House of Assembly: Vol3 - TUESDAY 9 APRIL 1985
announced that in terms of Rule 54 of the Joint Rules and Orders of the Houses of Parliament he had on 28 March 1985 notified the State President by message that the House of Delegates in terms of Rule 27(4) had rejected the South African Police Special Account Bill [No 32—85 (GA)].
Introductory Speech delivered at Joint Sitting on 18 March
Mr Speaker, I move:
Before commencing my Second Reading speech, I have a pleasant duty to perform—namely to express my gratitude to several people.
Firstly I should like to thank the State President very warmly for his personal interest and involvement in this Budget from the time the aggregates started taking shape last year. The State President created a number of opportunities for the Cabinet and other members of the Government to be kept informed of the economic situation and of what is necessary for an economically sound budget today. Both I and all the officials involved in the preparation of the Budget, sincerely appreciate his interest and support.
To my Cabinet colleagues also, a warm word of thanks. Their co-operation has ensured that good work could be done, and in a pleasant spirit. I appreciate that.
A word of thanks is also due to the Director-General: Finance and all the officials of this Ministry and Department who, despite heavy pressure of work in a frequently tense situation, have performed their duties cheerfully and to excellent effect. Preparing a budget means putting in long extra hours of work—it demands not only scrupulous accuracy but also great creativity to resolve complex problems. Along with them I should also like to thank all the officials of all the various departments that have played their part in this Budget—and who begin tomorrow on next year’s Budget!
Thank you all for your attitude. It has been a pleasure to work with you.
1. INTRODUCTION
In introducing the Estimate of Revenue and Estimate of Expenditure from the State Revenue Account for the coming fiscal year I am aware that the occasion is one of unusual significance: This is the first Budget to be presented to a joint session of Parliament including the House of Representatives and the House of Delegates.
This Budget is based on specific principles and guidelines that are fair but strict.
Underlying the figures to be tabled are not only questions of economics but also the aims and aspirations of the millions of people in our diverse society. All of us, I am sure, would have preferred less economic turbulence underlying so portentious an occasion—but that is a subject with which we shall deal in due course.
Any Budget is, of course, primarily a financial statement. But a State’s budget is much more than that: It provides a vehicle by means of which the government of the day justifies, articulates and pursues its goals for the country.
A threefold ideal, comprising security, prosperity and self-determination, was embodied in the mandate asked for by the government in office at the last general election. The ideal became a commitment when that election was won. The subsequent referendum expanded participation in the Government and the legislature. This has brought about new dimensions to budgeting, wider processes of accountability and the active pursuit of common goals in four broad areas.
The first is the maintenance of an orderly society in the face of both internal subversion and external assault. The people of South Africa, whatever their cultural orientation or political views, have a right to look to the government for protection. Even those societies where the freedom of the individual has been exalted to the highest plane honour this solemn responsibility. Today’s Budget accords this basic requirement its rightful place.
The second area involves all those activities designed to address the constitutional complexities of a society as heterogeneous as that of South Africa.
To date, the post-colonial African experience has failed to maintain a truly democratic system capable of accommodating and serving culturally diverse nations—even in those cases where there were no differences of race. The constitutional development of South Africa with its concomitant demand for social and economic upliftment, indeed requires substantial effort and investment. Freedom, as with stability, has a price.
While the financial implications of constitutional policy alternatives may be quantifiable, to some extent, they will no doubt also be substantial. However, the irreversible and dangerous social and economic consequences of irresponsible constitutional experiments are incalculable and therefore clearly unacceptable to reasonable South Africans. We must hurry, but carefully.
The benefits of orderly and responsible constitutional development materialize slowly and require continuous reinforcement through effective communication and mutual trust. Therefore, if the differences in our society can be resolved by negotiation, by bold initiatives and the development of acceptable political structures at all levels, our great land of promise will certainly achieve the stability, security and prosperity that is its birthright.
It is encouraging that, within the constraints of this Budget, this vital area of responsibility can be generously accommodated to enable the Government effectively to pursue its complex and daunting brief.
The third area in which our goal is pursued, covers a wide variety of social activities. This Government has no hesitation in accepting its responsibility to take cognizance of the plight and needs of the disadvantaged and distressed people in our communities, and to cope with this human challenge to the best of its ability. For this reason substantial funds have again been earmarked for services such as education, training, welfare and pensions.
Finally, the Government also pursues certain economic goals. We remain committed to the principles of the free market and the free enterprise system. At the same time, the Government will not shirk its regulatory responsibilities whenever it is necessary to act as referee or arbitrator.
The results of our decentralization and deconcentration policies have proved their fundamental economic worth and soundness. Whilst it is accepted that initial costs may be high and yields modest, the cumulative and long-term effect of taking development and employment opportunities to where the resources are, makes eminently good sense.
As will be evident from the Budget, the Government will maintain its policy of actively supporting and stimulating essential and desirable commercial, industrial and mining activities.
A budget, essentially, addresses economic problems. This aspect will therefore be given full attention in a few moments. At this stage I wish to state that we shall apply responsible policies for the promotion of economic stability which demand that in this Budget in particular we address primarily the unacceptably high rate of inflation. Such stability is a prerequisite not only for the economic growth and well-being we all so ardently desire, but also for the attainment of those enduring goals of security, freedom and self-realization to which we aspire.
I now turn to a discussion of the economic situation forming the background to this Budget.
2. ECONOMIC CONDITIONS
Statistics, including the customary array of economic indicators reflecting the performance of the South African economy are, as usual, contained in the Statistical/Economic Review I shall table today.
2.1 Analysis
Four general points emerge clearly from an analysis of present economic conditions:
The first is that during the past two years the South African economy has been severely buffeted by an unprecedented and continuing stream of adverse extraneous developments that has inevitably left us less well-off as a nation than we would otherwise have been. This has necessitated a painful process of belt-tightening and adjustment. A temporary decline in the average standard of living, before it resumes its upward movement, must therefore be accepted as inevitable. This burden has to be borne equitably across the widest possible front.
The second is that until about the middle of 1984 the response of fiscal and monetary policy to these external shocks was, on balance, too slow and too lenient, thus permitting total spending to rise at an excessive rate with adverse consequences for inflation and the balance of payments.
The third point is that the more resolute application of our financial stabilization policy since the middle of 1984 has succeeded in achieving its initial objectives of curbing total spending and transforming a deficit on the current account of the balance of payments into a surplus.
The fourth point is that, despite these policy achievements, the “mix” of monetary and fiscal policy thus far has not been ideal. Throughout the past two years, notwithstanding the intended restrictive policy stance, the unduly expansionary results of fiscal policy have meant that monetary policy through this period has had to bear too great a share of the burden of stabilization. This has resulted in a rise in interest rates to levels that adversely affect many farmers, home-owners and other borrowers. Yet, these high rates have not at all times been high enough to prevent overspending, inflation and substantial currency depreciation.
2.2 Business cycle
Our economy at present finds itself in an economic downswing. In real terms—that is after correcting for inflation—many leading economic indicators are either declining or are rising more slowly while unemployment has increased.
This downward phase commenced about the middle of 1984. It followed a marked upswing during the preceding fifteen months, which brought about welcome increases in output, real income and employment and produced growth of 4½% in real gross domestic product for 1984 compared with a decline of 3% in 1983. However, this upswing stemmed largely from government and private consumer spending and could therefore not be sustained in the face of unfavourable extraneous developments in 1983 and 1984.
Foremost among these developments was a decline in the gold price from a peak of over $511 per ounce on 15 February 1983 to an average of less than $300 for 1985 thus far. Other factors were the drought and the sluggish recovery in world demand for some of our main non-gold exports. The upshot was a weakening of the balance of payments, a substantial depreciation of the rand and increased inflationary pressures.
In response, fiscal and monetary policies were tightened. Together with natural economic forces, this helped to bring about the needed cooling down of the economy from about the middle of 1984.
In the event, real gross domestic expenditure went through two quite distinct phases during 1984. At a seasonally adjusted annual rate it rose by 10% during the first half of the year and then fell by 5½% in the second, resulting in an average increase of just over 6% over the whole year. Its main component—private consumption expenditure—rose by 8% in the first half of the year and then fell by 9% in the second, giving an average increase of 2½% for the year. Another component—government consumption expenditure—rose by 9i% while gross domestic fixed investment declined by 2½over the year.
Present indications are that real gross domestic expenditure will fall further by about 4% during 1985 and that real gross domestic product will show little increase over 1984.
2.3 Balance of payments and the rand
For 1984, the current account of the balance of payments registered a deficit of just over R1 billion. There was, however, a substantial improvement during the year, from an annualized deficit of R2,8 billion in the first quarter to an annualized surplus of R906 million during the fourth quarter. For 1985 an overall surplus of at least R1,5 billion is expected. Both the actual and the anticipated improvements stem largely from the tightening first of monetary and later of fiscal policies.
On capital account there was a substantial net inflow of long-term capital of R2,7 billion during 1984, of which R880 million represented net purchases by foreigners of securities listed on the Johannesburg Stock Exchange. The result was that the so-called “basic balance”, that is the current account plus long-term capital movements, showed a surplus of about R1,6 billion for 1984. There was, however, a net outflow of short-term capital of over R3 billion, of which nearly R2 billion was recorded during the fourth quarter alone and which, as I shall indicate shortly, largely took the form of “leads and lags” in foreign payments and receipts.
Against the background of these balance of payments developments, the rand showed a marked further depreciation during 1984. From a peak of $0,91 in September 1983 it fell to $0,42 on 21 January 1985: A depreciation of 54% against the United States dollar and of 44% against a “basket’ of currencies, in which the dollar has a weight of 41%. Against a “basket” of non-dollar currencies, the depreciation was 41%. Since then, however, the rand has appreciated by about 14% against the dollar, 17% against the overall “basket” and 20% against the non-dollar currencies.
Four main reasons can be adduced for the depreciation of the rand between September 1983 and January 1985.
The first was the exceptional and unexpected appreciation of the US dollar against virtually all other currencies during this period. This alone would have brought about a considerable depreciation of the rand.
The second reason was the adverse impact on the rand of lower foreign exchange earnings or increased payments caused by the falling dollar price of gold, the relatively weak world demand for some of our other principal exports, and the drought.
The third cause was our rate of inflation, which for some time now has been about three times higher than that of our major trading partners.
More recently we have had to grapple with a fourth cause of the depreciation of the rand: Namely the development during the fourth quarter of 1984 and the first three weeks of 1985 of substantial “leads and lags”. These assumed particularly large proportions when the dollar suddenly surged upwards again in December 1984 and the gold price once again slumped, giving rise to the expectation that the dollar would appreciate further—as it subsequently did—and that the gold price would continue its fallas, in fact, it did. In these circumstances, many South African exporters delayed the repatriation of their foreign earnings, while many import and other foreign payments were accelerated—thereby bringing about a short-term capital outflow in the form of “leads and lags”.
The rapid recovery of the rand after 21 January 1985 and the relative strength it has recently displayed in the face of both the substantial further appreciation of the dollar against major currencies and the accompanying decline in the gold price, stem largely from the growing realization in the market place that monetary policy is proving effective in curbing spending and changing the balance of payments “fundamentals” in South Africa’s favour.
