is going to invest money with the lunatic fringe of South Africa.

The hon. member for Langlaagte made another statement with which I agree. He praised the hon. the Minister of Finance, and I think that is good praise indeed.

He dealt with the question of the abolition of exchange control, and discussing that problem, he created the impression that exchange control was abolished in every respect. The hon. member who studies these matters knows full well that exchange control was abolished only in respect of certain capital which could be repatriated by foreign investors. The hon. the Minister told the House that at the end of the first week after allowing relaxation in regard to foreign investors being permitted to take money out of the country, he found that we had a net inflow of R250 million. The hon. member, however, said that during the month of May R1,1 billion left the country. He just made that broad statement and did not say in respect of what that outflow occurred. He did not tell us whether it was in respect of the repayment of foreign loans or whether it was in respect of dividends. He did not say whether the outflow occurred because of our investing in other countries with a view to earning dividends. He just made the statement that R1,1 billion left the country. It could even be that we paid for imports into the country. The hon. member took that figure and he made his allegation. I am certain that when the hon. the Minister replies, he will be able to give the hon. member the details.

The hon. member made an insinuation which is not worthy of an hon. member of this House. He said that the fat-cats and all sorts of other people can take money out of the country ad lib. He attributed that to Government policy. I think that is an insinuation that does not do him any credit. The fact is that obviously the Reserve Bank would only approve an application of a South Africa institution or company if it wants to invest in another country so that there can be a flow back of dividends. At the end the dividends will be more than the investment made. This will obviously expand our trade influence in that particular country. The Reserve Bank will never approve ad lib of applications by people who want to take money out of the country. I think the hon. member should clarify the position in that regard because if he makes that type of insinuation, it reflects badly on himself; not on the hon. the Minister. The hon. member is furthermore reflecting on the Reserve Bank and the officials who administer that scheme.

It is another bit of gossip.

Yes, it is another bit of gossip.

†If one leaves the hon. member for Langlaagte aside, one can say that one is actually surprised at the very pleasant tone of the debate. There was no acrimony before the hon. member for Langlaagte spoke. I got the impression that hon. members on the Government side as well as hon. members on the Opposition side were very happy with the hon. the Minister, the hon. the Deputy Minister and the whole department. I think it is a tribute to the hon. the Minister that this is probably the most peaceful debate on the Finance Vote for many years. It shows that hon. members are happy with the way in which financial matters are administered in the country. If my memory serves me correctly, insurance companies and institutions receive approximately R13,5 million every working day. In a recent article Dr. Cronjé, the chairman of Nedbank and S.A. Breweries, predicted that the Government would have to inject something like R2 billion into agriculture because of the crippling drought. Dr. Cronjé contends that it would not be inflationary if this money was borrowed from insurance companies. Insurance companies have the money at present and he feels that if it were borrowed from them by way of medium term loans it would not have an inflationary effect. I should like to ask the hon. the Minister and his department to investigate not only this aspect, but also the aspect of borrowing money from those insurance companies with excessive liquidity for projects such as the Development Bank and other urgent projects which we need in South Africa. Interesting enough, Dr. Cronjé says that if it had not been for the disastrous drought South Africa’s inflation rate would have been a single digit figure by the end of this year. That comes from a man who is an authority. He knows what he is talking about. Now he says that the inflation rate would have been under 10% if it had not been for the drought.

We must also take into account the fact that our major trading partners, America and countries in Europe have had the worst depression in living memory, and obviously that has affected us as well. Therefore, if we take all our circumstances into account, even our inflation rate, we find that under the circumstances we are doing the best we can.

Mr. Chairman, may I put a question to the hon. member?

No. I do not have time to answer questions now. I will answer them afterwards. I am not sure that it will be an intelligent question in the first place.

I am pleased to see that the S.A. Development Bank is commencing business on 1 September 1983. It will start with a paid-up capital of R40 million and will have an approved capital of R2 000 million, of which R200 million will be subscribed for in the first five years. The Governments of South Africa, Transkei, Ciskei, Bophuthatswana and Venda will all contribute towards the initial capital. The bank will obviously be able to borrow from local and overseas sources. I have no doubt that this bank will be supported to a very great extent by both these sources of borrowing.

Since 1 April 1982—the hon. the Deputy Minister mentioned decentralization concessions—the Decentralization Board, within a mere 11 months, has approved projects to the value of R1 425 000 providing work opportunities for nearly 56 000 people, bearing in mind that this was enormous progress during a period when we were in difficult circumstances. One can forsee that when we experience better economic conditions, projects of thousands of millions of rand will be approved. I can see the important role of the bank in providing the financing for the infrastructure. Of course, the development capital will come from the private sector. In addition to that the most attractive decentralization concessions which the Government is offering will spur these investors on to far greater heights. Here the public, the private sector and the independent States have a most fantastic opportunity of developing a Southern Africa that can bring economic vitality to all the participating States. I have no doubt that there will be a tremendous improvement in the quality of life of people living in the participating States. The Development Bank has shown that it has a vision of confidence and there is also a firm intention on the part of the participating States towards working together in the interests of all the people of Southern Africa. I see this bank as a beacon of light that will eventually shine over the entire Southern Africa and help Africa to overcome the enormous problems that confront it.

I now come to another matter. I think one of the most important documents on the financing of local authorities was the report by the Croeser working group tabled this year. The working group reported on the report of the Browne Committee into the Finances of Local Authorities. This will serve as a blueprint. It has laid the foundation for the development of local authorities and will most obviously include Administration Boards and Community Councils for decades to come. It is obvious that one cannot deal with all the recommendations. I should like to deal with merely a few of the recommendations. I should like to support the amendment of the Local Loans Act, Act 19 of 1926, raising the existing limit of R1 million in respect of a total loan to a single local authority, or R2,5 million in respect of total debt, excluding housing funds, whichever amount is the smallest, to R2 million and R5 million respectively. [Time expired.]

Mr. Chairman, the hon. member Mr. Aronson raised a number of points, but it is not my intention to react to more than one of them, and that is his comment on the role the insurance industry could play in helping to overcome the drought problem. I think that this is an interesting point. I can say that in the USA just after World War Two the American insurance industry played a very prominent part in helping to overcome the backlog of accommodation. The insurance industry forms a group which has a tremendous volume of funds and I think it is legitimate to ask how its members are employing those funds and if they can employ them to the benefit of South Africa.

I am glad that in his opening speech today the hon. the Minister of Finance spoke about South Africa in the year 2000. In that connection he quoted from the report by Mercabank on socio-economic priorities. The reason why I want to raise this is that in his reply to the Second Reading debate the hon. the Minister asked the PFP to spell out its attitude towards planning. He wanted to know whether the PFP believed in a planned economy. If one is talking of a planned economy in the sense of the Eastern European economies, the Chinese economy, the socialistic economies, the answer is very simply: No, the PFP does not believe in a planned economy like that. We actually believe that a person should be rewarded for individual effort and, in fact, that individual effort should be encouraged. We acknowledge, however, that a large sum of money is going to have to be spent on certain sections of the population to give them the opportunity to compete in a free enterprise system on an equal basis. I am thinking particularly of education for the Black people. So, we do not believe in a planned economy, but there again I should like to say that I do not believe that any party in the House believes in an enterprise system that is totally free, a system in which the State does not assist whatsoever by way of, for example, social pensions, etc.

I think that the question of planning is important. I think it has become fashionable to denigrate economic planning. After World War 2 there were in fact two economies which relied very heavily on planning, namely the French under Monet and the West Germans under Erhardt. In South Africa too, we had our economic development programme, which I believe played a very important role in restoring economic confidence in South Africa after the period of Sharpeville. I think there is a lot of benefit in looking at a long-term plan such as one finds in the survey of Mercabank. The benefit of planning is not that it is going to forecast what is going to happen, because that is not the case. It is said in economics that he who lives by the crystal ball must learn to chew glass. I think that that is in fact very true. The benefit is, however, that it makes one ask: What are my priorities? Where do I see the economy going? What bottle-necks are there? How can I overcome these bottlenecks? I think all of these are valid questions that should be asked. I must admit that, if it comes to the fine tuning of the economy, I believe the economy is actually too complex for it to be finely tuned. I think that economic planning is most effective if it is done in the long term rather than in the short term because I think that the whole theory of rational economic man and that of ceteris paribus do not actually operate as we are taught in economics in the real world.

What I would like to come to now is the question of fiscal policy and particularly its impact on the long-term economic growth of South Africa. There are three points I should like to raise. The first is the increasing role played by individual tax-payers, the second is the question of company tax and the third is the question of the erosion of the tax base. If one looks at the Statistical Economic Review, page 18, one sees a very interesting picture emerging. In 1978-’79 the amount received by way of individual income tax was R1 974 million. What is interesting, is that that was 22,9% of the total amount collected by Inland Revenue. General sales tax amounted to R654 million or 7,6%. I want to concentrate on the percentages. In other words, individual income tax and general sales tax accounted for 30,5% of the total amount collected by Inland Revenue.

In 1980-’81 individual tax was 15,19%, while GST was 13,5%, a total of 28,7%. It was, therefore, lower than during the previous year and was the lowest point which we actually reached for some time. But since 1981 there seems to have been a change in policy. Between 1980-’81 and 1982-’83 the amount collected in the form of individual tax doubled. During this period the amount collected in respect of GST nearly doubled. We actually reached the situation in the tax year 1982-’83 that of the total inland revenue 24,3% came from individual tax and 18,4% from GST, totalling 42,7%. If you look at the Estimates for 1983-’84, then the combined total is 47%, 27% coming from individuals and 20,1% coming from GST. In other words, individual tax and GST as a proportion of the total amount of inland revenue collected, has increased dramatically over the past four years. I want to look at the implications of this for the South African economy.

Firstly, if one looks at the figures—I am relying on the figures given for the 1981-’82 tax year in reply to a question by the hon. member for Yeoville on 18 February 1983—one sees very interesting figures. 47 000 taxpayers, or 7,3%, out of a total of approximately two million accounted for 50,62% of all individual tax collected. 43 666, i.e. only 2,16%, accounted for 28,2% of the total income tax collected. In other words, roughly 2% of taxpayers accounted for over one quarter of all individual income tax collected. One might argue that if you earn that sort of money, then you should be prepared to pay tax. I think all of us accept the idea of a progressive rate of taxation. We in the PFP are normally in favour of most things that are progressive. However, I think there is a second factor that needs to be borne in mind, namely that South Africa is very short of skilled manpower. Looking at the long-term future of South Africa, it is important that we do not demotivate these people. We have already seen this in respect of a very small section of the South African population, namely that of highly skilled married women. I believe that we cannot afford to lose the skills of these people. I know that the vast majority of married women are better off under a system of joint taxation than they would be under a system of separate taxation. However, there is a small number of skilled people who stay out of the work force because of this and I want to ask whether it would not be better to allow working wives to opt either for a joint or separate tax basis, because we need the skills of those people.