The rand was further supported by the introduction on 30 January of supplementary measures to alleviate pressure on the spot exchange rate. These included a tightening of the Reserve Bank’s arrangements for accommodation to banks, an expansion of the Bank’s forward exchange cover facilities and a decision to pay gold mines in dollars for only half of their production, with the balance in rand.
Given the existence in the world of a system of fluctuating exchange rates and the exceptionally large and unexpected appreciation of the dollar during the past two years, the policy of managed floating of the rand has produced good results.
It is true that the depreciation stems in part from insufficiently restrictive fiscal and monetary policies and that, inevitably, this has had inflationary consequences. But, managed floating has not been without its benefits: It has, for example, maintained and even raised the rand value of our principal exports, thereby also boosting tax revenues, and it has provided additional protection to many domestic manufacturers. It has also helped to retain long-term foreign capital in the country and to attract new foreign investment through the Stock Exchange and in other ways.
2.4 Foreign debt
South Africa has done well to avoid joining the long list of countries, including some quite large and developed countries, that have in recent years “over-borrowed” and have consequently been forced to “reschedule” their foreign interest and loan repayments. Our untarnished record in meeting such payments on due date has not gone unnoticed and has contributed greatly to our good overseas credit rating.
It is true that of the total foreign debt of the public and private sectors of about R40 billion at the end of 1984, some R17 billion represented short-term liabilities. But South Africa’s total annual foreign interest payments today still amount to only 6,2% of total exports of goods and services, which is low by international standards and well within our debt servicing capabilities. The proof for this relatively favourable position is to be found in the many new credit offers still being received from foreign bankers. We, however, accept only a small proportion of these because of our basically conservative approach to foreign borrowing.
Moreover, now that our balance of payments on current account has moved into surplus, we are in a position to repay some of the foreign short-term borrowings incurred previously.
2.5 Inflation
The combination of excessive domestic spending and the depreciation of the rand naturally exerted pressure on prices: After declining from a peak of 16,5% in May 1982 to 10% in February 1984, the consumer price index rose by 13,9% over the twelve-month period to January 1985. Excess monetary demand has now been reduced significantly, but its delayed inflationary impact is still being felt, as shown by the recent increases in certain key prices.
2.6 Monetary developments and policy
As it became clear during the course of the 1983-1984 upswing that total spending was rising at an excessive rate, the monetary authorities progressively adopted a more restrictive policy stance and allowed interest rates to rise in response to market forces. Thus the prime overdraft rate rose from 14% in June 1983 to 25% in August 1984, at which level it has remained, apart from a short-lived fall late last year in response to a weakening in the demand for credit and a recovery in the gold price.
This more restrictive monetary policy has since proved effective even though the favourable results are not immediately apparent from the money supply statistics as such. But they are indeed implicit in the marked decline during the course of 1984 in the velocity of circulation of money. The velocity of circulation of M1, for example, which had declined steadily from a factor of nearly 10 in the first quarter of 1980 to 5,7 in the fourth quarter of 1983, decreased further to 4,7 in the fourth quarter of 1984. The result is that the actual spending of money—that is the money supply multiplied by its velocity of circulation—has not risen nearly as much as has the money supply itself. In the final analysis it is, of course, the spending of money rather than the amount of money in the economy, that counts.
Bank credit to the private sector rose by 28% over the twelve months to December 1984, before showing an actual decline for January 1985. Consumer credit as such, however, has been effectively curbed from September 1984 onwards.
The willingness last year to accept more realistic market-determined interest rates contributed greatly to our success in financing the larger than planned “deficit before borrowing” for 1984-85 by means of tender and tap issues of Government stock, rather than by recourse to Reserve Bank credit. This sound financing procedure, at a time when the private sector’s demand for credit was rising and the net foreign reserves falling, naturally placed the banks’ cash reserves under pressure and increased their need for Reserve Bank accommodation via the discount houses. While accepting its role of “lender of last resort”, the Bank has progressively raised the cost of this accommodation in order to curb the expansion of the banks’ cash base and thus their credit-creating capacity.
2.7 Agriculture
In consequence of the calamitous drought of the past three years the Government has had to dig deep into the Treasury’s, and thus into the taxpayer’s, pocket in order to help the farmer. Financial assistance by way of grants and numerous subsidies, excluding subsidies on food, amounted to no less than R447 million in 1984-85 alone. Limited resources precluded greater assistance even in cases where extreme need persisted.
State assistance should, however, not be confined to the short term: Agriculture should be helped to help itself in confronting future crises.
The State President and several agricultural leaders have pointed to the need for a reappraisal of the method whereby agriculture is financed and to the possible creation of a system of reserve funds for farmers. The whole question was originally considered by the Standing Commission of Inquiry into Tax Policy and is now being pursued by the recently appointed Commission of Inquiry into the Tax Structure of the Republic of South Africa under the chairmanship of Mr Justice C S Margo. Its recommendations will receive prompt attention.
The crop prospects in most areas are very much better this year and I therefore make an earnest appeal to our farmers to avoid as far as possible outlays on less-pressing capital items and postponable improvements, and to devote any surplus funds rather to the redemption of existing debt. Subsidization of the interest on such debt involves a heavy burden on the Treasury and thus the taxpayer and cannot be indefinitely maintained. Suggestions are heard on occasion that the State will ultimately have no choice other than to write off farmers’ debt in part, or even in full. But those holding this view would be well-advised to take note of the fact that the Exchequer does not now have, nor is it likely at any future date to have, sufficient surplus funds to apply in this way. Raising taxes on a massive scale for purposes of such outright grants, is equally unlikely.
The desperate debt situation in which many fanners find themselves is nevertheless well understood and regarded with sympathy and compassion by the Government, as evidenced by the vast amounts of taxpayers’ money spent on aid for farmers. However, the lasting solution to agriculture’s problems, apart from climatic considerations, clearly is not to be found in grants and subsidies, but lies in the will and energy of every producer to organize his affairs in accordance with the best principles of both farming and finance and in the creation by the authorities of conditions and facilities to this end.
3. FISCAL AND MONETARY STRATEGY FOR 1985-86
Against the background of the review of the state of the economy, I shall now set out in some detail the Government’s strategy for dealing with the current economic problems and for promoting economic stability and growth in the year ahead. The precise Budget figures, which form a basic part of this strategy, will as usual be presented later in this address.
3.1 Quantitative targets
In spelling out the strategy, I shall not attempt to set precise quantitative targets by year-end for the inflation rate, the growth rate, the exchange rate, interest rates and a number of other economic variables, as some commentators would have us do. I believe no government in a free market economy can do this with a degree of accuracy that can assist planners in a meaningful way, particularly not in a world of volatile exchange rates, interest rates and commodity prices.
These variables affect relatively small and open economies such as ours much more severely than their larger more mature counterparts elsewhere. To give just one example: A rise or fall of $50 in the gold price, which could occur at any time, would immediately exert a material influence on financial conditions and call for rapid monetary policy adjustments, resulting in inevitable albeit desirable changes in, for example, interest and exchange rates.
Independently set targets will more often than not in the short term also be mutually inconsistent and therefore incapable of simultaneous attainment. There is, for example, such a close interrelationship between the money supply, the level of interest rates and the exchange rate that a meaningful target can be set for only one of these variables, after which the other two will adjust to their own levels. What we can and shall do, however, is to set out in detail our fiscal and monetary policy framework, including our ultimate and intermediate objectives and priorities, the policy instruments to achieve them, and the broad time scales we envisage for these policies to bear fruit.
3.2 Policy implications
The policy implications for the year ahead are very clear.
Basically, the situation calls for an effective and not a notional continuation of our economic strategy of curbing the expansion of total spending in the economy by means of monetary and fiscal policies, policies that are in accordance with the Government’s declared aim of promoting private enterprise and effective competition. There is an essential need to add more fiscal policy to the overall policy “mix”.
Indeed, the recent confluence of national and international events has made today’s Budget one of the most important events in the economic history of South Africa. It is no exaggeration to say that the key to the stability and growth of the South African economy in the period immediately ahead lies in the decisions taken at this juncture regarding Government spending, taxation and public debt management and in the reaction to and perceptions of our efforts in this field.
For fiscal policy to play its full and fair part in overall strategy in the year ahead, today’s Budget will have to meet as closely as possible three basic conditions.
Firstly, there must be no increase in real terms in total Government expenditure for 1985-86, compared with 1984-85.
Secondly, current expenditure, such as salaries, must not again be financed by borrowed funds, as has happened to an unacceptable extent during the past two years. In technical terms, Government “dissaving” must be eliminated and the Budget should rather contribute to “saving”.
Thirdly, the Budget “deficit before borrowing”, that is the difference between total expenditure and tax revenue, must be restricted to an amount that can be financed by borrowing without either significant resort to bank credit or contributing to any upward pressures on interest rates. Under present conditions, this means that the deficit must be kept below 3% of gross domestic product.
As today’s Budget unfolds, it will become clear that these conditions will be met and that an improved and appropriately restrictive “mix” of fiscal and monetary policy will be applied in the year ahead.
In the long term, no fundamental conflicts or “trade-offs” are seen between the goals of price stability, balance of payments equilibrium, stable and high growth and low unemployment. But short-term conflicts do exist and then policy priorities must be determined. At the moment, for example, priority must be accorded to counteracting inflation and strengthening the balance of payments, stabilizing the exchange rate and increasing the net gold and other foreign reserves. Great importance continues to be attached to the objectives of growth and employment. It is my conviction that the best way to achieve these aims in the longer term is first to curb inflation and to strengthen the balance of payments. But, special attention will also have to be given to the amelioration of the effects of unemployment.
3.3 Reduction of Public Servants’ bonuses
The commitment of the Government to produce a structurally sound budget and minimize the burden on the taxpayer could hardly have been demonstrated more dramatically than by the decision to reduce current expenditure by cutting staff-related costs by some R500 million in 1985-86.
The Government decided on the reduction of public servants’ bonuses (the “thirteenth cheque”) from 8⅓% to 5½% of annual salary only after very thorough investigation and discussion and as a last resort. After all, taxation can only be reduced if the need for it, namely State expenditure, is first reduced. This step followed only because the very substantial cuts in other current expenditures were still inadequate for purposes of sound budgeting, and after the reduction of 3% in political office-bearers’ taxable salaries.
From the many and varied responses elicited, one particular reaction needs to be recorded here, since it admirably reflects both the purpose and, in particular, the spirit in which the Government took this responsible step.
General Viljoen, Chief of the Defence Force, said the following in a recent television interview:
†3.4 Operation of strategy
The present strategy will operate in the following manner.
Firstly, the process of reducing total public and private sector spending in real terms, which began after the middle of 1984, will be continued. The role of fiscal policy in this process will be dealt with in detail today. In addition, monetary policy will remain tight as long as the situation requires.
Secondly, the surplus that has already been achieved on the balance of payments on current account is expected to increase in the course of 1985 and will have to be maintained long enough to bring about an appreciation of the rand in the foreign exchange markets and a meaningful rise in our net gold and other official foreign reserves. Despite the further fall in the dollar price of gold in recent months, this process is well under way, assisted not only by the decline in total spending but also by the effects of the lower exchange rate of the rand.