The second implication which arises out of this, is that your skilled manpower begins to trade income for time. From a personal point of view that is a valid decision, but from the point of view of the economy of South Africa, I think that is an unfortunate situation. In the past we tended to concentrate on the marginal rate of taxation, which has come down. I accept that. I think that the concept laid down in the report of the Franzsen Commission round about 1970 that our marginal rate of tax should not exceed 50%, is the correct one. However, the question I want to ask is whether the time has not come for us to look at the tax brackets at which that takes place.

If you look at company tax, the same thing has not happened, because the percentage contributed by way of company tax in the last four years has stayed more or less constant. [Time expired.]

Mr. Chairman, I have listened with very great interest to the debate and I think it has been conducted on a high level. A whole number of extremely interesting and important points have been raised, so many as a matter of fact that I doubt whether I will be able refer to them all, but I shall do my best to deal at least with as many as I can. I believe that the Committee of the House has shown up to great advantage in this debate today.

*At this stage I should like to pay tribute to our finance team. Hon. members can see a number of our most senior officials in the officials’ benches of this House. They make up a formidable team and it is an extremely pleasant team to work with, as I discover every day. If there is a better team I should like to see it. I shall not mention names, but I thank all of them without exception for the good and hard work we get from them every day of the week and the way in which they do their work. Today it was said that this is a very large department with many branches. I think I can say that as far as I am concerned, the morale is extremely high and I am very glad about this.

† A number of points have been raised and I shall take them seriatim as far as I can. The hon. member for Yeoville asked a few questions. He asked, for instance, by how much will tax revenue possibly drop as a result of the drought, also the amount being spent on drought relief. The hon. member will appreciate that it is extremely difficult to quantify. In fact it is impossible to quantify, looking a year ahead, what the drought will cost us in terms of revenue lost, both directly and indirectly, because this catastrophe permeates so many sectors of the economy and affects so many other taxpayers. All I can say on that point is that in framing the budget we took account of this problem. We took account of the difficulty and we tried to make the best forecasts ahead as we could after consulting, as we thought, perhaps some of the best people we could. Therefore we have tended to be conservative in that respect and if things worsen, which I very much hope they will not, I can only say that we have made realistic provision for that. As far as the cost is concerned, it is also difficult to give a precise figure because some of these relief measures are very indirect as well, but I would say at the moment that a figure of R150 million is not far off the mark. It is by far the biggest in our history and, as I have said on more than one occasion, if, unfortunately, things do not improve and if things get worse, then we stand ready to do still more and we shall do it to the very best of our ability at every point. I hope that in saying this I have also reassured the hon. member for Sunnyside. We are very concerned about this matter and we shall do everything in our power to render assistance wherever we can.

In relation to constitutional reform proposals the hon. member for Yeoville referred to the pattern of certain financial procedures to be followed. These are, of course, extremely important matters that have been engaging our very close attention for quite a while. Obviously we shall have to give a good deal of further attention to detail and we shall also have to have very careful discussions in this House. This we shall certainly do. However, I can simply say to the hon. member that obviously as far as the several Houses are concerned we shall proceed by way of something approaching the formula system. As the hon. member knows, we have this system for universities. We also have a formula system for provinces, but they are not identical by any means. We are trying the lay down at least certain basic guidelines so that the different Houses will at least know how these things are arrived at in so far as something approaching a statutory amount, let us call it for want of a better phrase, is concerned. This matter is obviously going to engage considerably more attention and discussion here as well.

*I should also like to say a few words about the taxation of Blacks, a matter the hon. member for Yeoville also raised. I am glad we have arrived at the point that from 1 May of next year all our taxpayers will be taxed under the Income Tax Act. As I announced in my budget speech, an agreement has been reached with the various Black National States that as from the 1982 tax year all Black taxpayers will be taxed under the Income Tax Act. Of course there will be major logistic problems in regard to the harmonizing of the tax payable by all population groups. However, the Department of Inland Revenue has assembled a task force which is already investigating all possible administrative problems which may crop up. In the meanwhile the Commissioner of Inland Revenue will again hold discussions with all the employer and employee organizations in the near future, and I am therefore confident that this major task will be completed successfully.

I shall just inform hon. members of how the new system is going to operate in practice. The Department of Inland Revenue will collect the tax payable by the citizens of the national States in areas outside those States, while the States themselves will collect tax payable by citizens of their own States. Until such time as the States are able to deal with the administration of the complex Income Tax Act themselves, the Department of Inland Revenue will administer the Act itself as far as the taxation of the citizens of the national States is concerned. Intensive training of citizens of the national States will be commenced as soon as possible and I trust that it will not be long before these States will be able to administer their own income tax legislation themselves. From information gathered thus far, it seems as if the harmonizing of the tax payable by all population groups will have the practical effect that most unmarried Blacks will have to pay a little more tax while most married Blacks will pay a little less. I am certain that all hon. members will agree with me that the harmonizing which will be achieved in the near future will be to the benefit of all taxpayers.

I want to thank the hon. member for Yeoville for his kind words on the report published by the Department of Inland Revenue. There is wealth of data in that report. I agree with the hon. member on that score. I also want to congratulate the hon. member for working through the report.

†At the same time I should like to thank various other hon. members for their appreciation of the various documents that have been made available by the Department of Finance as a whole. This includes the explanatory memorandum.

*I should like to dwell on the staff position for a few moments. This has worried all of us and is still worrying us in certain respects. The office of the Registrar of Financial Institutions, for example, is still experiencing real problems. As far as the revenue departments are concerned—Customs and Excise and Inland Revenue—it is a pleasure for me to be able to report that a considerable improvement has taken place here during the past few months. I feel this is closely linked to the application of the principle of occupational differentiation. As far as Customs and Excise is concerned, there has been a vast improvement in the staff position since occupational differentiation was introduced. On 30 September 1982 there were 325 vacant posts as against 133 on 31 March 1983, viz. six months later.

Consequently almost 200 new appointments were made during those six months. It goes without saying that the new recruits cannot of course function effectively straight away because the large number of new appointments causes short-term training problems. Very serious attention is being given to this, however.

As far as inspections are concerned, I can say that in future it will be possible to undertake these far more effectively because more staff is available for this purpose, and training can therefore also take place in this field. During the past year—April 1982 to April 1983—almost R10 million was levied in Customs and Excise duty owing to more effective inspections. This does not include underpayments in duty which were found during the checking of clearance certificates. I really hope that this wonderful progress will continue in future.

In connection with Inland Revenue, it also gives me pleasure to be able to say that during the past six to eight months there has been a remarkable improvement in the staff position. We even succeeded in recruiting chartered accountants, people who are essential to the department. This is also promising with a view to the future staff development of Inland Revenue. In this connection there is of course also a very great challenge as far as training is concerned, and the department is continuing with this systematically. I do not want to bore hon. members with a string of statistics. However, I can also report progress of the same kind as far as inspections are concerned. Inspections which are carried out would seem to be increasingly effective and large sums of money are being collected in this way. In addition large sums of money are at stake here. The inspections I am now referring to include those in connection with GST and PAYE of employees. During the year ended 31 December 1982 a total amount of almost R32 million was collected in this way. From January to March this year the amount collected already totals almost R7 million. I can continue in this vein. As far as future development of the department is concerned, as I have already mentioned, thorough attention is being given to this. I therefore believe that in the future the department will function far more effectively. By this I am of course not suggesting that it has not been effective in the past, but I just wanted to point this out.

Speaking of statistics, the hon. member for Yeoville mentioned a few interesting points in this regard. I have here a brief analysis of a few matters. These figures actually cover the period from 1940 to 1983. However, I just want to refer to certain selected years. In 1940 the total amount collected in all taxes was R93 million. The share of Inland Revenue was R56 million. In 1983 that amount had risen to R15 742 million, and the share of Inland Revenue to R13 742 million. This is a tremendous increase. The cases on register—viz. the number of taxpayers actually being assessed—rose from 155 000 in 1940 to 2 831 000 in 1983. This is of course a tremendous increase. What is also interesting is the number of posts which have been filled—in other words, available manpower—and which totalled 702 in 1940 as against 4 512 in 1983.

What is also interesting is the administration costs of the department as a percentage of the amount collected. In 1940 it was 0,85% as against 0,22% in 1983. This also indicates a great improvement in efficiency.

The “number of cases taxed”, the number of cases expressed per employee in the department or per unit was on average 222 cases dealt with per unit of staff in 1940, and in 1983 it was 627. I think this is also a great improvement. As far as the money collected per employee or per unit is concerned, the figure in 1940 per person in the department was R80 000 and in 1983 it was R3 046 000. I therefore think that as far as this department is concerned, notwithstanding the major problems in connection with staff shortages, it has a fantastic record and a wonderful achievement which is clearly reflected in these figures.

†The hon. member for Yeoville also spoke about exchange control. We took a very considered decision not to try to abolish exchange control in respect of residents before we had done so in respect of non-residents because we also wanted to get rid of the financial rand. Of course, the abolition of the financial rand has not cost us foreign exchange directly whereas any relaxation in respect of residents will. Therefore, we have had to be rather cautious in this respect. It will obviously depend upon the availability of foreign exchange over a longer term, the state of our economy and of course, the state of the world economy. I think that in this respect we have to be very careful before we take steps of this nature. The abolition of exchange control on non-residents has worked extremely well and has, in fact, been commented on very favourably throughout the world.

*I just want to give the hon. member for Langlaagte the assurance and set his mind at rest that the outflow of funds of a little over R1 billion in April is in fact due to the payment of dividends and interest in respect of overseas investments in South Africa. It was also as a result of considerable repayments on overseas loans. A part of this was of course also capital, which constituted an outflow of capital. In the same way as one has an inflow of capital one also has an outflow. I think the situation as a whole is very sound and we have already seen quite a considerable inflow of capital. I therefore do not think that one could in any way put this down to the fact that we abolished foreign exchange control for non-residents. This is definitely not the case.

†The hon. member Mr. Aronson mentioned the possible use of institutional funds for public sector purposes. I agree with him. As I attempted to explain this morning, we are going to have to look carefully at these matters in the future. However, in relation to insurance, I should like to draw his attention to the fact that there is of course a provision to the effect that they have to invest a certain portion of their funds in prescribed investments—Government stock and certain other prescribed investments such as National Housing Fund loans and so on. Therefore, we are in fact obtaining funds on a fair scale from them. However, I should like to see the financial institution as a whole investing a considerably larger sum of money in housing. The hon. member will remember that some years ago the insurance companies and the life offices had a very large part of their total investments invested in mortgage bonds. One would like to see that state of affairs obtaining again because it would make an enormous difference to the amounts available for housing. We hope that we can make progress there as well.

The hon. member for Amanzimtoti stressed the importance of economic growth. I agree with him 100%. He also stressed the importance of adequate employment or, the other side of the coin, being very careful that we do not have too high a degree of unemployment. That is so. Of course he realizes the problem. The problem is that in present conditions if one lets go too much and one starts stimulating, one will have to face inflation. We feel that at the moment the balance is about as good as we can see it. Inflation is perhaps a bit too high, but on the other hand we have to be very careful that the inflation rate does not increase. We are watching the situation very carefully, but of course it does not only depend upon the Government.

He also asked for a special concession to people who have made provision for their retirement so that they would not qualify for social pensions and therefore would not become a burden on the State. It was an interesting point which he raised although he was not able to develop his argument completely. I have with me something on this because it is an aspect about which we have been thinking. I should like to make this comment available to him; we may talk about it again.

I should like to say that as far as persons over 70 are concerned we have really gone a long way to give them tax relief, so much so that, as the hon. member has said, the tax threshold before they become liable for tax is now somewhere near R7 000. It is again a question of what one can afford.

I should like to have that comment.

We shall then talk further about that.

*In my opinion the hon. member for Vasco spoke very sensibly about subsidies. I want to agree with him that there is no doubt that every subsidy actually distorts free price formation. We should always bear this in mind. The policy in the long term has to be to get rid of subsidies wherever possible. For example he referred to transport subsidies. This is something I should like to get rid of but there is a problem if one were to do so under the present circumstances. We also have to remember that there would be inflationary implications if we were suddenly to do away with subsidies on a large scale. In principle I have to agree with him. We have to try to restrict subsidies to a minimum as far as possible. There are of course also compassionate cases we have to bear in mind. Subsidies also have to be made available for specific purposes and it has to be quite clear who is to benefit from such funds.

In this regard we also have to be very careful.

In some cases, for example housing for younger people, it is perhaps better to try to assist people by means of subsidies over a longer period rather than by making tax concessions. If one does this, one can see exactly who benefits from that State aid. In general I cannot find fault with the hon. member’s reasoning and I thank him for his contribution.

The hon. member for Ermelo also spoke about inflation. He suggested that a thorough anti-inflation campaign be launched. Attention is being given to this matter, not only in Government circles but also, as the hon. member knows, by the Handelsinstituut which is engaged in a thorough investigation. The Prime Minister’s Economic Advisory Council and certain other institutions are constantly working on this matter. I think the hon. member was quite right when he said that this is not only a matter for the Government, but for the entire country—the private sector therefore. I think the private sector will have to become increasingly involved in specific and effective steps. We shall still have to discuss this at some length. I am glad that the hon. member dealt with this important aspect so clearly.

I want to congratulate the hon. member for Smithfield most sincerely on his contribution. He is the chairman of the finance group of our caucus. He stated the official standpoint in connection with initial and investment allowances very clearly, as announced in the budget speech. He read the report of the Standing Commission very thoroughly and made the matter very clear indeed.

†The hon. member for Edenvale explained in a few words his party’s general approach to planning. I am very relieved to hear that he means by planning something which is not trying to put the economy in a straitjacket and having some central committee telling everybody precisely what they may do, how much of what they may produce, etc. Such an approach will simply fail lamentably.

The hon. member also had some very interesting remarks to make about fiscal policy. I do not have the opportunity to deal with that fully now, but I will take careful account of what he said. However, as regards fiscal policy, I should like to refer to the question of fiscal drag.

*I want to thank the hon. the Deputy Minister for the splendid way in which he contributed to the debate and for the way in which he replied to the hon. member for Sunnyside in particular. I hope the hon. member for Sunnyside is quite clear about agriculture and the agricultural budget. What I said about this on an earlier occasion, namely that a great deal more will have to be voted in that connection, is quite true. But we have already made provision for this on a reasonably large scale. Agriculture remains one of our highest priorities. The hon. the Deputy Minister also referred to the so-called “fiscal drag”, in reply to speeches of certain hon. members of the Opposition.

†I think the hon. member for Yeoville was one.

I have with me a table in which the Commissioner for Inland Revenue has made certain calculations from 1978 to the present tax year. If one looks at that, one sees that the consumer price index has risen about 108% in the period. If one looks at the various incomes, namely the income before tax, income after tax and at the increase between them one finds that in virtually every one of the whole number of cases listed here, people are substantially better off after tax despite the fiscal drag. This is what I said last year in a debate. I will make these figures available. There is nothing secret about them. They are based on fact. What is more, this is what one would expect. After all, we have a system where the maximum marginal rate is 50%. Even if people do move up into higher income brackets attracting a higher rate of tax it will have to be a very big jump from the bottom to the top before one could say that one is affected worse than the inflation rate. In fact, except for about two cases in this whole list, the position is exactly the opposite. There is still a considerable net gain. I just wanted to make that point.

*I want to refer briefly to the S.A. Mint. This is a very important institution which year after year with a relatively small and dedicated staff, under the directorship of Mr. Groenewald, produces work of the highest calibre. Today I am able to tell this House that the programme of modernization of the S.A. Mint has now been completed with the installation and commissioning of two new rolling mills for the manufacture of bronze coins. The new mint makes it possible to meet the large increase in and demand for coins. At present the Mint produces 2 million coins a day, of which 1 million are lc and half a million are 2c pieces. Gold coin productions for the Chamber of Mines is being maintained and during 1982 5,4 million gold coins of the various Kruger Rand denominations were delivered. These are not proof coins, but ordinary one ounce, half ounce, quarter ounce and one-tenth ounce gold coins. This is equivalent to 102 tons of gold and at present it represents approximately 15% of our gold production.

In order to meet the demand for proof Kruger Rands from collectors, production was increased to 16 960 for 1982. Not long ago the number was still 10 000. Now it is almost 17 000. In addition 13 000 half Kruger Rands and 11 270 each of the quarter Kruger Rands and the one-tenth Kruger Rands of proof quality have been minted. With effect from the present financial year a trading account for the Mint has been introduced—reference is also made to this in the explanatory memoradum—in terms of which the necessary funds for the running of the Mint will be obtained from the sale of the Mint’s products. Fortunately the profits are to be paid into the State Revenue Fund. In this way the Mint is identified as a manufacturing institution within the Public Service.

As far as Kruger Rands are concerned, it may be interesting for this House to know how many Kruger Rands—these are the one ounce coins—have been minted since operations began, viz. from 1967 to the present. The total number of proof one ounce Kruger Rands that have been minted is 153 337, and the total number of ordinary Kruger Rands for the Chamber of Mines, 37 642 606. This gives a total of almost 38 million one ounce Kruger Rands. Since 1980 half ounce, quarter ounce, and one-tenth ounce coins have also been minted. The total number of half ounce proof coins minted to date is 22 060 and the total number of ordinary coins is 959 717. This gives a total of almost 982 000. As far as the quarter ounce coins are concerned, the total number of proof coins minted to date is 18 830 and the total number of ordinary coins is 2 510 644. This gives a total of just over 2,5 million. In the case of the one-tenth ounce coins the total number of proof coins minted is 18 830 and the total number of ordinary coins for the Chamber of Mines is 3 488 916. This gives a total in excess of 3,5 million. The grand total of proof coins is 213 057 and the grand total of ordinary coins is 44 601 883; giving a combined total of 44 814 940 or almost 45 million coins. I think that is an achievement. What I always find so wonderful is that it is generally acknowledged—throughout the world, I think—that there is not a more beautiful gold coin in the world than the Kruger Rand. This is therefore a success story if ever there was one.

Mr. Chairman, thank you very much for this opportunity. I want to say a few words about gold later on, but I think I should first give the hon. members an opportunity to speak.

Mr. Chairman, it is a pleasure for me to be the next to speak after the hon. the Minister. I want to tell him that a great deal of the business confidence we enjoy in this country we owe to him. The businessmen of South Africa and those abroad trust him and know that our finances are safe in his hands. We want to congratulate the hon. the Minister on this and thank him sincerely.

I am sure you will permit me, Mr. Speaker, to sound a spiritual note in this materialistic debate which focuses on money. I want to speak about the small and inferior one cent piece which many people, in these inflationary times, often throw into a dish or leave lying around on a shelf. One often hears people saying that these days one can buy virtually nothing for a cent, and yet the one cent piece is not so insignificant at all. Officials of the S.A. Mint tell us that it is one of the most important coins in circulation. During the past year there were 145 million of these one cent pieces in circulation. This is as much as all the other coins put together, the two cent piece, the five cent piece, the ten cent piece, the twenty cent piece, the fifty cent piece and the one rand piece. [Interjections.] From 1970 to the beginning of 1982 the enormous amount of 1 032 000 one cent coins were minted.

Apart from the practical monetary value of this one cent piece, over the past year it has come to assume greater value and significance for quite a different reason. This has not only happened in South Africa, but also in countries abroad. [Interjections.] That hon. member who is continually interrupting me will be swallowing his words in a moment. The popularity of this coin is due to a very exceptional emblem that appears on it. Sir, when one looks at the one cent piece—I am sending one to you and to the hon. the Minister—one sees on the reverse side an illustration of two sparrows on a Mimosa branch. This emblem was designed for our farthing in 1923 by G. Kruger-Gray of the British Royal Mint. In 1965 it was redesigned for our one cent piece by the South African artist Dick Findlay. What is significant in this regard is the fact that this design has a spiritual origin. Gray designed it on the basis of the striking Biblical text in Matthew 10, verses 29, 30 and 31. There we read—

For this reason this humble coin has struck a chord with a large group of people, particularly young people, military servicemen and sportsmen. It has stirred the heartstrings of numerous young people in this country and abroad as a result of the particular message it conveys: “Fear ye not therefore, ye are of more value than many sparrows.”