Thirdly, as the pressures of excess demand are diminished and the influence of the lower rand dissipates, the rate of inflation must perforce decline. As has been emphasized from the beginning, however, this can be expected to happen only after the present limited but inevitable acceleration of the rate of inflation has run its course. This acceleration stems mainly from the substantial depreciation of the rand between September 1983 and January 1985, and has not yet had its full impact on administered and other prices in the economy.
It must be recognized that most of the recent upward price adjustments, including the increases in fuel prices, electricity tariffs, transport costs and postal and telecommunication rates, are simply consequences of forces set in motion in 1983 and 1984. By the same token, current policies and developments will exert their full beneficial effects on prices hopefully towards the end of this year but certainly in 1986 and thereafter.
Only when these objectives have been achieved will the stage be set for a new economic upswing and a period of high and sustainable economic growth—which remains our fundamental policy objective. In the meantime, it must be accepted that the required further period of austerity and adjustment in the economy will pose challenges to economic management and entail hardship and sacrifice. But this is the only way to lay a sound foundation for growth and prosperity in the medium and longer term.
This approach rules out any artificial stimulation of the economy by such means as additional Reserve Bank money creation. It must nevertheless be recognized that there are already expansionary forces at work in the economy. One is the existing high level of public sector expenditure. Another is the increase in the rand value of gold and other exports caused by the depreciation of the rand. Both these forces are generating additional income and expenditure in the economy.
While some sectors of the economy are clearly experiencing a severe downturn, others are faring much better. The chances of so-called “overkill” in the economy as a whole are therefore remote. On the contrary, on the basis of past experience, the present downward phase of the business cycle will in due course be followed by the next upswing. Precisely when that will happen is impossible to predict, but both the timing and the sustainability of the next upturn will be materially influenced by the fiscal and monetary policies applied in the coming months.
The strategy I have just outlined is in broad agreement with the views expressed by the Economic Advisory Council during its recent meeting and by the International Monetary Fund Mission in their preliminary report to me only a fortnight ago.
Before dealing with the actual outcome of the 1984-85 financial year, I should like to refer to two matters, namely the problem of controlling expenditure overruns and the effects of the new constitutional dispensation on Government accounts.
3.5 Expenditure Control
Last year’s Budget announced measures to control Government expenditure during the course of the year, with seasonal fluctuations in Exchequer disbursements a prime target for improved control and cash flow management. The system attempted to peg monthly recurrent expenditure at about one-twelfth of the annual provision but only limited success was achieved.
This approach will therefore have to be replaced in the coming year by a cash-flow planning mechanism based on a 12-month projected cash profile of the expected spending of each department. The purpose of this monitoring exercise is to create an early-warning system for possible over-expenditure, so as to enable departments to take timeous corrective and compensatory steps, or for Cabinet to consider the priority and other implications of unavoidable but justified additional expenditure.
With the commitment and co-operation of my Cabinet colleagues and their departments this combination of intensified monthly monitoring and compensatory action where required, will keep overruns to a minimum.
I should like to caution analysts not to use the statistics of Exchequer issues, particularly for the first quarter of the next fiscal year, as early indicators of State spending for the full year, since these statistics are normally subject to seasonal variation. Moreover, in the coming year special factors will distort such comparisons further—such as interest on the public debt and the increases in teachers salaries. As to the latter, there is the further point that the increases for October and November last year will be paid only in April and May of this year.
3.6 Constitutional Dispensation
For the coming financial year, the Revenue Accounts Financing Act, 1984 prescribes the quantum of the transfers to the Accounts for Own Affairs in terms of section 84(a) of the Constitution. Additional amounts are granted under paragraphs (b) and (c) of the same section. Every endeavour is being made by my department to design formulae that will apply to payments made in terms of section 84(a) in subsequent years, and draft legislation will be tabled in Parliament this year.
The new constitutional dispensation has necessitated extensive structural changes not only to the Estimates of Expenditure now before Parliament but also to the whole fabric of our accounting procedures. Congratulations are due to my three colleagues, the Ministers of the Budget and their embryonic staffs, not only for establishing their departments successfully but also for meeting all deadlines in their own budgetary cycles for 1985-86.
Allow me also to refer briefly to the unique nature of the main Appropriation Bill. By its very nature and impact, it is not a measure that can be freely debated in advance of tabling, as is done with most of the other Bills in accordance with the operation of the new Constitution. The Standing Committee on Finance, to which the Appropriation Bill is about to be referred, and on which Government and Opposition parties of all three Houses are represented, would be required to deliberate on a set of proposals in the drafting of which the legislature per se had not been involved.
In this connection I am aware that the machinery for advance consultation and reaching consensus is, particularly in the financial sphere, still in its infancy and that, depending upon experience gained this year, somewhat different roles may have to be assigned to the Standing Committee on Finance in future.
I would welcome the greater involvement of the Standing Committee on Finance in the regular monitoring of monetary and fiscal developments and its inputs in regard to possible corrective or alternative policy measures.
Meanwhile I shall follow, with great interest, the standing committee’s deliberations, and shall be happy to participate in any of its activities, should it so desire.
4. LONGER-TERM FISCAL AND MONETARY STRATEGY
In the nature of the case, today’s Budget will deal primarily with Government finance in the year ahead and with its role in the present short-term fiscal and monetary strategy. It is of the utmost importance, however, to view the Budget also in the context of the Government’s longer-term fiscal and monetary strategy. This is particularly necessary at this juncture because today’s Budget is in more ways than one a “special” Budget designed to deal with a “special” set of circumstances, and therefore not in all respects “representative” of the official longer-term financial strategy.
The main goals of our longer-term financial strategy are a high and sustainable rate of real economic growth and the creation of adequate employment opportunities—on the basis of reasonable price stability and a sound balance of payments. The South African economy certainly has the potential for rapid and sustainable growth. The Government is committed to the realization of that potential.
A major concern in this regard is that the achievement of an average annual growth rate of 3,6% until the end of this decade, as envisaged in the 1979 Economic Development Programme, still leaves us with a structural unemployment problem. Special measures to deal with this issue are therefore called for.
The strategy to achieve our long-term goals is based on the following financial principles.
Firstly, all expenditures, current as well as capital, for which the Exchequer itself assumes responsibility, must be brought back onto the central Government’s Budget. This excludes the expenditures of State business enterprises such as the SATS and Posts and Telecommunications, and public corporations such as Escom and Iscor.
Secondly, total public sector spending in relation to the gross domestic product has increased over the past three years from less than 35% to approximately 37% in 1984. Despite the fact that a percentage increase in public sector spending is normal in a downswing, it is the Government’s intention to reverse this rising trend and to reduce the percentage to below its 1981 level before the end of this decade.
Thirdly, it is intended that the deficit before borrowing of the Government sector will not in future years exceed 3% of the gross domestic product, barring highly unusual circumstances.
Fourthly, the public sector’s deficits will be financed in a manner that will facilitate as far as possible the realization of such target rates of growth of the money supply as may be set by the monetary authorities.
As regards the second and third of these goals, the State President’s Committee on National Priorities has already discussed in depth preliminary guidelines for growth in public sector spending until 1990-91, that is for general government, state business enterprises and public corporations, as well as guidelines for the increase in central Government budgetary totals as such.
In the case of the central Government Budget, preliminary targets have been agreed upon for nearly three-quarters of our total budgetary expenditures. Research into the remainder should be completed by the end of this year.
With regard to monetary policy, the Commission of Inquiry into the Monetary System and Monetary Policy in South Africa has made an intensive study of the feasibility and desirability under South African conditions of setting and announcing target ranges of growth for monetary aggregates such as M1, M2 and M3. Its final report is expected within the next two months. If the commission’s recommendations prove acceptable to the Government, no time will be lost in implementing them as part and parcel of the longer-term strategy.
Further lines of action in the longer-term strategy are the following.
Firstly, the Government aims to revise certain features of the present tax system that will serve to strengthen fiscal incentives and to enhance productive effort and productivity, saving, investment, risk-taking and innovation. The reports of the Margo Commission should provide highly valuable guidance in this regard.
Secondly, we shall seek to ease further the remaining rigidities in the labour market; to promote the education and training of the various segments of the labour force; and to foster the geographical and occupational mobility of the country’s labour resources.
4.1 Privatization and deregulation
I am pleased to emphasize the fact that in keeping with the policy of promoting free enterprise contained in the preamble to our Constitution, the Government is purposefully seeking ways and means to give definition and effect to this policy, insofar as it affects all levels of government as well as State corporations and enterprises.
Privatization will allow us to harness the skills and energies of the private sector in major areas of economic activity that are still within the ambit of the public sector. The attraction of this approach is that, through sensible privatization: Services can be made available at lower unit cost; unused or underutilized capacity can generate income; current expenditures can be reduced; and—most importantly, particularly viewed against the very large amount needed for debt servicing—the proceeds from the sale of public assets can be used to lower the public sector debt which, by reducing the interest burden, will assist us in further pruning current expenditure levels.
A case in point is the privatization of certain hospital services.
Furthermore, the Government takes a serious view of the whole question of regulation, licensing and administrative procedures insofar as these act as a brake on economic development and on the ease of entry of the underdeveloped and informal sectors into the mainstream of our economic life.
It is heartening also to be able to state that, in response to a memorandum from my colleague the hon the Minister of Trade and Industry, the Cabinet has recently decided to recommend to the State President that the President’s Council be requested to investigate all regulations, standards, licensing requirements and conditions, as well as administrative delays and red tape that could hamper economic development in general and the small business sector in particular. This investigation should embrace all levels of government. This inquiry will provide an opportunity to all interested parties to submit representations.
It is my belief that our endeavours in these various fields will contribute materially to a climate favourable to future economic development. To the extent that they do so, they will also contribute to the neutralization of current pressures for disinvestment by overseas interests.
I should next like to deal with the accounts for the present year.
5. FISCAL YEAR 1984-85
5.1 Revenue
Total revenue for the year now ending is estimated at R23 835 million, which is only 4,6% higher than the Budget estimate of R22 777 million. Inland Revenue sources contributed R21 920 million, an increase of R931 million or 4,4% on the original estimate of R20 989 million, while customs and excise collections of R1 915 million are R126 million or 7% higher than the estimate of R1 789 million.
The variation between the present and the original estimates arises from only a limited list of sources. In the case of Inland Revenue the volatility of the gold price and its rand value once again influenced tax and lease payments from gold mines: The present estimate of R2 025 million for gold mines represents an increase of 9,8% on the March 1984 total of R1 844 million. Structural changes in this sector, such as joint ventures and mergers, increased capital expenditure, and higher outlays have contributed to a decrease of R1 608 million in the total revenue from the gold mines, from R3 633 million in 1980-81 to the present R2 025 million, despite the 1984-85 rand price of gold having been approximately R550 per ounce or some R100 higher than the 1980-81 average.
The withdrawal of certain allowances announced in last year’s budget influenced revenue from non-mining companies to a greater extent than anticipated, and the R3 855 million expected from this source is about 13% higher than the Budget estimate of R3 410 million.
Although the present estimates for income tax from individuals of R7 840 million and general sales tax of R5 895 million are R144 million and R60 million respectively higher than the Budget estimate, the percentage increases are only approximately 2% and 1% respectively.