In my constituency there is a lady, Miss Joan Abrahams, a physical education inspectress at Free State schools. She has made it her task—of course within her capacity to do so—to give every young man called up for military service a mounted one cent piece with the emblem of the two sparrows on it, and then to explain the symbolism to him when she hands it over. This one cent piece is then worn on a small chain around one’s neck or arm. When military servicemen or our soldiers in the operational area are ever in danger, stationed behind a canon, in a Ratel, in a tank or in a helicopter with bombs bursting around them, or with bullets whistling round their ears, this little coin around their necks, around their arms or in their inside pockets, serves as an anchor with its reasuring message: “Fear ye not therefore, ye are of more value than many sparrows.” More than one young man who died in the operational area has been buried with that little coin around his neck. Miss Abrahams relates that she has received letters of appreciation from military servicemen and their parents. She has just recently received a letter from a military serviceman who lost his left leg in a skirmish. In the letter he tells of the encouragement he drew from this one cent piece with the two sparrows on it. The custom of carrying this little coin with its spiritual message is catching. More and more people are doing so. How many are already doing so, cannot be ascertained. According to Miss Abrahams, who frequently goes overseas, the custom of carrying this one cent piece has also begun to take hold in the USA, particularly among sportsmen. Swimmers and divers are particularly enthusiastic about it. In this way this one cent piece is proving to be a good envoy for us overseas.

One is aware of the fact that one cannot mint new gold coins left right and centre, but one wonders whether one could not investigate transferring the emblem of the two sparrows, which is so popular, to one of our smaller gold coins. A gold coin of the same size as a one cent piece and weighing about six grams could, according to an official of the Mint—and bearing in mind the present value of gold—be marketed for about R90, which is within the reach of many people. There could be great possibilities in combining this popular emblem with a metal such as gold. It could be an ideal gift for a baby at the baptismal ceremony, when a person comes of age or as a birthday gift. Just think how proud a servicemen would be if he could wear this gold coin around his neck in the operational area. Foreigners who place such a high premium on the emblem of the two sparrows would be doubly motivated to obtain such a coin. They would buy it in increasingly greater numbers. In the American federal state of Florida enthusiasts have had the one cent piece mounted in gold and perspex to make it more attractive.

I leave this idea with the hon. the Minister and his competent department. In the meantime I hope and trust that the millions of people through whose hands the popular small one cent piece passes, will take note of the beautiful spiritual message when this little coin passes through their fingers each day and they see these two sparrows.

Mr. Chairman, perhaps the hon. member for Bloemfontein North made a lot of sense today. He had his sparrow’s worth. The only thing that worries us, of course, is that the one cent is becoming very much of a relic. What can one buy with one cent today with the present rate of inflation? Perhaps all we can do with our one cent pieces is to hang them round our necks. The hon. the Minister has referred to the S.A. Mint and we join him in congratulating Mr. Groenewald and the S.A. Mint on its production. Perhaps during the recess the hon. the Minister might consider arranging a visit by members of the finance group to the Mint. We promise him we shall not ask for any free samples. The visit should be very interesting.

The hon. the Minister has referred to the economy in general and I think it is fair for me to say that we are now still in a downward phase of the business cycle with a cooling off period of some 19 months in duration. The duration of the present downswing, according to the Bureau of Economic Research, is estimated to be about 24 months of which 19 are gone. That is therefore not quite as bad as the 40 months during the deep recession between 1974 and 1977. That leaves us another 5 months and we should hit the bottom of the trough towards the final quarter of 1983.

As far as our balance of payments is concerned, we are told that the net reserve declined by only R423 million in 1982, indicating a net capital inflow of R2 614 million. A further inflow of R1 000 million is assumed for 1983; and that will push the net reserve up by more than R3 000 million. This will of course increase the money supply, and it is perhaps against this background that the hon. the Minister has referred to the abolition of exchange control for non-residents. I should like to urge the hon. the Minister to give us some further details regarding the future. Everything depends, of course, on the availability of foreign exchange and the economic climate.

I do think, however, that the hon. the Minister knows that all economists and people in business see this as a phase and are waiting for the hon. the Minister—perhaps as the next phase—to grant financial institutions the right to invest overseas. After that, as a final phase the hon. the Minister could abolish exchange control for residents as well. We do hope that that will come about. If it does come about eventually, I think it will have to be with conditions attached, as the hon. member for Yeoville has said in this regard. It will have to be conditional upon interest and dividends coming back to this country, and perhaps upon a prohibition on the purchasing of ordinary shares overseas.

The hon. the Minister has also referred to the need for the private sector to play a more prominent role. In this vein I should like to refer to day to the role of building societies in South Africa, particularly against the background of the tremendous shortage of housing in this country. Replies to questions put in the House revealed a shortage of some 600 000 housing units at the present time. As hon. members have probably noticed, an amount of only R363 million is being apprropriated for this purpose in the Community Development Vote, which is only R30 million more than last year’s amount. The private sector only provided something like 34 000 housing units. Building societies are at the moment fairly flush with money.

While on the subject of building societies, I wish to refer to two important reports that have just appeared, almost simultaneously, viz, the Du Plessis Commission’s report and the report of the De Kock Commission. I quote briefly from the report of the Du Plessis Commission, as follows—

In respect of investment in building societies, and also regarding mortgage rates, tax-free investments and the hon. the Minister’s reaction in this respect, certain comments are contained in the report of the De Kock Commission. I must say that I hope the character of the building societies will not change to the extent of becoming purely banking institutions. I think the hon. the Minister will agree that we have sufficient banking institutions to cope with the banking requirements of this country, and that, although they should compete in so far as investments are concerned, their money should primarily be used for the purpose for which they were established, namely for the building of houses and, of course, also for providing people with money to build their homes.

In respect of the reports the Government has of course adopted three principles. The first is that they should be increasingly subjected to the same sort of discipline as banking institutions. This, of course, refers to their cash reserves and liquid assets. The second principle is that they should be allowed to compete by quoting realistic and market-determined borrowing and lending rates. Thirdly, the State is prepared to assist people in the middle and lower income groups who are first-time borrowers. This applies to young people in particular.

In addition, the hon. the Minister also referred to the phasing out of tax-free and indefinite-period subscription shares. This matter is also mentioned in the reports to which I have referred. I do believe, however, that it is somewhat unfair to phase out the tax-free, indefinite-period subscription shares. I can understand the logic of the reasoning that has been advanced in the reports but the building societies still require money. We do not always have buoyant times. There are valley periods when there is very little money available, and I think this is obviously a tremendous source of income for the building societies. When there is a shortage of money and one has to back a loan from the building society by means of collateral investment or back-up finance of some kind, then these paid-up and subscription shares in which investments are being made at building societies form some of the best collateral that one can find.

I also think that the investing public who go in for investment in tax-free savings are becoming a trifle disillusioned. The hon. the Minister will know that we raised this matter before. A few years ago he changed the 36-month revolving scheme from R300 000 per individual to R50 000 per taxpayer. This caused people to withdraw millions of rands from the building societies. Then there was also the capital accumulation scheme, in which money is invested for five years and then a person has to sit tight for a further five years after which period such a person could then enjoy the facility of tax-free money as well. I hope the hon. the Minister will tell us that he is not going to interfere with an investment of that kind either, otherwise I feel that we will be misleading people with this type of investment unless they are warned immediately not to commit themselves for ten years on this basis.

There is also the question of concessions to home owners with regard to interest rates. The hon. member referred to this matter as well. I am experiencing some difficulty with some of the conditions attaching to the scheme. Firstly, with regard to purchase for the first time, I think that the hon. the Minister should consider some relaxation in this regard. There certainly are occasions when it need not be for the first time. We can go along with the question of it being for one’s own occupation because we do not want to have speculators involved. In regard to the question of a new dwelling, this is a little difficult. With the shortage of accommodation, it is difficult to acquire a new dwelling every time. The same thing holds good for a dwelling that has never before been occupied. The subsidy of 20% then applies to the monthly interest, provided that the bond does not exceed R40 000 and the purchase price R50 000. I believe that these amounts should be increased by at least 50%. There are thousands of people in this country who fall between the economic limits laid down by the Department of Community Development and the high tax bracket of people who can afford to pay anything. I am referring here to young people, middle-aged people and also old people who require assistance. They are crying out for housing and I think that the hon. the Minister would do well to reconsider the conditions imposed in this regard. I feel that he should scrap these conditions because that would make it far easier for these people to obtain housing. In any event, with the houses being built today it is very hard for people falling into these income groups to buy something under R50 000. However, together with the subsidy that is being paid, perhaps we may be able to assist them more.

In so far as building societies are concerned, I have taken a careful look at the Building Societies Act. I want to draw the hon. the Minister’s attention to the provisions of section 22 of that Act. In terms of subsection (l)(a)(i) a building society has the right—

I am looking for further authority for the building society in this regard. In terms of subsection (l)(b)(i) the building society has the right to buy immovable property mortgaged to the society. This property on which a society has advanced a loan and which it then buys back. There is also the authority contained in subsection (l)(g) which provides—

I do not know whether I am correct or not, but I should like the hon. the Minister to give consideration to this. Recently we passed legislation with regard to the formation of utility companies. I think we may have a problem in regard to private people being sufficiently motivated to start utility companies. In countries of Europe such as Germany and France, for example, a building society is viewed in a different light, as the hon. the Minister knows. A building society there builds homes and I would like to see a change effected in this regard subject to discussions being held with the Association of Building Societies. I should like them to go in directly for utility companies or transforming part of their societies into utility companies so that they can undertake schemes, including garden schemes, for the provision of houses for the public of South Africa.

Mr. Chairman, I do not wish to react directly to the speech of the hon. member for Hillbrow, since I think that some hon. members on this side will, in fact, be reacting to what the hon. member brought to our attention.

What is important, is the very responsible information the hon. the Minister gave this Committee today. At the start of his speech he said that we were living in difficult times and that we would have to take stock of certain aspects. He went on to say that there was no reason to be pessimistic. I believe that there is in fact reason to be realistic, since there are major challenges and changes in store for us in the long term. The hon. the Minister referred specifically to co-operation between the private and public sectors.

Against this background and in view of this, I think these very aspects were referred to in the hon. the Minister’s recent budget speech. The framework within which better co-operation between the public and private sectors can be brought about, was sketched. Ultimately this will lead to the prosperity of South Africa’s financial set-up.

The South African economy still finds itself in the downward phase of the business cycle. This has been aggravated by the recent drought conditions in many parts of the country. I believe that it is the fervent prayer of everyone that relief will come in the immediate future.

Both the current and capital accounts of the balance of payments have improved considerably. What is important is that the policy for the forthcoming year will be one of continued market-orientated financial discipline with a view to laying the foundation for financial growth with less inflation and more stability.

In this regard one could refer specifically to matters dealt with by the hon. the Minister in his budget speech. I believe that the way in which the hon. the Minister is approaching these matters will to a large extent be to the benefit of the economy and financial set-up of South Africa in the years ahead. I am referring in the first instance to the investment incentives particularly as far as plant and machinery are concerned. This is very important, since industry forms the backbone of the economy in South Africa. Therefore the investment allowance of 30% which can be claimed by a taxpayer on the cost of new or unused plant or machinery directly brought into use in a process of manufacture during the year is a particularly important concession. This is definitely something which industries in South Africa should look into.

There are also further investment incentives as regards industrial buildings. In addition there are incentives as far as the economic development areas are concerned, and allowances in respect of exporters and the training of employees. In my opinion, a new dimension has been proposed for exchange control in South Africa, but I do not have the time to elaborate on that.

I believe that the hon. the Minister addressed South Africa openly and honestly with his budget speech in which he specifically referred to these matters. The statements he made have been realized over the past month or two. They have been identified. The hon. the Minister said (Hansard, 1982, col. 4184)—

I believe that every person in South Africa who is directly or indirectly involved in the economy, thanks the hon. the Minister, the hon. the Deputy Minister and the team of officials for what has been achieved here. The hon. the Minister went on to say in the same column—

With this remark the hon. the Minister threw down the gauntlet, and I think we should all co-operate in meeting this challenge. Further on in the same column he went on to say—

When one converts that percentage into money, one realizes what a tremendous influence it is having and will continue to have on the South African economy. When I say this, I am referring to every consumer. Then there is also the important warning—

As the hon. member for Hillbrow pointed out, we are all asking the question: What are the financial prospects? I referred specifically to certain matters, but when one is considering financial prospects, one has to take cognizance of the following, viz. the priorities of training, housing, the provision of manpower and regional development. These and other priorities will demand considerably greater expenditure by the State in the years ahead. Therefore it is very important for us to order our priorities very carefully.

However, this ordering process has already been set in motion by the priority committee which has thus far attempted to investigate the main items of the capital expenditure of the public sector by way of cost benefit analysis. This is of the utmost importance, since such expenditure in real terms forms the greater part of total investments.

A reassuring factor is that fiscal and monetary policy have achieved a satisfactory harmony and are working together to solve the present economic problems. The only way in which the present economic problems can be solved, is through a higher economic growth-rate, as well as by relying on the market mechanism and dealing with the functions of the public sector strictly according to the order of importance.

We all remain optimistic in respect of our economic prospects. However, we must realize that we have been and still will be going through deep water before being able to bring about the prosperity and success we all long for. We should bear in mind that according to the latest economic indications, the downward trend of real economic activities has gained considerable momentum. The total seasonally adjusted real GDP and the real gross domestic expenditure declined by 0,8% and 4,3% respectively during the third quarter of 1982. The physical volume of factory production was 10,8% lower in October 1982 than in the same month in 1981, whereas real mining production, excluding gold, declined by 10% during the same period. [Time expired.]

Mr. Chairman, the hon. member for Bloemfontein North made a very interesting speech today. He stressed the spiritual value of what is depicted on the one cent piece. We know that this coin no longer has any real material value. Due to its very small value one can understand that there are many of these coins in circulation. It does not surprise me that there are so many more. One has to have them for one’s system.

I do not believe that the hon. Minister Munnik of Posts and Telecommunications can think that old people can live on 2 000 sparrows. Hon. members will recall his statement about the R20. At the time I worked out that this was equal to 2 000 sparrows. I think the hon. the Minister should consider that a little, because since he is now Minister of Posts and Telecommunications, those sparrows may become eavesdroppers (“luis-tervinke”) on the CP. We also have some experience of that. [Interjections.]

The hon. member for Bloemfontein North destroyed his own argument concerning spiritual values when he asked that the coin in question should be minted in gold and should cost R90. By saying that he immediately put paid to his own argument. I want to say to him that he must go back to the cents, because they retain their spiritual value. The R90 of gold does not really work as far as the spiritual value is concerned.

You do not begin to understand it.

No, I understand it fully, but I know that the hon. member has a lot of difficulty with some things, with sparrows, for example.

I wish to ask the hon. the Minister that we reconsider the possibility of using the inclusive method of levying sales tax. This is something I have often discussed. It must be easier for the officials if one can simply scrutinize the books of the company two years later to determine whether they have paid the correct sales tax. Then one need only calculate 6% of the figures in his books.

The man in the street is psychologically quite lost when the exclusive method of levying tax is used. If he wants to buy a suit of clothes and goes to the shop with his wife and children and sees a suit of clothes there for R127 and decides to buy it, he hears that tax still has to be added. There is no way of arguing with the salesman about that. For years the NP Government was a Government for the workers. Now, however, that is past. When the decimal system was introduced, the businessman took 2 cents out of every 12 and put it in his back pocket. Hon. members will recall that time. I do not blame the hon. the Minister. After all, things have changed. However, I believe that the Government must see to it that the man in the street can really stand on his feet when he goes into a shop. He must be able to argue on the basis that a suit of clothes is worth R35. The moment a further amount can be added to the price, one breaks that man psychologically. [Interjections.]

I spent a long time looking around in a chain store in America. Those people are clever.

†If the scanning system is adopted, it is impossible for the hon. the Minister and his department really to follow this up and to make sure that everybody is paying what he should pay. It is completely impossible, and it is not the duty of the Minister and his department to collect every cent. It is the duty of the businessman to pay his dues. For that reason neither I nor any other hon. member in this party will ever tell the Minister he is not collecting all the taxes as he should, because the onus should be on the companies to pay their taxes. We will never point a finger at the Government or at the hon. the Minister’s department if people do not pay in all their taxes. The duty rests on the other side.

Let me say, however, what I fear and what occupies my mind every day. On one shelf in a chain store—there are tins of pears costing 62 cents, then there are also some marked 26 cents on the same shelf. Nobody takes the one for 26 cents and walks out with it. I do, however, and when I can get hold of them I only pay 26 cents for them. If the shop owner puts a price of 26 cents on that tin, including general sales tax, nobody can fault him on that. The customer therefore first has to examine all the different tins and has to do all sorts of things to enable him to take the right one. I want to tell the hon. the Minister that the real problem is that the ordinary man in the street has no bargaining power with the man on the other side of the counter. Financially is is very hard for the ordinary man to cope with prices today. His salary may rise by 10%, but some Minister or other is then bound to say that people must expect prices to rise. We are told that it is only reasonable to expect that when the price of, for example milk goes up, the price of chocolates will go up more than the price of milk, even though chocolate only contains one in ten parts of milk. The Minister will tell us on the radio that this is what we should expect. I am sorry to say that Ministers have in the last few years been the biggest cause of rising inflation.

Beef came down.

I will ask that hon. Minister a few questions in another debate. Whenever he opens his mouth, prices rise; they never go down. I can assure the hon. the Minister that the Government and many of the Ministers with their irresponsible statements, are a cause of rising inflation in this country. Big companies and businessmen are not afraid anymore that the Government is going to clamp down on them. They increase prices day by day and do not take any heed of the warnings of the ordinary man. I think that we have to give the man in the street a chance.

Another thing that really worries me, is the paying of subsidies. I have established that in respect of bread subsidies alone during one year, actually for the last month in one year, something went haywire and an amount of R13 million more was paid than during the preceding month.

Haywire? You are talking nonsense.

You do not even know what “haywire” means. I want to tell the hon. the Minister that I am worried about the system. A man does not have to prove that he is baking the bread, is delivering it and is selling it over a counter before he gets the subsidy. I am sorry to say that big businesses are today preying on the Government’s goodwill. The Government is trying to give free enterprise a chance, but I am afraid that the private sector is exploiting the chances given to them. [Time expired.]

Mr. Chairman, it is always very interesting to listen to the hon. member for Langlaagte, perhaps not so much because of the contents of his speeches, but because of his use of metaphors. If it is not 40 plagues, then it is 2 000 sparrows. I am just concerned about the hon. member for Sunnyside, since it seems to me as though the hon. member for Langlaagte is going to take over from him as the chief spokesman on finance.

Since I am talking about the hon. member for Sunnyside, I must say that it was very interesting today to listen to the three potential Ministers of Finance of the Opposition parties, viz. the hon. member for Yeoville, the hon. member for Sunnyside or the hon. member for Langlaagte—they still have to decide about that—and the hon. member for Amanzimtoti. I want to warn them that it is a very difficult and dangerous task. The predecessor of the present hon. Minister of Finance, Dr. Diederichs, said on one occasion—

I must say at the outset that the closest the hon. Minister of Finance will come to a problem, is perhaps those 40 plagues of the hon. member for Langlaagte. I think that to be the Minister of Finance in South Africa at this time, in the midst of a hostile world, in the midst of an international recession, is really a tremendous challenge. We are exceptionally privileged to have this Minister of Finance, together with his Deputy. He has to be an exceptional person. After all he grew up in Paarl and went to school there. That is why he is what he is today: One of the best Ministers of Finance.

We can never see our situation in South Africa in isolation. Nor can we ever see our economy in isolation. We do not have a closed economy, nor do we want one. Whether or not we want to admit it, we are dependent on our exports and imports, particularly our exports of raw materials, in order to obtain foreign exchange so that we can import sophisticated articles to keep abreast of the necessary growth in a developing country.