The increase in customs and excise collections is almost entirely accounted for by the R224 million or 19,5% increase to R1 370 million in customs duty. The latter can be ascribed to the relatively high level of imports during early 1984 as a result of the mini boom and to the high rand value of imports, because of the weak exchange rate of the rand. The present estimate for excise duty of R1 885 million is very close to the actual budgeted total. Payments to our Customs Union partners and South West Africa must however be subtracted from total customs and excise receipts: The sum involved is R1 410 million, which is 5,3% higher than the estimate of R1 339 million.
5.2 Expenditure
Although I dealt with the overruns on expenditures fairly extensively during the debate on the Additional Estimates for 1984-85, it is not inappropriate again to highlight a few of the services that resulted in the main Estimate of Expenditure of R25 357 million, submitted in March last year, increasing to no less than R27 194 million by the end of March this year.
5.2.1 Disaster relief and food subsidies
The disastrous drought of the past few years continued unabated for the best part of the 1984-85 financial year, and the Government was compelled to maintain wide-ranging relief measures to the agricultural sector, to keep fanners on the land and to shield the consumer from the high cost of imported grain. The sugar industry also required continued subsidization.
Optimism in March last year, which had prompted the provision of only R280 million for drought relief and R160 million for food subsidies, was in retrospect clearly unfounded and, in the event, these allocations had to be augmented by R89 million and R249 million respectively. To crown it all, cyclone Domoina left a trail of destruction, resulting in the Exchequer’s having to contribute R31 million to ameliorate some of its effects.
5.2.2 Public debt costs
In contrast to previous years, this year’s figures on public debt costs have been adjusted to exclude discounts on stock marketed at a discount. The main reason for this lies in the fact that a discount should not be debited as the full direct cost in the year in which the stock is issued. The discount is, in terms of section 20(1) of the Exchequer and Audit Act, essentially self-financing. On this basis the cost of servicing our public debt during 1984-85 will be approximately R4 011 million—up by R521 million from the R3 490 million provided for in the main Estimate. The chief contributing factors to this increase were domestic interest rates, which were markedly higher than anticipated, and exchange rate losses. The State, being the insurer of last resort, obviously cannot cover itself against such losses.
5.2.3 Other deviations
Other major deviations from the 1984-85 main Estimate were transport subsidies (plus R129 million), protection services (plus R292 million), land and housing affairs (plus R156 million) and provincial subsidies (plus R84 million).
5.3 Financing of the 1984-85 deficit
The present estimates of R27 194 million and R23 835 million for expenditure and revenue, respectively, point to a deficit before borrowing of R3 359 million, or some 3,2% of the gross domestic product. Redemptions of loans during 1984-85 will amount to R2 538 million; this will be R363 million higher than anticipated, and is due mainly to an increase in bond and foreign loan redemptions.
The net result is a total financing requirement of R5 897 million for 1984-85, some R1 142 million or 24% higher than budgeted for. However, the Exchequer’s funding programme has once again been extremely successful and a total amount of R6 362 million will have been raised by the end of this month, mainly from the non-bank private sector, leaving a surplus of R465 million.
A feature of the past year’s financing programme was the R1 600 million raised in new Government stock. This is R685 million, or 75%, more than the R915 million originally envisaged. The decision to discontinue the bonus bond scheme is reflected in a R194 million decrease in total bond receipts over the year, which yielded only R161 million net. New foreign loans, on the other hand, yielded R175 million more than the budgeted R425 million.
To the surplus of R465 million I propose adding the current balance in the Stabilization Account of R194 million, which increases the total to R659 million. This will enable the Exchequer to clear the outstanding balance of R654 million on the Gold and Foreign Exchange Contingency Reserve Account with the Reserve Bank as at 31 March 1984. This latter amount represents the net loss incurred by the Reserve Bank for the account of the Exchequer in respect of the forward cover facility provided to the private and semi-state sectors in respect of their foreign exchange dealings up to end March 1984.
This leaves a small surplus of R5 million for the current year, which I propose transferring to 1985-86 and utilizing for the Small Business Development Corporation. I shall however return to this matter later.
6. FISCAL YEAR 1985-86
6.1 Revenue
On the current basis of taxation, total revenue is estimated at R26 585 million, an increase of R2 750 million or 11,5% on the revised estimate for 1984-85.
Inland Revenue collections are expected to increase by R2 785 million or 12,7% to R24 705 million. All the major revenue sources are expected to show increases notwithstanding low levels of economic activity. Tax and lease revenue from gold mines is estimated at R2 350 million, a rise of 16%. Despite the present depressed levels of profitability, income tax on non-mining companies is expected to yield R4 250 million, an improvement of more than 10%. This estimate represents a trade-off between the effect of the changes in the allowances already referred to—the full impact of which becomes effective in the coming year—and the continuing depressed economic climate.
Individuals should contribute some R8 950 million in income tax, an increase of R1 110 million or 14,2%. This increase is much lower than that for the current year but reflects the net loss of revenue expected from fringe benefit taxation as well as the more moderate average increases in taxable emoluments in the public and private sectors and, therefore, the lessened effect of fiscal drag.
The estimate of R7 100 million for general sales tax is R1 205 million above the 1984-85 figure. A straight comparison of the two in percentage terms would be misleading as the present differentiated GST rate was introduced only some way into 1984-85; on a comparable basis the increase next year would be about 12%.
Total net customs and excise revenue may fall for the first time in recent history, by some 1,8% to R1 880 million, even though arise of as much as 7,7% to R1 475 million is expected in customs duties alone. Transfer payments in respect of the Customs Union are estimated to increase by as much as 9,9% to R1 550 million, representing 45% of the gross customs and excise receipts and exceeding the total revenue earned from customs duty.
This fall in net customs and excise duties can be attributed mainly to the growth of the Customs Union payments. This worrying state of affairs is receiving the urgent attention of Government, and the outcome of an independent study now being carried out into this issue is awaited with great interest.
While on the subject of revenue collections, I feel it appropriate to offer a few general thoughts on our tax structure.
*6.2 The Tax Structure of South Africa
6.2.1 Tax reform
Tax reform has of late received increasing attention world-wide in a variety of ways. The trend seems to be one of the reduction of taxes in order to create and expand wealth. This is in sharp contrast to the more “orthodox” approach of increasing taxes to redistribute wealth.
6.2.2 The Margo Commission
Our own tax structure has recently been severely criticized in various quarters. The appointment of the Margo Commission is the Government’s own acknowledgement that the present system needs in-depth revision and confirmation of its own publicly expressed reservations on the matter. I expect the commission to be innovative in its investigation and, if need be, to propose far-reaching changes in order to enable the new structure to meet the many and varied demands our economy will place on it.
In these circumstances the ideal approach would probably have been to refrain from making any basic changes until the commission had submitted its report. In the present economic climate this is unfortunately not possible, and although major basic changes could be avoided, certain interim tax adjustments, which I shall presently discuss, have been unavoidable. These changes are of necessity ad hoc in nature, but the commission will be requested to evaluate them as part of its inquiry.
While on this subject I should also like to draw the attention of hon members to a few matters that have not yet been finalized or conclusively studied by the Margo Commission, but on which some comment at this time seems appropriate.
6.2.2.1 Indirect taxes
The first concerns the thorough investigation into indirect taxes conducted recently by a technical assistance mission of the International Monetary Fund at the request of the Department of Finance. I expect a written report from the Fund before the middle of this year, but discussions with this mission indicated that the report will be of great assistance to both my department and the Margo Commission.
6.2.2.2 Working couples
I had hoped to have been able to address this problem of the taxation of working couples in the 1985 Budget after the Margo Commission had had an opportunity of framing recommendations in this regard. However, the commission advised me that it is unfortunately not in a position to make any recommendation on the taxation of married couples at this early stage of its work, and much as I should like to deal with this long-standing issue now, it would clearly be inappropriate either to confirm or change the system before the recommendations of the commission were to hand.
6.2.2.3 Estate duty
Once again, because of the short time since it has been constituted and the urgent attention it had to devote to fringe benefits taxation, the Margo Commission has not found it possible to discuss and formulate recommendations on estate duty and all related issues. It has however been informed that in the Government’s opinion estate duty, at least in its present form, can no longer be regarded as appropriate to the needs of our time. As an interim measure, certain amendments will be introduced during this session of Parliament in consequence of the Matrimonial Property Act, 1984.
6.2.2.4 Insurance policies
The growth in the number and value of insurance policies with no risk cover is causing concern. These policies, usually referred to as “pure endowment” policies, are simply investments with no life cover, but by reason inter alia of the provisions of the Income Tax Act relating to the taxation of insurance business, the rate of return on such policies is appreciably higher than that offered on many other investments.
This problem of lack of tax neutrality was referred to the Van der Walt Committee appointed to inquire into matters relating to long-term insurance. Unfortunately that committee has not yet been able to submit a report on this matter. Because of the appointment of the Margo Commission with wider terms of reference, this issue should now also be dealt with by the latter body. As soon as its report is received this problem will be given urgent attention.
6.2.2.5 Fringe benefits
It has come to my attention that dubious schemes for avoiding taxation on fringe benefits continue to be devised. Some of these schemes involve for example the granting of housing benefits channelled indirectly through pension funds, insurance companies and other parties.
I must reiterate what I said earlier during the present session of Parliament: I shall not hesitate to introduce legislation to counter such schemes, and with retrospective effect. Employers and their advisers who indulge in such practices would be well advised to take note and accept that they are now at risk.
6.2.2.6 Tax collections
In spite of difficulties caused by a shortage of trained staff and inadequate accommodation, Inland Revenue has succeeded in increasing its tax collection efficiency by dint of a special effort during the latter part of last year. The results are reflected in the growth in revenue figures. I thank the officials for their efforts.
It is self-evident that Inland Revenue must take enforcement measures and deal strictly with defaulters. One would, however, have preferred taxpayers to meet their obligations voluntarily.
It is regrettably true that there are those who consciously and wilfully evade taxation and those who cynically manipulate tax avoidance to such an extent that it cannot be construed as anything but evasion of taxation. I have requested the Margo Commission to look into all possibilities of increasing our capability to collect as completely as possible from taxpayers that which they rightfully should pay to the fiscus and to advise me on making penalties substantially heavier and substantially increasing fines where appropriate.
The Commissioner for Inland Revenue, however, is by law clothed with a measure of discretion when dealing with various degrees of transgression. He has agreed to treat with leniency those who are willing to come forward during the next three months, that is until the end of June 1985, to rectify matters and also those who through ignorance have not fully shouldered their tax responsibilities. As from 1 July, the Commissioner will deal severely with those who are cadging a tax lift on the backs of their fellow South Africans. I trust that those concerned will make use of this period of grace.
I hope to receive the Margo Commission’s recommendations on all the issues mentioned and many others in the course of the next twelve months or so. The work already done by the commissioners, their enthusiasm, thoroughness, experience and balance are noted and sincerely appreciated by all and I have no doubt that the work and effort being put into its mammoth task cannot but redound to the benefit of all.
I now wish to turn to the 1985-86 expenditures.