Sir, I find it a little disturbing to read and hear about persistent efforts, even in friendly countries, to try and isolate us economically. I should like to refer to two recent incidents. Firstly, there was a very interesting article by Alan Brownfield in the Washington Times of 24 March on the hypocrisy of the campaign against investment in South Africa. It is also said that in the various States in America attempts are being made to have legislation accepted to make investments in South Africa illegal. The reason for this is often that action should be taken against the Government in South Africa, which exercises the greatest degree of totalitarian control over its people in the world. However, nothing is said about China, Russia, Cambodia, Ghana or Uganda, nor are any attempts made to isolate those countries. Mr. Brownfield points out that this is happening to a pro-Western country, an anti-communist country, a country that is aware of its own internal problems and that is trying to overcome those problems. He ascribes these attempts, firstly, to complete hypocrisy and, secondly, he warns that attempts at isolation will not succeed in doing what they pretend to be trying to do, viz. to try and improve racial conditions in South Africa. In fact, this has to do with their own radical activities which they are trying to motivate, and not with a concern for Black South Africans.

I want to give hon. members a second example. Earlier this week a statement was made in our newspapers which caused concern, and that is that in one of the committees of the American House of Representatives, in a committee dealing with banking, a motion was adopted that an amendment would be moved in the American House of Representatives preventing any further investments by the International Monetary Fund in a country practising apartheid. This is something which is real cause for concern and we therefore hope that the American Senate or the President of that country will exercise the necessary veto in that respect.

Now I should like to come to a number of practical hints with regard to our banking. However, before proceeding with that, I just want to react briefly to something the hon. member for Langlaagte said. I want to put it to the hon. member for Langlaagte that the results in the by-elections earlier this week have had a major influence on South Africa’s economic credibility overseas. One only had to take note of the reaction of the Johannesburg Stock Exchange after the result in Soutpansberg has been announced. There was a rise in shares. That morning, after one of the previous results had been announced, shares fell. The result in Waterberg caused the shares to fall. However, the result in Soutpansberg caused the shares to rise again. [Interjections.]

Now I should like to discuss a few matters with regard to our banking industry. I believe that last year the public had been made to have unrealistic expectations as regards what would happen to interest rates. The fact that interest rates have not fallen dramatically over the past few months has now unfortunately given rise to the misapprehension among the public that financial institutions are making unnecessary profits. I think it is necessary to point out and emphasize that banks and building societies are going to be carrying costly deposits in their systems for a long time and that that is going to make it impossible for them to grant the public immediate dramatic decreases in interest rates. Another interesting development in banking over the past month or two has been that after the cartel had been terminated, banks began paying clients interest on current accounts, or reducing their service fees. I want to sound a word of warning with regard to this aspect as well. The public must not get carried away by these announcements by the banks. I believe that in 95% of the cases the real benefit is not nearly as attractive as it is claimed to be, and this is due to certain minimums which are specified. However, the principle is to be welcomed. I want to concede that at the outset. I see that the hon. member for Yeoville is smiling. He therefore agrees.

I just believe we should be careful not to allow ourselves to be bowled over by this. The hon. member for Smithfield has already referred to the question of initial and investment allowances. I just want to refer to another aspect. It is that it is to be welcomed that the monetary authorities recently associated themselves very strongly with the principles of the free market mechanism, when interest rates were allowed to find their own levels. I should therefore very much like to know from the hon. the Minister whether the continuous and periodical adjustments to the Ladofka rates can still be justified, and whether that aspect should not also perhaps be seriously reconsidered.

Finally, I should like to point out that recently there has been a complete revolution in banking, as well as in finance, including building societies. I am referring to the revolution with regard to plastic money. Today almost every bank and building society has its own plastic card with which to trade. As I did last year during the discussion of this Vote, I wish to appeal once again to our financial institutions to get together on this, since a tremendous amount of duplication is taking place, duplication which I believe our country can ill afford. [Time expired.]

Mr. Chairman, it is, I believe, a quite pleasant Friday afternoon, the prelude to a long weekend for people other than ourselves, and there is a kind of atmosphere in this House in which one can actually discuss finance in the sense in which one should discuss it, without attaching any political connotations to it. That is really what I am going to try to do in the short time available to me now.

The hon. member for Paarl made a statement concerning Ladofka. I must say that I am really a little concerned about that statement of his because this country needs usury legislation, and whereas I am quite happy to agree to market mechanisms working in respect of interest rates, it is unfortunately so that one does need some kind of usury legislation in South Africa because there are people who seek to exploit the situation. Therefore, I must say that at the time we dealt with the Bill I made a series of suggestions in regard to it, but the principle that there should be usury legislation in South Africa is one which I hope the hon. the Minister will confirm, because I think we do need it in this country.

The other point made by the hon. the Minister was in regard to the banks, their profits and interest rates. I must say, Sir, that the profits of the banks are not so bad, despite the fact that there have been high interest rates. I think that the competitive element that is being introduced among the banks at this stage is of such a nature that they can in fact still make good profits. However, what is important is that people who invest should obtain a real return on their money. The hon. member can argue about interest rates as soon as we find ourselves in a position where the inflation rate is lower and people are actually earning real returns on their money. I say this because without real returns one cannot really ask people to invest on any sort of long-term or medium-term basis at all.

The hon. the Minister dealt with a number of matters and I should like to reply in regard to a few of them. Firstly, he indicated that he had already taken account of the drought in his preparation of the budget and that, therefore, unless things got drastically worse, we need not worry about it because it was under control. That is reassuring, but it actually leads me to another step. Because at the moment the gold price is obviously very much better than he budgeted for, we have a little money in hand, we have a little surplus money. Nobody is going to convince me that the hon. the Minister actually allowed in his budget for a gold price way in excess of $400. Therefore, I say with great respect that the hon. the Minister would appear to have a little money in hand and there are a lot of people standing in a queue who I believe are deserving and should be receiving something. The hon. the Minister should be in a position to do something about GST later this year in order to help in the fight against inflation. I am very happy that he made that concession because that was really what I was hoping he would do.

The second point I wish to raise is that the hon. the Minister did not reply to the issue of residence and nationality in respect of Black taxation. There is actually a principle in this regard that requires to be dealt with. The issue is particularly that, in the system as it is going to operate now, it is almost impossible for the national States to have a different system of taxation to ours. I think we need to look at this situation, because I feel it is something that cannot simply be ignored.

The third point dealt with by the hon. the Minister and to which I also wish to react, although I was going to deal with it in any case, is that of the Mint. I have a submission to make in this regard, namely that the proof Kruger Rand in fact has a scarcity value in South Africa. At the present moment the Mint is cashing in on that scarcity value because proof Kruger Rands are being sold, firstly, only one at a time and, secondly, for R700 each. Therefore the Mint is making a profit by selling proof Kruger Rands, just as it does by selling ordinary Kruger Rands. In those circumstances, I think that to continue to increase the number of proof Kruger Rands minted depending upon the demand would appear to be illogical. I say this because to some extent we are then reducing the scarcity value of that coin and thus also its value to collectors. While I do not wish to deprive anybody of the opportunity of obtaining proof Kruger Rands, I think there should be a limit set to the number of proof coins minted in order to preserve their scarcity value and to enable the Mint to make the profit that it is making on those coins. If there is an unlimited supply of these coins available, then there will no longer be a scarcity value attaching to them.

The next point I wish to make in this regard is that there is a high degree of uncertainty in regard to the price of Kruger Rands in South Africa at the moment because of the fact that people believe that somewhere along the line there is going to be a change in exchange control and so the question of being able to charge a higher premium for the Kruger Rand in South Africa than overseas is going to fall away, and that one is therefore going to experience a dramatic drop in the price of Kruger Rands unrelated to the gold price. I think that that kind of uncertainty in a market that is already uncertain because of the gold price is undesirable. I think the hon. the Minister should tell us whether in fact he has in mind doing anything about this premium in South Africa in respect of the Kruger Rand or whether in fact is is intended that this will be continued with as it is at the present moment. The Mint is budgeted to make a profit of R28 million this year. It is therefore a profitable organization and we need to run it on the basis that it is a business organization, but we have to bear in mind that it caters not only for the ordinary coinage need; it also caters for the collectors. In the business practice which is adopted, that should not be ignored.

I want to come back to a question which I think is a neglected one. Since 1974 I have spoken on three separate occasions about the Services Account. There is a problem and I want to highlight it again referring to the 1982 accounts. Those accounts show that there is an adverse balance on current account of some R3 037 million, but the adverse balance in respect of services for that year is R4 036 million; in other words, what is happening is that on the Services Account we are finding ourselves in an increasingly adverse situation. The reason for that, I venture to suggest to the hon. the Minister, is the fact that we pay out in dividends and interest something like five times more than we get from abroad. The situation is developing that the current account of the balance of payments is very seriously being adversely affected by this adverse situation in the Services Account.

One can ask oneself how one deals with this position. One of the ways of dealing with it s to allow controlled investment overseas by South African residents which brings profits back to South Africa. That is what I suggested earlier and I think there is a real reason for doing it.

The second suggestion is that greater incentives should be provided to the use of freight and insurance which is locally based, as opposed to freight and insurance which is overseas based. That, too, will help to improve the Services Account. I should like to make those two submissions to the hon. the Minister so that he can consider them.

Another matter which I should like to touch upon concerns employment and unemployment. I do not want to quote the statistics since they are well known, but there has been a deterioration in the employment situation as a result of the recessionary conditions. The question arises how far the hon. the Minister will allow the tight monetary policy to go in so far as its affect on unemployment is concerned, because it should be borne in mind that serious social implications flow from that. I think the hon. the Minister should give us some indication as to what he would regard as a dangerous unemployment figure before he would have to take stimulatory measures.

On that point also I should like to draw attention to a matter which has been publicized and with which I think particularly hon. members who come from the Eastern Cape would be familiar. I refer to the importation of Japanese cars in the lower price range into South Africa as a result of which one finds that despite the imposition of the 100% duty, these cars are able to undercut locally produced cars. Jobs in the Eastern Cape and elsewhere are put in jeopardy as a result of this situation. I understand that when the hon. member for Uitenhage went to see the hon. the Minister of Industries, Commerce and Tourism, he was told to make his representations to the Board of Trade. I think this is a scandalous situation, I really do, because there are South African jobs in jeopardy and we are allowing ourselves to become a dumping ground for other people’s cars without giving protection to our own workers. There is a lack of co-ordination between the various departments. I would have imagined that this is a matter which concerns all of us to such a degree that we should urge the hon. the Minister of Finance, who is concerned with the imposition of duties and the hon. the Minister of Industries, Commerce and Tourism, who is also concerned with it, to get together so that they can assist hon. members from that part of the country to deal with this, because unemployment in the Eastern Cape is not only their problem. That is one of the most volatile problems in South Africa. It is one of the most difficult areas that there is. I think that to allow that situation to deteriorate and to allow this to happen is an absolute disgrace. The Kleu Commission’s report indicated clearly that there is something wrong with the co-ordination of the various departments concerned. I should like to appeal to the hon. the Minister to take the initiative in respect of the co-ordination of these matters to protect the jobs of people in South Africa, particularly in an area which is a highly volatile and very difficult area for race and labour relations in South Africa.

While I have a little bit of time available, may I just briefly refer to another matter which concerns me and on which I should like the hon. the Minister’s reaction. An article appeared in the Press which challenged the statistics produced by the Central Statistical Services and the Reserve Bank. This was based upon some research done by a gentleman at the University of Natal. He challenged the growth rate, the mining production and also the productivity situation in South Africa as stated in official statistics. That in itself might not have been so serious because he presumably had a motive in putting it forward, but I find that he is supported by two professors. The one is Prof. Maasdorp of the Economic Research Unit at Natal University, and he is also to an extent supported by Prof. Kantor of the University of Cape Town.

Not really.

I have the quotations with me. Prof. Kantor is quoted as having said that—

That is what he said, unless he has been wrongly reported. Prof. Maasdorp is also quoted as having said that—

I find this very disconcerting, because to some of us the figures as published by the Reserve Bank are regarded as sacrosanct. I have never had any reason to challenge those figures. I think it would be a highly undesirable situation in South Africa that we should find ourselves in a position where the figures published by the Central Statistical Services and the Reserve Bank are challenged in these sort of circumstances. I should like to hear the hon. the Minister on this subject. I should like to get from him, after he has had the necessary information from the Reserve Bank, the assurance to the public of South Africa that those figures can be relied on and that they should not be subject to this kind of questioning, the basis of which is supported by two well-known academics.

I want to touch briefly on a matter which the hon. nominated member Mr. Aronson referred to, namely the question of the Croeser Working Group’s report. I should like to indicate that there are a couple of things that one wants to raise. Firstly, there is the question of the level at which taxation should be levied and the nature of such taxation under the new constitutional dispensation in which the provincial governments, as we now know them, might disappear and in which a greater degree of decentralization occurs. This is a matter which I believe requires still further study, consultation, negotiations and debate. On the one hand fragmentation of taxation creates inefficiencies, yet decentralization to protect minorities requires taxation powers on the part of those minorities. Whereas we welcome the tabling of the Croeser report, we believe that it needs to be debated in depth. There are a number of outstanding matters to be reported on. We await those with interest.

There are a number of things which I should like to raise. In paragraph 3.3 on page 8 of the report it is stated that the recommendations “are in the imperative”. Those are the words that are used. It is said that the recommendations are not in the form of a request. It is stated that the recommendations were submitted to and accepted by the Government, although it is not clear whether all of them were. Does this mean that all the recommendations in the Croeser Working Group’s report were accepted by the Government and represent Government policy today? If not, which have been accepted and which not? I quote—

That is the quotation. I quote further—

I quote further—

Bearing in mind what was said on page 10 of the report about possible changes in the light of the President’s Council’s report and bearing in mind that the report is dated May 1982 as also the subsequent debates and decisions on this matter by the TMA and the UME, I would ask the hon. the Minister to react to this.

Mr. Chairman, the hon. member for Yeoville made his usual substantial contribution in a finance debate.

Henry, thank you for your substantial contribution in Waterberg.

I think hon. members from the Eastern Cape, in particular, should be very grateful to the hon. member for Yeoville.

The hon. the Deputy Minister crossed swords with the hon. member for Sunnyside earlier this afternoon. However, the Nama-qualanders do not know the hon. member for Sunnyside, nor do the Waterbergers; but we in Pretoria know him!

The Waterbergers know you too.

In February 1981 the hon. member for Sunnyside had a little difficulty in gaining the NP candidacy in the Sunnyside constituency.

By how much did you win your nomination? By just one! [Interjections.]

Then, he wrote the following, amongst other things, to Die Transvaler on 2 February 1981—

The poorest countries in the world are those countries with the most rapid population growth. Consequently we were extremely alarmed at the data contained in the report of the President’s Council on the demographic trends in our country, and the expectations in that regard. If a country wants to grow, one of the prerequisites is that there should be an opportunity to provide the entire population with employment. People who do not have any work are simply fed by those who do. A person who does not work has no income on which to live. That is why I am saying that to provide work for the population, growing as it is—according to the reports of the President’s Council—and that after having provided those people with education to train them for certain tasks, is going to make very heavy demands on the economy of this country.

In my opinion 1983 is the year that was revealed the truth behind the water position in this country. We in this country will have to determine how much water is available and what can be done in this regard. We must determine how many industries can be supported with the water available, and with a view to this, how many people can be provided with work.

Water is one of the most important factors in the production process, and it is the production process that provides employment. We shall have to conduct a thorough investigation into the growth of the population on the one hand, and into our position with regard to water on the other. Subsequently we can plan for the creation of a viable economy which will bring with it prosperity and wealth for all of us.

Mr. Chairman, in the very short time at my disposal I want to complete my previous argument by referring to the question of the erosion of the tax basis.

It seems to me that if you look at company tax, very few companies pay the company rate of taxation. The point I want to raise is with regard to investment allowances as they were originally intended. When we see them being used for tax shelter leases and people derive no benefit from the machinery at all, is this what we actually intended?

Looking at individuals, I want to raise a second point. What equity is there in a system whereby a man who earns a straight salary of R60 000 per year pays X amount of tax, but a man who gets a salary of R40 000 per year, and who gets a subsidized housing bond, a company loan, a tax-free entertainment allowance, a fully maintained company motor-car and a loan at 4,5% which he can invest at 9,5% tax free, pays considerably less tax? The danger is that once you begin to erode the tax base, fewer people end up paying more and more. What happens then? They become demotivated and dishonest and spend most of their time trying to evade tax, rather than trying to get the economy to grow. I think that is the reason why there is such a high premium in South Africa at the moment on cash-based businesses.

I think the time has come to re-examine all these allowances, abatements and rebates in the light of what we want to achieve, what we want the economy of South Africa to look like by the year 2000. I would like to suggest that the criteria against which abatements, allowances and rebates should be measured, are threefold. Firstly, do they help to create employment opportunities? This is a critical issue in South Africa for over political stability. Secondly, do they help to improve the skills or the educational level of South Africans? Studies have been done in the United States recently, where people compared what is happening in the United States and in Japan. They are coming to the conclusion that one of the reasons why the Japanese economy has grown so substantially, is because of the educational level of their people, the money they have pumped into education. From an economic point of view, I think that education is one of the best investments you can make in South Africa.

The third point in evaluating all these abatements and allowances is whether they help people to provide for themselves so that they do not end up as a burden on other taxpayers.

Mr. Chairman, I should like to thank Mr. Van Staden, the Registrar of Financial Institutions, who is soon to retire, most sincerely for the excellent service he has rendered to our country. I should like to wish him everything of the best for the future.

I should like to say something about GST and about expenditure on our immigration campaigns. It is very clear that the introduction of GST has been a tremendous success over the past few years. This is apparent from the ever-increasing contributions to revenue we have collected in recent times and from the relatively few problems we have had with this tax. Moreover, this tax has a very broad base and imposes a tax on consumption and not productivity, as do many other forms of taxation. The success of this tax may also be ascribed to its being an extremely simple form of taxation. However, what I should like to emphasize is the positive attitude of our taxpayers towards this tax. This positive and sound attitude should be maintained.

I should like to speak about an aspect which is causing a certain degree of discontent, particularly in the border areas. I am referring to the fact that exports to the independent Black States are exempt from GST. Let me acknowledge at the outset that I agree with the principle that exports should not be subject to GST, for the sake of promoting our exports. They should not be subject to huge price increases, since this, would be detrimental to exports. However, what is involved here is the implementation of that principle in such a way that the ordinary taxpayer deems it to be effective and fair. The relative provision states—

It is very clear that this provision is necessary. There are many traders, farmers and other entrepreneurs who live very near our borders and who have to purchase their supplies in our country. Often this is the only place where they are able to purchase them. However, the problem concerns the control over this. Whereas a South African trader has to prove that he has been exempted from paying tax and has to submit his exemption number, a trader from a neighbouring State merely has to satisfy the seller that he is going to take the goods over the border immediately, that he conducts his business or activities outside the Republic and that he requires the goods for resale or consumption. That is all that is necessary.

With respect, I wish to suggest that that is insufficient. Why would a dealer in the Republic impose a stringent test on a prospective purchaser? Why would he be difficult? In doing so he would only be prejudicing his own business, his future business. What is happening in practice now—and there is sound evidence of this—is that a citizen of an independent State simply produces his passport or book of life as proof that he is a citizen of an independent State. On those grounds the seller exempts him from GST without any further control, for example that the man is a dealer or that he is going to use or sell those goods outside the Republic.

Those who pay GST within the Republic become extremely dissatisfied when they see this happening. The solution is obviously not to expect the independent State to issue these people with documents. We cannot impose administrative duties on independent States. The more stringent control of borders is also impossible. However, I am not aware of any reason why our own traders should be subjected to a more stringent test than foreign traders. Our traders have to have certificates for this, whereas foreign traders do not have to have them. Therefore I wish to suggest that the hon. the Minister should give this his attention, if possible. Perhaps he could provide that traders in neighbouring States who want to be exempted from GST should also be registered at the Receiver of Revenue in our country so that they can obtain an exemption number. These traders want to make use of our facilities. They want exemption from GST, and I believe that it is only fair that they should also have such a certificate. The additional administrative burden imposed on the Receiver of Revenue in the Republic ought not to be too great.

Now I should like to refer to expenditure on our immigration campaign, and I want to thank the hon. the Minister for the considerable increase which has been provided for in the present budget, in comparison with the previous main appropriation, for the expenditure of money on our immigration campaign. An amount of R7,232 million was budgeted for immigration in the main appropriation for 1982-’83. An amount of R11,209 million has been budgeted for immigration in the present financial year. I hope that this is a very strong indication that there will be a greater emphasis on immigration in the future. After all, I think that immigration is one of the most effective methods of combating inflation in the medium as well as in the long term.