6.3 Expenditure
The printed Estimate of Expenditure tabled today, including transfer payments to the Administrations of the House of Assembly, the House of Representatives and the House of Delegates in terms of section 84(a), (b) and (c) of the Constitution, amounts to R31 145 million.
This will, however, be reduced by R417 million to R30 728 million, representing that portion of the nearly R500 million saving on personnel-related costs recently announced by the State President which could not be reflected in the printed Estimate. The Treasury will effect the saving in question by suspending, in terms of section 8(1) of the Exchequer and Audit Act, the R417 million according to the share which the Commission for Administration determines for each Vote.
The initial expenditure requests of departments exceeded R34 000 million, representing their legitimate albeit somewhat idealistic assessment of what they needed to fulfil their obligations. It took seven rounds of detailed and serious negotiations from July last year up to very recently to arrive at the current figure.
6.3.1 Structural changes
The structural on-budget changes effected in next year’s Budget relate to several expenditure items that in previous years were financed off-budget. They include allocations to the Atomic Energy Corporation, the National Housing Commission, South West Africa, payments to the independent states of tax collected on their behalf—previously shown as drawbacks from tax revenue receipts—and certain Defence expenditures.
From the present on-budget items only Soekor financing will in future be done off-budget via the Strategic Energy Fund, where it belongs. The net total added in this way to next year’s budget amounts to R599 million.
There are still a number of off-budget expenditure items that will have to be brought on-budget in the year after next. By that time I hope to have provided for all expenditure emanating from parastatal and other bodies that could legitimately be regarded as forming a charge on the Exchequer.
During the pruning process a conscious effort was made to reach lower expenditure targets by cutting current rather than capital expenditure. Hence capital expenditure will rise by 17,4% from R2 675 million in 1984-85 to R3 141 million in the coming year.
Allow me next to highlight a number of significant expenditure items for next year, first under general affairs and then under own affairs.
6.3.2 General Affairs
6.3.2.1 Defence
The point that South Africa cannot, in the foreseeable future, do without a strong defence capability needs no stressing. However, the notion prevalent in certain circles that defence expenditure is claiming an ever-growing proportion of the Budget is simply not true, since its share has hovered around 15% to 16% of total state expenditure for many years now. As a result of stringent economizing—for which I am very grateful to my colleague the hon the Minister of Defence and his department—I am able to propose an allocation of R4 274 million for this Vote—only 8,1% over the amount voted for 1984-85. More importantly, we should note that Defence’s share in the total Budget, far from increasing, will actually fall marginally from 14% in 1984-85 to 13,8% in 1985-86.
6.3.2.2 Manpower
The Government is acutely aware of the need to ensure an adequate supply of all categories of skilled manpower through higher individual proficiency and, thereby, an increase in overall productivity. The allocation to this service has therefore been increased by 14% to R103 million. However, I share the belief that there should be a more equitable sharing of the cost burden of training, firstly between the Government and the private sector and secondly, between the various industries and employers within the private sector.
Certain deficiencies in our system of tax concessions for training purposes were revealed, as a result of which the original concessions were reduced as from 1 October 1984. My colleague the hon the Minister of Manpower has requested the National Training Board to investigate and report on the whole question of training incentives, and further adjustments to the system will, if necessary, be made as soon as the investigation has been completed and the recommendations approved by Cabinet.
6.3.2.3 Public Service remuneration
It is noteworthy that, with the exception of the teaching profession, public servants on fixed salaries and those who have reached their scale maxima will by the end of the coming financial year have had no increase in gross emoluments for up to twenty-seven months.
One therefore has to be careful that the old disparities between the Public Service and the market place, which were only recently—and at appreciable cost—reduced or even eliminated, do not return. So as not entirely to lose what has so laboriously been gained by occupational differentiation, R125 million is proposed for the continuation of this process, albeit on a very restricted and modest scale, mainly for some of the lowestpaid categories among for example nurses and underqualified teachers.
6.3.2.4 Civil and military pensions and benefits under the Mines and Works Act
I should now like to turn to proposals involving additional expenditure on pensions and disability benefits.
In view of the continuing increases in the cost of living, the Government has agreed to the following improvements with effect from 1 October 1985:
- (a) Military pensions will be increased by 15%;
- (b) Civil pensions will, in the case of persons who became entitled to a pension on or before 1 January 1984, be increased by 1% for each completed year of retirement, subject to a minimum increase of 7,5% and a maximum of 15%. The Civil Pensions Stabilization Account, which is partly funded through deductions from pension contributions of active employees, will not be able to carry this increased burden fully, and therefore I propose a supplementary provision of R15 million to that account.
- (c) Compensation for occupational diseases, where such is payable from the Exchequer, will also be increased. Details are given under the Vote: Health and Welfare.
6.3.2.5 Development expenditures
- (a) Development Bank of Southern Africa
Our continued support for the Bank finds expression in a contribution of R250 million to its Development Fund, the taking up of a further R30 million in shares and a payment of R2 million to compensate for South African income tax paid by the Bank’s staff. Normally the staff of international institutions are not subject to local taxation. The total package is thus 47% higher than for 1984-85.
- (b) Bilateral regional assistance and development
Apart from the multinational development aid provided via the Development Bank, further amounts have been included in the Estimate of Expenditure for regional development, the development of self-governing national states and of independent national states, for further consolidation of states, and for South West Africa.
These amounts totalled R2 839 million in 1984-85 and will require R3 610 million next year, an increase of over 27%.
The magnitude of this increase indicates the Government’s desire to see meaningful development in all regions that are not fully sharing in the benefits of the highly developed areas in Southern Africa, and should go a long way towards providing more employment opportunities where the need is the greatest. At the same time, however, we will increasingly wish to be assured that the amounts spent are not devoted to low priority current expenditures and projects; to that end strenuous efforts are now in train to move from a system of blanket aid to one of mutually approved project aid, embodying the necessary controls.
6.3.2.6 Employment programmes
The Government is aware of the increase in unemployment caused by the downturn in economic activity, and—in line with the White Paper on Strategy for Job Creation tabled last year—is addressing the question on a broad front. A package has been devised for short-term relief, including special employment opportunities provided by public bodies and for which R27,5 million was made available in previous financial years; payment of unemployment benefits of nearly R105 million in 1984; and free training, at a cost of nearly R4 million, for 9 250 workseekers.
For 1985-86, R100 million will be set aside for the continuation and extension of short-term work creation and relief programmes in those regions and areas experiencing severe unemployment. In launching these programmes the public bodies involved will take due note of regional differences and regional development strategies.
6.3.2.7 Small Business Development Corporation
Small businessmen in both the formal and informal sectors are playing a vital role in providing employment opportunities. In order to tide some of these entrepreneurs over a difficult period, an amount of R30 million was made available in the Additional Estimate for 1984-85 to the Small Business Development Corporation.
Over the past two years, amounts have also been allocated to the Special Pioneer Projects Fund of the corporation to finance job creation projects, including mini-loans to the informal sector, pioneering projects of an experimental nature, and property development projects in the independent and the self-governing national states.
Following the favourable results of these projects, I wish to propose that the surplus of R5 million transferred from 1984-85 be used to make available to the Small Business Development Corporation further funds for this purpose.
6.3.3 Own affairs
6.3.3.1 Pensions and welfare
Consistent with the decision to exclude from the announced austerity measures the service bonuses of lower-paid employees in the Public Service, the Government has decided to afford relief to all social pensioners. Funds have, therefore, been allocated to the Vote Co-operation and Development and to the Votes of the three Administrations for Own Affairs for improved pension and welfare benefits for all population groups.
An amount of R106 million has already been provided for this purpose in the printed Estimate but, following representations made, it has been agreed, as a supplementary proposal, to include a further R44 million for the purpose of achieving parity in the money increases involved next year. Detailed statements will be made in the three Houses by the Ministers concerned immediately after my address.
I would be neglecting my duty if at this stage I did not stress that an increase of this magnitude will entail an annual expenditure of approximately R300 million. This is nearly equivalent to the revenue generated if general sales tax is raised 0,5%. On account of the distressing situation many aged persons find themselves in today this act of meaningful relief is justified. But there is no doubt that gestures of this size can only be repeated if the full brunt of the increase is not carried by the Exchequer and therefore the taxpayer alone, but is also shared by the employee in the course of his active working life, especially through contributions to one form or another of retirement benefit.
6.3.3.2 Education
In the November 1983 White Paper on the Provision of Education in South Africa, the Government clearly defined its stance on education policy. This statement of policy contained an undertaking to pursue the goal of equal opportunity in education regardless of race, colour, creed or sex. This undertaking is contained in the first of the eleven principles for the provision of education embodied in legislation during the previous session of Parliament, and forms part of the framework within which policy for the financing of education is formulated.
Considering that last year there were 1 016 000 White, 789 000 Coloured, 233 000 Indian and 4 029 000 Black children at school within the boundaries of the Republic; that the combined total of 6 067 000 children will rise to about 11 600 000 by the year 2010, and, further, that the number of pupils qualifying for university admission will rise from 42 000 in 1984 to approximately 200 000 by the year 2010, it is clear that the amounts to be spent on education over the next two to three decades will be massive.
In the light of the very high priority accorded education, some R5 044 million is provided for next year, an increase of nearly 19% on the revised figures for 1984-85.
6.3.3.3 Housing
In terms of the Constitution “housing” is an own affair but subject to any general law in relation to norms, standards and income groups.
The respective own affairs departments responsible for housing, therefore, have to cover this expenditure under their own Votes. Included in transfer payments to those Votes are funds for this purpose. Each Minister of the Budget will furnish details in his own House.
As far as Black communities are concerned, provision is made under the Vote of the Department of Public Works and Land Affairs for an amount of R118,2 million to be added to the capital of the National Housing Fund. This is over and above the provision made under the Co-operation and Development Vote, where some R72,2 million is set aside for housing.
Where do we stand now as far as revenue and expenditure totals for next year are concerned?
†6.4 Financing proposals
After taking into account the supplementary expenditure proposals amounting to R164 million, expenditure for 1985-86 will amount to R30 892 million, which is 13,6% above that for 1984-85. If the structural adjustment mentioned earlier involving a net amount of R599 million is excluded from this total—as it should be for purposes of comparison—then the increase in total expenditure is 11,4%, well below the current inflation rate.
Although total expenditure is much reduced in real terms in comparison with the 1984-85 financial year, revenues on the existing tax base amounting to R26 585 million will still be insufficient to finance the budgeted expenditures. On this basis the deficit before borrowing will be as much as R4 307 million or some 3,7% of the expected gross domestic product.
It is imperative that this Budget should contribute towards economic recovery, lower inflation and meeting the requirements of sound financing cited before, notably, that current expenditure be not financed by loans. Any deficit of this magnitude will not meet the criteria and will in fact exacerbate our present unbalanced “mix” of fiscal and monetary policy measures. The deficit substantially exceeds the total of our capital expenditure and must be brought down to more manageable proportions by first raising additional revenue before the remainder can be borrowed.
6.5 Additional taxes
There is then unfortunately no alternative but to seek additional revenue by proposing further taxes. In doing so we are fully aware of the disadvantages of increasing taxes when the economy is in a downward phase. However, having done everything in our power to cut expenditure to the bare minimum, our next best option is to finance such expenditure in a sound and responsible manner.