During the 11 years from 1970 to 1981 the average increase in the nominal wage of a worker outside the agricultural sector was 13,2% per annum. However, the annual increase in production during the same period was only 3,7%. The total increase in employment during that period was 2,5% per annum. Therefore the total increase in productivity was only 1,2% per annum during the same period. This means an increase of 13,2% in wages and an increase of 1,2% per annum in labour productivity. If one subtracts one of these figures from the other, one arrives at a figure of 12%. That approximately gives us our underlying inflation rate, since it is very close to the average increase in our consumer price index which was approximately 11,1% per annum during the same period of 11 years. Therefore if productivity does not keep up with increases in wages, the difference is normally very close to the inflation rate. The determining of wage trends is a function of the market itself; a function of supply and demand. We have experienced tremendous increases in wages, solely because of one factor, and that is a general lack of competition in our skilled labour market. I do not think there is one Western country that has so little competition in the skilled labour market as this country. That is why, in contrast to other Western countries, our inflation rate has not declined as rapidly due to the high interest rates throughout the world. It is simply due to the fact that there is no real competition in our skilled labour market.

It is important to note that our revenue from wages and salaries constitutes the largest part of our national revenue. Therefore, when there are tremendous increases in wages, this must have a tremendous influence on our price levels. With a view to the imminent economic upswing, we simply cannot allow wages to rocket once again because of the Government and private sectors bidding for labour, since the necessary demand simply does not exist. If this should recur, we would simply not be able to do anything about our inflation rate.

Consequently it is very important for us to give serious attention to our immigration effort. [Time expired.]

Mr. Chairman, since I last spoke, I have again had the privilege of listening to a number of very interesting and I also think very valuable contributions. I do not think time will allow me to deal with all the different points that were raised. I do not think there is much time left. In any case, I shall see how far I get.

The hon. member for Bloemfontein North made a very interesting speech. He told us about the spiritual value of this small lc piece, the story of the two sparrows, the emblem, and asked whether the emblem of the two sparrows could not be used on a gold coin. This is a matter the Treasury and the Mint will go into thoroughly, and I want to thank the hon. member for his wonderful contribution.

†The hon. member for Hillbrow mentioned the possibility of the finance groups of the various parties visiting the Mint. It will be a pleasure. We shall be only too pleased to arrange that at a time to suit everybody.

In regard to building societies the hon. member stressed the importance of the building societies’ main objective, the financing of housing. I am in full agreement with the hon. member. I think it is important that they should retain their traditional character. The Technical Committee on Building Society and Banking Legislation is, as I think the hon. member is aware, looking at many aspects of the activities of building societies following upon the statement I made in my budget speech in regard to our policy in connection with building societies, and I think we are all looking forward to seeing what the recommendations of the committee are.

As far as the housing assistance scheme is concerned, this new scheme is in its very early stages and obviously we shall have to see how effective it proves to be. At the moment we are carefully listing any suggestions that are made and we shall give them very careful consideration particularly in the light of the way in which this scheme seems to be operating.

*The hon. member for Overvaal made a very interesting speech about our general economic and financial position, and I want to thank him for that.

The hon. member for Langlaagte again discussed and referred to the matter of GST, and whether it should be inclusive or exclusive. Of course any business undertaking may use either one system or the other. It may not use both. In this regard there can be no doubt as to exactly what the approach is. I shall discuss the matter with the Commissioner of Inland Revenue again, but what I do want to say is that now that the staff position in the department has improved fairly well, we shall of course be able to improve the effectiveness of the inspections and the investigations which take place in this connection. I think this will also contribute to solving certain of the problems raised by the hon. member. Perhaps we could discuss this again later.

The hon. member for Paarl quite rightly referred to certain threats emanating from certain committees of the American House of Representatives. This is concerned with the attitude which the IMF may adopt towards South Africa in future as well as the granting of credit by American banks to South Africa, particularly in connection with exports from America to South Africa and so on. Of course these matters are very important. I personally am depending on the sense of responsibility of the Senate and the American Administration in this connection.

As far as Ladofka is concerned, I think I mentioned in my reply to a previous debate that there was a committee of two experts thoroughly investigating the entire matter of Ladofka’s activities and also trying to ascertain how we may be able to control those rates better, apply them effectively and so on. I do think that it is necessary to have a prohibition on usurious rates so that there can be thorough control over this. As soon as we have received the report of that expert committee we shall see what the approach should be.

†The hon. member for Yeoville talked about the drought and then he proceeded to the question of gold. I was hoping to say something on gold, but I am not sure whether time is not going to catch me. The gold price has improved, fitfully since last June. I am not sure how the hon. member worked out what he alleged was my assumption on the gold price, but it is not quite right. Anyhow, he says the gold price has gone up and therefore I should have more money available. He wanted to know what I was going to do with it. The fact is that should the gold price go up, the hon. member knows that it takes a long time for that rise to percolate through the system into gold-mining profits. The gold-mining accounts then have to be assessed and that is a long process. Therefore, should the gold price go up now, it would not immediately affect the Exchequer in respect of quite a few mines.

I am prepared to take on a bet that you will have an average gold price that is higher than what you assumed at the time the budget was drafted.

But earlier the hon. member said that we had this serious drought and he wanted to know how I budgeted for the drought. I told him that I had to be careful. Obviously I have to be conservative somewhere.

He then discussed the Mint and the question of Kruger rands. The point is of course that the demand for proof Kruger rands has been rising very substantially. The latest figure of roughly 17 000 proof coins in relation to the demand is still leaving a very big number of people unsatisfied. There is therefore still a very strong scarcity factor, and that must be borne in mind. There is nothing like an unlimited supply of Kruger rands in relation to demand, not at all. He also mentioned the possibility of capital being allowed out of the country. It is not as though there is a complete embargo on South African capital going abroad. These things have to be put to the Reserve Bank and they take all sorts of criteria into account. It is no great sin if dividends and interest are being paid abroad from South Africa. We are making very, very good use of that capital in South Africa. It is adding to our technology, it is giving us better employment opportunities in South Africa and we ourselves are benefiting from taxation on those profits. If there is a successful overseas investment in South Africa it is therefore very much to the advantage of South Africa as well. I do not think that should be held against the argument that we should immediately abolish exchange control on residents.

He also discussed the national income statistics and the criticisms which have been made. I have seen only a rather short Press report but I have asked my office to get in touch with the gentleman concerned at the Natal University to ask him for a full account of what he said. That will be made available to the Reserve Bank immediately for its comment. We shall obviously examine this very thoroughly because I agree that it is a serious matter. We do place very great store on the authority of the Reserve Bank’s department of economics and statistics.

As far as the Croeser Working Group is concerned, there is the question of recommendations being put in an imperative form. They were only put like that because those are recommendations accepted by the Government, and therefore they must be implemented. The hon. member also asked how many have not yet been approved. In terms of formal approval, about 15. We have been waiting for greater certainty about the constitutional proposals, particularly as they will affect certain aspects of local government. That is the only reason why we held those in abeyance. However, we will proceed with those. In fact, those which have not been approved include a few recommendations in respect of direct transportation.

Mr. Chairman, can the hon. the Minister react to the attitude of the Transvaal Municipal Association to the proposals which have been made in respect of local Government financing? This is a matter which causes many of us very great concern.

I have taken careful note of that. The matter is at present with the Croeser Working Group. So I would rather hold that in abeyance for a short time. We can talk about that at a later stage.

The recommendations concerning the Joint Services Committees in the working group’s report were of course contained in the Browne Committee’s recommendations. The Government has not accepted the Working Group’s so far unpublished recommendation that the Joint Services Committees must be introduced. The Government has endorsed the two recommendations submitted which propose that the concept be investigated and propagated in view of the benefit of rationalization and the economies of scale involved—that is to say, where there is no political connotation attached to the Joint Services Committees.

*I also thank the hon. member for Hercules for his contribution. I listened to it attentively.

†The hon. member for Edenvale talked about the erosion of the tax base.

He made a very good speech.

I have said before that the hon. member is always worth listening to. If I understand him correctly, what he is referring to is the use being made of what is called leverage leasing schemes, where the tax base is hawked to somebody that can make some use of it. I think that was his point. This is of course a very general problem and is exercising the minds of tax authorities in many countries. There is a decided hardening of opinion against tax expenditures generally, as the Americans call these concessions and deductions. The norms of the hon. member are quite valid; there is no doubt about that. However, I think they are difficult to apply in an objective manner in the administration of taxes. As we want to do now with the new dispensation for building societies, we think tax expenditures should rather be substituted in such cases by direct assistance—one could call it subsidies—because then one knows exactly the amount, the cost and who is receiving the benefit. I agree with the hon. member for Yeoville that the hon. member’s speech was interesting and relevant.

*The hon. member Mr. Schutte touched on the matter of GST on exports to neighbouring States. This is a complex matter and has already received a great deal of attention from the tax authorities. I have a seven page memorandum on this matter here with me. I shall make it available to him. We might be able to discuss the matter further at a later stage. It is a complex matter and it will take quite a bit of time to explain my standpoint. I shall nevertheless take the matter up with him.

As far as the hon. member’s remark concerning the expenditure on immigration is concerned, I want to agree with him that immigration is very important. I am therefore glad that we were able to vote a larger amount for this and I hope that it will also be possible for this to happen regularly in future.

†May I just refer to the gold price. I take a sanguine view of the gold price. It has, with interruptions, been steadily rising since last June as a result of a more expansionary Federal Reserve policy in the United States; greater investor interest and anxiety over the solvency of financial institutions in the United States and elsewhere, particularly in respect of huge debts owing by Mexico and Brazil; and particularly the strengthening of the statistical balance of demand and supply. There has been a recovery in the fabrication demand—including in respect of jewellery, electronics and all the other industrial purposes—and there is also continuing interest on the part of central banks in gold. That means in relation to a fairly static supply of roughly 40 million troy ounces there is a strengthening demand position. It means that investment demand by private investors is not easily going to be satisfied. They will therefore bid against each other and against the industrial users of gold as well as the central banks. On a longer view that means that the gold price no doubt will, with fluctuations, tend to go up. I hope that will prove to be the case and that I will eventually have a little bit more money. We will then put it to very good use.

I thank all hon. members for their indulgence and I thank those members who took part in what I found an extremely worthwhile debate.

Votes agreed to.

House Resumed:

Progress reported and leave granted to sit again.

reported that the Standing Commiittee on Vote No. 24—“Education and Training”, had agreed to the Vote.