This approach will contribute towards getting our economy in shape again and will advance materially the date when sound economic growth can be resumed. It is impossible to overemphasize the truism that taxation should not be seen as a punitive measure, but to finance the functions and services that benefit the community at large.
After dealing with the additional tax proposals though, good news will follow in the form of various proposals for relief, particularly for senior citizens.
We look at customs and excise first.
6.5.1 Customs and Excise
6.5.1.1 Ad valorem duty on imported cars
Motor cars imported in a built-up condition at present attract customs duty of 100%. There has been a substantial increase in imports of such cars in recent times, due mainly to the relaxation of import control but no doubt also aided by the favourable treatment of fringe benefits. As these cars fall very largely into the luxury class, I propose that the customs duty be increased to 125%. This could also help the sales of locally produced cars.
The additional revenue for 1985-86 from this source is estimated at R10 million.
6.5.1.2 Video cassette recorders
Although relatively modest at first, sales of these recorders have risen very sharply in recent years and contributed to a further drain on the already stretched current account of our balance of payments without making a significant contribution to our revenues. In these circumstances I propose, for fiscal purposes, that the ordinary customs duty of 10% be increased to 15%, in addition to the ad valorem excise duty of 35% applicable now.
This should yield some R5 million in 1985-86.
6.5.1.3 Ad valorem customs and excise duties on office machines and certain electronic devices
I wish to propose next an ad valorem excise duty and an ad valorem customs duty of 10% on office machines and certain electronic devices as defined in my taxation proposals.
The revenue for 1985-86 is estimated at R100 million.
6.5.1.4 Petrol
Petrol derived from imported crude oil is subject to an excise duty of 10,25 cents per litre, whereas for petrol derived from coal the duty is only 9,337 cents. The difference of 0,913 cents has served to protect locally produced synthetic fuel, but in view of the recent sharp increase in the landed cost of imported fuel, it is now evident that these producers no longer need this protection and that the duty on petrol from coal can be at least equalized with that of other petrol. I propose then that the excise duty on such petrol be increased to 10,25 cents per litre.
This will yield some R26 million for 1985-86 without raising the pump price of such fuel.
6.5.1.5 Implementation
All increases in customs and excise duties take effect immediately and apply to all goods that have not yet been cleared for home consumption, that is goods not yet removed from the storage warehouses and premises of manufacturers licensed with the Commissioner: Customs and Excise.
Mr Speaker, in terms of section 58(1) of the Customs and Excise Act, No 91 of 1964, I now table for consideration by Parliament the formal taxation proposals on customs and excise duties.
Since all the increased duties are levied at the point of import or manufacture, there is no justification whatsoever for merchants to increase the prices of stocks inventoried to them at the old rates of duty. In the present economic climate I therefore rely on such merchants to adjust their prices only on new stocks. Consumers should expect and insist that the retail prices of all goods concerned should not be raised by more than the increase in duty.
The higher customs and excise duties proposed should yield R141 million in 1985-86.
6.5.2 Inland Revenue
6.5.2.1 Individual income tax
In my 6 December 1984 announcement on fringe benefit taxation I pointed out that the raising of the thresholds for the maximum marginal rate would result in a loss of revenue, which would be only partly compensated for by imposing an overall surcharge of 5% on assessed tax.
I emphasized, however, that this surcharge would depend on the Exchequer’s position in the new year as well as on the interim recommendations to be made by the Margo Commission in this regard.
The Margo Commission has indeed since then proposed a longer phasing-in period for car benefits and soft loans, recommendations which were accepted by the Government. The further loss of revenue from these concessions as well as general revenue requirements necessitate an increase in the surcharge on tax payable from 5% to 7% for individuals regardless of age. I propose however that this surcharge be payable only on the amount by which a person’s net tax, as calculated according to new tables, exceeds R750.
The additional revenue resulting from this extra 2% surcharge is estimated at R120 million fór 1985-86 and R135 million in a full year.
6.5.2.2 General sales tax
Any taxation system should reflect a reasonable balance between direct and indirect taxation. I have proposed certain increases in direct taxation; sales tax is a recognized form of indirect taxation, and to meet our fiscal requirements we shall have to turn to this source as well.
I thus propose that the rate of general sales tax be increased to 12%. We have no option but to allow the business community a reasonable period within which to prepare for this change, and the increase will therefore take effect from Monday 25 March 1985. I must mention that the numerous requests for further exemptions of particular food items have all been reviewed in depth, but that it has regrettably not been possible to extend the list of existing exemptions.
This proposal should yield an additional R1 220 million for 1985-86.
6.5.2.3 Income tax on companies
In the case of non-mining companies I propose that the rate remain unchanged at 50%.
As to mining companies, their taxable income is determined according to special rules in terms of which capital expenditure is deductible in full in the year of assessment in which it is incurred, resulting in a deferment of tax on current profits. Since the bulk of the economy and the people of South Africa have had to tighten their belts, it seems appropriate to call upon these companies to make a special contribution to our tax revenues by means of a surcharge on their tax.
I accordingly propose a special temporary additional surcharge of 5%, over and above the present 20% surcharge, on all gold and diamond mining companies. The yield expected for 1985-86 from this source is R91 million.
I also propose a special surcharge of 15% on all other mining companies which will raise their normal tax rate to 57,5%, commensurate with the new average rate for the gold mines. Some R33 million is expected from this source in 1985-86.
6.5.2.4 Levy on producers of synthetic fuels
It is Government practice to determine local fuel prices. In its price determination the Government takes into account the randdollar exchange rate, since imported fuel is quoted in dollars. The latest sharp increase in domestic fuel prices pegged them at levels that are placing local synthetic oil-from-coal producers in a particularly favourable position. I therefore feel it would be only reasonable to call on these companies also to make a contribution to the fiscus in this difficult year ahead.
I thus propose that a special temporary levy be imposed on these companies, details of which will be negotiated with the companies concerned and embodied in a formal taxation proposal to be tabled later.
This levy should yield R70 million in 1985-86.
6.5.2.5 Long-term insurers
In the absence of any final recommendations by the Van der Walt Committee on the basis of taxation of assurers, a matter which now also falls to be dealt with by the Margo Commission, I should naturally prefer not to suggest any alteration to the tax basis as such. But in the light of our fiscal requirements for the coming year, and with a view to spreading the burden as widely as possible, I propose a special levy on life assurance business for years of assessment ending during the period 1 April 1985 to 31 March 1984. This levy will amount to an effective 7,5% tax on gross income as calculated in terms of section 28(1) of the Income Tax Act, and should yield R77 million in 1985-86.
6.5.2.6 Banks
In considering how the burden of taxation should be spread equitably among the various sectors of the economy one should look for a contribution by each major sector capable of such effort.
For some years the banking sector has enjoyed a considerable measure of immunity from taxation mainly by reason of the provisions relating to financial leases and suspensive sales, although distributable profits have certainly been earned out of which dividends have been declared.
These concessions have undoubtedly contributed to our economic development, but the present situation demands a review of priorities to ensure that fiscal requirements be met. I propose thus a special levy on all banking institutions registered in terms of the Banks Act, at the rate of 0,25% of the average amount of all deposits held in the Republic by each institution at the end of each quarter during the calendar year 1984.
This levy, which should not exert upward pressure on interest rates, will be payable in instalments and is expected to yield R100 million in 1985-86.
6.5.2.7 Total additional taxation
The additional taxation proposals involve R141 million for Customs and Excise and R1 711 million for Inland Revenue.
6.6 Tax concessions
I am thankful to be able to announce certain tax concessions to alleviate undue hardship and correct inequities.
6.6.1 Ad valorem duty on motor cars
Notwithstanding the present tight fiscal position I feel that a correction is warranted in the case of the differentiated ad valorem duty imposed last year pending a decision on a fringe benefits tax and which entailed an ad valorem excise and customs duty of 1% on motor cars with a neutral value not exceeding R11 500 (which corresponds with a retail value of approximately R15 000) and of 2% on those with a neutral value exceeding R11 500.
The fact that fringe benefits are taxed with effect from 1 March 1985 removes the necessity for a differential rate, and it was thus decided to reduce this duty to 1% all round.
The relevant Government Notice will be published tomorrow. This applies to all cars concerned which by tomorrow have not been entered for home consumption.
The estimated loss in revenue for 1985-86 will be R12 million.
6.6.2 Income tax on individuals
(a) Unmarried taxpayers
On 6 December 1984, as a result of the phasing in of fringe benefit taxation, I proposed new rates of tax whereby the threshold for the maximum marginal rate would rise from R40 000 to R60 000 for a married person and from R28 000 to R32 000 for an unmarried person, but with a 5% surcharge in each case.
Although most unmarried persons certainly stood to benefit from this step, it was found that in some cases the relief granted to an unmarried person compared unfavourably with that enjoyed by a married person.
The tax proposals being tabled today have thus been framed so as to provide further relief to unmarried persons, insofar as the maximum rate of tax will now apply to them only at R42 000, which is proportionately the correct figure.
(b) Thresholds
In addition I wish to propose that the thresholds at which tax liability commences be raised as follows: Married person, by more than 36% from R4 384 to R5 988. Unmarried person, by more than 18% from R3 576 to R4 232.
This will be done by increasing the basic rates of tax and at the same time increasing the primary rebate from R460 to R880 for a married person and from R380 to R620 for an unmarried person.
The loss of revenue resulting from relief to unmarried taxpayers and from raising the tax threshold is estimated at R49 million for 1985-86 and R56 million for a full year.
(c) Senior citizens
Many elderly people find themselves in difficulties as a result of the ravages of inflation on retirement incomes. Unlike younger persons they are very often not in a position to augment their incomes and I am often asked: “Why must I pay tax in my old age after a lifetime of hard work during which I paid my taxes?”.
Of course, during their working life their-pension contributions were in fact exempt from tax, and the fundamental yardstick for measuring tax liability must remain current income, be it from pensions or from whatever source. Nevertheless, we do owe it to our senior citizens to assist them to retain their financial independence for as long as possible, and I therefore propose that the present tax rebate of R300 for those over 70 years and R120 for those over 65 and under 70 years of age be replaced by a uniform R500 rebate. The rebate for the 60-64 age group will remain at R120.
In the case of a married person aged 65 or over, the net effect of the general rates adjustment and this increased rebate, is to raise the threshold at which he becomes liable for income tax by nearly 70%, from R5 384 to R9 113. For an unmarried person in this group the threshold is raised by over 60%, from R4 576 to R7 357.
The loss of revenue is estimated at R20 million for 1985-86 and R23 million for a full year.
(d) Medical expenses
Following the substantial increases in medical expenses during the past year I propose that the deductions from income permitted under the Income Tax Act for the 1986 tax year be increased as follows: Married persons under 60, from R1 000 to R1 500; Unmarried persons under 60, from R750 to R1 000; Married persons over 60 and under 70, from R3 000 to R4 000; Unmarried persons over 60 and under 70, from R2 250 to R3 000. As to those over 70 years of age, there is already no ceiling to their medical deductions.
The loss of revenue for 1985-86 is estimated at R1 million and for a full year at R3 million.
(e) Incentive to save
At present R100 of income by way of interest and dividends is exempt from tax. The exemption was aimed at avoiding numerous small assessments in the case of those taxpayers falling under the final deduction system; but it could well be extended for another purpose, namely the encouragement of savings, since our personal savings ratios are disappointingly low. Interest rates on modest savings rarely offer an attractive return, and I therefore propose that, with effect from the 1986 tax year, an additional incentive be granted by way of an increase in the exemption limit to R250. But the exemption will henceforth apply only to interest earned. Although this concession appears small and may be regarded as inadequate by some, its financial impact on the fiscus is rather severe and unfortunately precludes a larger exemption under prevailing circumstances.
The loss of revenue is estimated at R33 million for 1985-86 and R62 million for a full year.
(f) Initial allowances
In accordance with the decision announced two years ago the initial allowance granted in respect of new or unused machinery or plant used in a process of manufacture will, where such machinery or plant is brought into use on or after 1 July 1985, be increased in consequence of the withdrawal of the investment allowance.
Last year it was indicated that it would be necessary to adjust the quantum of the allowance to ensure that the sacrifice to the fiscus was not unduly increased as a result of increases in the company rate of tax, and I therefore propose that the initial allowance be increased from 25% to 50% instead of the originally indicated 55%, in the case of such machinery or plant. For the time being, until the Margo Commission has reported on this, the enhanced allowance will be limited to new or unused machinery or plant brought into use by 31 December 1986.
I also propose that the initial allowance for buildings be calculated at the rate of 17,5% of the relevant cost and that the allowance be limited to a building the erection of which commences not later than 31 December 1986, provided the building is brought into use not later than 31 December 1987.
The total of these income tax concessions amounts to R103 million for 1985-86 and to R147 million for a full year.
6.7 Net additional taxation
The total additional taxation for 1985-86 is R1 852 million, while the total concessions amount to R115 million, leaving a net amount of R1 737 million.
6.8 Financing of the deficit
The proposals outlined today will raise the total revenue for 1985-86 to R28 322 million and reduce the deficit before borrowing to R2 570 million, or only 2,2% of the estimated gross domestic product.
In these circumstances, and to provide for an adequate cushion for either a lower level of revenue than estimated or a small unavoidable increase in expenditure due to quite unforeseen events, I propose transferring R400 million to the Tax Reserve Account.
Even if this amount is to be spent in full, the deficit before borrowing will still be below R3 000 million, or 2,5% of gross domestic product. But a caveat should be added here in respect of the possible application of the Tax Reserve Account balance: Although we do not yet know the exact quantum of foreign exchange losses that will be borne by the Reserve Bank for account of the Exchequer this year, the amount is bound to be substantial, and sooner or later will have to be brought to account. These amounts have indeed been disbursed by the Reserve Bank and added to spending totals.
To the final deficit of R2 970 million an amount of R1 695 million must be added for loan redemptions, leaving a financing requirement of R4 665 million, which I propose to cover as follows:
Rm |
|
Surplus from 1984-85 |
5 |
Public Investment Commissioners |
2 500 |
Reinvestment of maturing stock |
809 |
New stock issues |
716 |
Non-marketable securities (Treasury Bonds and National Defence Bonds) |
200 |
Foreign loans |
350 |
Tax Reserve Account |
85 |
TOTAL |
R4 665 |
I wish to draw the attention of hon members to the fact that the amount of new stock to be raised on the domestic capital market, namely R716 million, is not only considerably less than that provided for in last year’s budget, but also substantially below the total amount raised from this market during 1984-85. As some of the institutions now brought back onto the budget had previously raised substantial amounts in the capital markets in their own name, the amount of R716 million now proposed to be borrowed by the Exchequer for 1985-86, which includes the requirements of these institutions, is modest indeed and indicates a greatly reduced total demand on the capital market.
This financing package will place no upward pressure on interest rates—in fact, quite the opposite: One can confidently look forward to this low level of State activity in the capital market contributing towards a lower interest rate structure, with all its attendant blessings for the home-owner, the businessman and the economy as a whole.
7. COMPARATIVE STATEMENT OF STATE REVENUE ACCOUNT
As is customary, a comparative statement of the Government’s accounts is subjoined in the printed version of the Budget Speech.
COMPARATIVE STATEMENT OF THE STATE REVENUE ACCOUNT
Revised figure 1984-85 |
Budget figure 1985-86 |
Percentage change |
||
Rm |
Rm |
Rm |
% |
|
Expenditure: |
||||
Printed Estimate (RP 2—1985: First Print): |
31 145 |
|||
Plus: Supplementary appropriations in Respect of: |
||||
Civil Pensions Stabilization Fund |
15 |
|||
Provisions for employment creation and relief programmes |
100 |
|||
Small Business Development Corporation |
5 |
|||
Augmentation of appropriations for Own Affairs in respect of pensions |
44 |
164 |
||
31 309 |
||||
Less: Savings in staff related expenditure |
417 |
|||
Total expenditure to be provided for |
27 194 |
30 892 |
13,6 |
|
Transfer to Tax Reserve Account |
400 |
|||
TOTAL |
31 292 |
|||
Revenue: |
||||
Printed Estimate (RP 3—1985: First Print:) |
||||
Customs and Excise at existing rates: |
1 880 |
|||
Less: Concession in respect of ad valorem excise duty on motor cars |
12 |
|||
1 868 |
||||
Plus: Taxation proposals in respect of: Customs duty on imported motor cars |
10 |
|||
Customs duty on video cassette recorders |
5 |
|||
Ad valorem excise and customs duties on office equipment |
100 |
|||
Excise duty on local synthetic fuel |
26 |
141 |
||
Total for Customs and Excise |
1 915 |
2 009 |
4,9 |
|
Inland Revenue at existing rates: |
24 705 |
|||
Less: Concessions in respect of income tax on individuals: |
||||
Unmarried persons and increased thresholds |
49 |
|||
Senior citizens |
20 |
|||
Medical expenses |
1 |
|||
Encouragement of savings |
33 |
103 |
||
24 602 |
||||
Plus: Tax proposals in respect of: |
||||
Surcharge on income tax for: |
||||
Individuals |
120 |
|||
General Sales Tax |
1 220 |
|||
Surcharge on gold and diamond mining companies |
91 |
|||
Surcharge on other mining companies |
33 |
|||
Levy on producers of local synthetic fuels |
70 |
|||
Levy on life assurers |
77 |
|||
Levy based on deposits of banks |
100 |
1 711 |
||
Total for Inland Revenue |
21 920 |
26 313 |
20,0 |
|
Total Revenue |
23 835 |
28 322 |
18,8 |
|
Deficit: (before borrowing) |
3 359 |
2 970 |
–11,6 |
|
Loan Redemptions: |
||||
Domestic loans: |
||||
Stock |
1 155 |
809 |
||
Bonds |
448 |
234 |
||
Foreign loans |
470 |
171 |
||
Loan levy |
465 |
476 |
||
Other loan expenditures |
— |
5 |
||
2 538 |
1 695 |
–33,2 |
||
Financing Requirement: |
5 897 |
4 665 |
–20,9 |
|
Financing |
||||
Domestic loans: |
||||
Public Investment Commissioners |
2 040 |
2 500 |
||
Corporation for Public Deposits |
440 |
— |
||
Re-investment of maturing stock |
809 |
|||
New Government Stock issues |
2 755 |
716 |
||
Non-marketable securities: |
||||
Treasury Bonds |
150 |
|||
National Defence Bonds |
50 |
161 |
200 |
|
Foreign loans |
600 |
350 |
||
Loan levy |
12 |
— |
||
Treasury Bills |
354 |
— |
||
Tax Reserve Account balance |
— |
85 |
||
Surplus carried forward from previous year |
5 |
|||
Transfer from Stabilization Account |
194 |
— |
||
Total Financing |
6 556 |
4 665 |
–28,8 |
|
Balance: |
659 |
NIL |
||
Appropriation of Balance: |
||||
Gold and Foreign Exchange Contingency Reserve Account |
654 |
— |
||
Surplus: |
5 |
NIL |
8. CONCLUSION
8.1 Short-term impact of the Budget
The Budget I have presented today is not “neutral” but designed to play its full part in our present short-term strategy of according priority to reducing inflation and strengthening the balance of payments. As such, it fully meets the basic conditions I specified earlier.
Firstly, the comparable rate of increase of Government expenditure for 1985-86 has been limited to only 11,4%, that is to below the current rate of inflation. In other words, there will be a decrease in real terms.
Secondly, no current expenditure will be financed from loans in the coming year, as the deficit before borrowing—even including the transfer to the Tax Reserve Account—will be some 5,4% below the budgeted capital expenditure.
Thirdly, the deficit before borrowing has been limited to R2 570 million, which is considerably below the 3% of gross domestic product originally set as our target. In fact, on the basis of the actual taxation and expenditure proposals, it is no more than 2,2%. Even if provision is made for the amount transferred to the Tax Reserve Account to cover possible lower revenue collections or overruns in expenditure the deficit should prove well within our means without resort to bank credit or putting upward pressure on interest rates. Indeed, as indicated earlier, net new issues of Government stock in the 1985-86 year should not amount to more than R716 million, a figure substantially below the R1 600 million raised this year.
By meeting these various conditions, the Budget should contribute fundamentally towards the declared objectives of curbing spending, improving the balance of payments, strengthening the exchange rate of the rand and the net gold and other foreign reserves, and, most importantly, reversing the rising trend in the rate of inflation. In this manner, it will pave the way for more rapid and sustainable economic growth.
The tax proposals in today’s Budget should be viewed in their proper context, namely as constituting part of our short-term fiscal policy designed to deal with the present abnormal economic situation. They stand in contrast to our longer-term financial strategy, which is designed, among other things, to reduce the tax burden in the interest of private sector growth.
To the best of our knowledge, the Government has not previously set out in such detail its longer-term fiscal and monetary principles and strategies aimed at the attainment of its longer-term economic goals. But it has been thought fitting to give this exposition in order to place the influence of the present economic conditions on our Budget in a warranted and proper perspective.
South Africa shines brightly as a land of great promise, offering the worker, the entrepreneur, the investor, and the loyal, responsible and peace-loving citizen, their due rewards in the longer term. All we need is the will and the state of mind to make it work.
We have an appointment with the future.
This Budget must help us to keep it.
TABLING
Mr Speaker, I now lay upon the Table:
- (1) Estimate of Expenditure to be defrayed from State Revenue Account during the financial year ending 31 March 1986 [RP 2—85];
- (2) Estimate of Revenue for the financial year ending 31 March 1986 [RP 3—85];
- (3) Statistical/Economic Review [WP B—85];
- (4) Comparative figures of revenue for 1984-85 and 1985-86;
- (5) Taxation proposals [P 1—85].
Bill, Budget Speech and papers tabled referred to Standing Committee on Finance in terms of Joint Rule 41.
REVENUE 1984-85 |
||||
Head of Revenue |
Printed Estimate 1984-85 |
Revised Estimate 1984-85 |
Increase |
Decrease |
R1 000 |
R1 000 |
R1 000 |
R1 000 |
|
Inland Revenue: |
||||
Tax on income: |
||||
Normal tax: |
||||
Gold mines |
1 458 874 |
1 640 000 |
181 126 |
|
Diamond mines |
3 126 |
1 000 |
2 126 |
|
Other mines |
214 000 |
220 000 |
6 000 |
|
Persons and Individuals |
7 696 000 |
7 840 000 |
144 000 |
|
Companies (other than tax on mining) |
3 410 000 |
3 855 000 |
445 000 |
|
Interest on overdue tax |
17 000 |
34 000 |
17 000 |
|
12 799 000 |
13 590 000 |
793 126 |
2 126 |
|
Loan levy |
12 000 |
12 000 |
||
Sales tax |
5 835 000 |
5 895 000 |
60 000 |
|
Other taxes: |
||||
Non-resident shareholders’tax |
260 000 |
220 000 |
40 000 |
|
Non-residents’ tax on interest |
20 000 |
35 000 |
15 000 |
|
Undistributed profits |
2 000 |
2 000 |
||
Donations tax |
3 000 |
4 000 |
1 000 |
|
Estate duty |
90 000 |
95 000 |
5 000 |
|
Trade securities |
50000 |
30 000 |
20 000 |
|
Stamp duties and fees |
235 000 |
250 000 |
15 000 |
|
Transfer duties |
340 000 |
280 000 |
60 000 |
|
Miscellaneous |
5 |
5 |
||
1 000 005 |
916 005 |
36 000 |
120 000 |
|
Mining leases and ownership: |
||||
Gold mines |
385 500 |
385 500 |
||
Diamond mines |
1 500 |
6 500 |
5 000 |
|
Other mines |
9 000 |
4 000 |
5 000 |
|
396 000 |
396 000 |
5 000 |
5 000 |
|
Interest and dividends: |
||||
Interest: |
||||
Border area development |
4 100 |
3 285 |
815 |
|
Import and export promotion |
3 600 |
3 600 |
||
Pedagogy |
10 600 |
10 600 |
||
Broadcasting |
1 100 |
1 100 |
||
Petrochemical industry |
2 000 |
2 000 |
||
Shipbuilding industry |
1 900 |
2400 |
500 |
|
Farming industry |
3 350 |
3 350 |
||
State land |
1000 |
1 300 |
300 |
|
Transportation |
443 000 |
441 000 |
2 000 |
|
R1 000 |
R1 000 |
R1 000 |
R1 000 |
|
Communications |
21 700 |
21 570 |
130 |
|
Local loans |
150 |
150 |
||
Cash balances |
220 |
220 |
||
Other |
8 600 |
21 500 |
12 900 |
|
Dividends: |
||||
Broadcasting |
2 300 |
2 276 |
24 |
|
Industrial shares |
300 |
300 |
||
503 400 |
514 651 |
14 220 |
2 969 |
|
Levies: |
||||
Diamond export duties |
37 000 |
37 000 |
||
Mining lease rights and licences |
2 190 |
2311 |
121 |
|
Licences |
3 000 |
3 000 |
||
42 190 |
42 311 |
121 |
||
Recovery of loans and advances: |
||||
Farming industry |
2 600 |
2 600 |
||
State land: |
||||
Settlements |
50 |
30 |
20 |
|
Other state land |
35 |
10 |
25 |
|
Shipbuilding industry |
4 420 |
5 000 |
580 |
|
Communications |
8 800 |
8 722 |
78 |
|
Housing |
450 |
290 |
160 |
|
Sinking funds |
14 000 |
4 500 |
9 500 |
|
Stabilization Fund |
75 000 |
75 000 |
||
Other |
14 850 |
14 600 |
250 |
|
45 205 |
110 752 |
75 580 |
10 033 |
|
Departmental activities: |
||||
Sale of products: |
||||
Vaccine |
150 |
175 |
25 |
|
Wood and wood products |
48 500 |
58 000 |
9 500 |
|
Other |
7 800 |
8 700 |
900 |
|
Sale of capital equipment |
10 |
50 |
40 |
|
State property rights: |
||||
Leasing and property rights moneys |
30 400 |
35 800 |
5 400 |
|
Moneys prescribed by law: |
||||
Registration and inspection fees |
9 400 |
6 500 |
2 900 |
|
Fines and Forfeitures |
27 000 |
32 000 |
5 000 |
|
Witness fees |
20 |
17 |
3 |
|
Pension contributions |
1 900 |
1 700 |
200 |
|
Other |
34 300 |
70 400 |
36 100 |
|
R1 000 |
R1 000 |
R1 000 |
R1 000 |
|
Moneys not prescribed by 1aw: |
||||
Leasing |
700 |
500 |
200 |
|
Domestic services |
3 000 |
4000 |
1 000 |
|
Profit on trading accounts |
41 000 |
60 700 |
19 700 |
|
Reserve Bank profits |
33 270 |
33 270 |
||
State Trust Board |
20 |
38 |
18 |
|
Sale of state land |
6 600 |
5 700 |
900 |
|
Commissions |
1 400 |
4 900 |
3 500 |
|
Other |
8 200 |
13 600 |
5 400 |
|
Miscellaneous income: |
||||
State Oil Fund |
150 000 |
151 000 |
1 000 |
|
Sasol stocks |
258 800 |
258 800 |
||
Recoveries |
22 700 |
8 300 |
14 400 |
|
Other |
115 100 |
120 700 |
5 600 |
|
508 200 |
874 850 |
385 253 |
18 603 |
|
Gross total for inland revenue |
21 129 000 |
22 351 569 |
1 381 300 |
158 731 |
Less: |
||||
Amounts payable to self-governing national states (Act 21 of 1971): |
||||
Persons and Individuals (sec. 6(2)(a)(iA)) |
250 000 |
262 000 |
12000 |
|
Companies (other than tax on mining) (sec. 6(2)(a)(ii) ) |
250 |
300 |
50 |
|
Sales tax (sec. 6(2)(a)(iv)) |
15 000 |
17 250 |
2 250 |
|
Amounts payable to independent Black states (Acts 106 of 1976, 93 of 1977, 105 of 1979 and 118 of 1981) |
135 000 |
140 000 |
5 000 |
|
Total for inland revenue |
20 728 750 |
21 932 019 |
1 381 300 |
178 031 |
Customs and excise duties: |
||||
Customs duty |
1 146 000 |
1 370 000 |
224 000 |
|
Excise duty |
1 902 000 |
1 885 000 |
17 000 |
|
Miscellaneous |
80 000 |
75 000 |
5 000 |
|
Gross total for customs and excise duties |
3 128 |
3 330 000 |
224 000 |
22 000 |
R1 000 |
R1 000 |
R1 000 |
R1 000 |
|
Less: |
||||
Surcharge repayments |
5000 |
5 000 |
||
Amount to the credit of Central Revenue Fund (sec. 22(1)(d) of Act 25 of 1969) |
250 000 |
250 000 |
||
Payments in terms of Customs Union Agreements (sec. 51(2) of Act 91 of 1964) |
1 089 000 |
1 160 000 |
71 000 |
|
Total for customs and excise duties |
1 789 000 |
1 915 000 |
224 000 |
98 000 |
Grand total |
22 517 750 |
23 847 019 |
1 605 300 |
276031 |
Net increase: R1 329 269 000
REVENUE 1985-86 (On existing basis of taxation)
Head of Revenue |
Printed Estimate 1985-86 |
Revised Estimate 1984-85 |
Increase |
Decrease |
R1 000 |
R1 000 |
R1 000 |
R1 000 |
|
Inland Revenue: |
||||
Income tax: |
||||
Normal tax: |
||||
Gold mines |
1 900 000 |
1 640 000 |
260 000 |
|
Diamond mines |
1 000 |
1 000 |
||
Other mines |
250 000 |
220 000 |
30 000 |
|
Persons and Individuals |
8 950 000 |
7 840 000 |
1 110000 |
|
Companies (other than tax on mining) |
4 250 000 |
3 855 000 |
395 000 |
|
Interest on overdue tax |
39 000 |
34 000 |
5000 |
|
15 390 000 |
13 590 000 |
1 800 000 |
||
Loan levy |
12 000 |
12 000 |
||
Sales tax |
7 100 000 |
5 895 000 |
1 205 000 |
|
Other taxes: |
||||
Non-resident shareholders’ tax |
220 000 |
220 000 |
||
Non-residents’ tax on interest |
35 000 |
35 000 |
||
Undistributed profits tax |
2 000 |
2 000 |
||
Donations tax |
4 000 |
4 000 |
||
R1 000 |
R1 000 |
R1 000 |
R1 000 |
|
Estate duty |
100 000 |
95 000 |
5 000 |
|
Marketable securities tax |
30 000 |
30 000 |
||
Stamp duties and fees |
260 000 |
250 000 |
10 000 |
|
Transfer duties |
250 000 |
280 000 |
30 000 |
|
Miscellaneous |
5 |
5 |
||
901 005 |
916 005 |
15 000 |
30 000 |
|
Mining leases and ownership: |
||||
Gold mines |
450 000 |
385 500 |
64 500 |
|
Diamond mines |
8 000 |
6 500 |
1 500 |
|
Other mines |
10 000 |
4 000 |
6 000 |
|
468 000 |
396 000 |
72 000 |
||
Interest and dividends: |
||||
Interest: |
||||
Border area development |
3 970 |
3 285 |
685 |
|
Import and export promotion |
3 000 |
3 600 |
600 |
|
Pedagogy |
10 600 |
10 600 |
||
Broadcasting |
1 250 |
1 100 |
150 |
|
Petrochemical industry |
2 000 |
2 000 |
||
Shipbuilding industry |
1 900 |
2 400 |
500 |
|
Farming industry |
10 |
3 350 |
3 340 |
|
State land |
1 300 |
1 300 |
||
Transportation |
445 400 |
441 000 |
4 400 |
|
Communications |
20 800 |
21 570 |
770 |
|
Local loans |
200 |
150 |
50 |
|
Cash balances |
200 |
220 |
20 |
|
Other |
19 200 |
21 500 |
2 300 |
|
Dividends: |
||||
Broadcasting |
2 300 |
2 276 |
24 |
|
Industrial shares |
300 |
300 |
||
501 830 |
514 651 |
5 309 |
18 130 |
|
Levies: |
||||
Diamond export duties |
37 000 |
37 000 |
||
Mining lease rights and licences |
2 311 |
2311 |
||
Licences |
3 000 |
3 000 |
||
42311 |
42 311 |
|||
Recovery of loans and advances: |
||||
Farming industry |
1 000 |
2 600 |
1 600 |
|
State land: |
||||
Settlements |
20 |
30 |
10 |
|
R1 000 |
R1 000 |
R1 000 |
R1 000 |
|
Other state land |
10 |
10 |
||
Shipbuilding industry |
4 860 |
5 000 |
140 |
|
Communications |
9 490 |
8 722 |
768 |
|
Housing |
290 |
290 |
||
Sinking funds |
4 500 |
4 500 |
||
Stabilization Fund |
75 000 |
75 000 |
||
Other |
10 800 |
14 600 |
3 800 |
|
30 960 |
110 752 |
768 |
80 560 |
|
Departmental activities: |
||||
Sale of products: |
||||
Vaccine |
200 |
175 |
25 |
|
Wood and wood products |
58 000 |
58 000 |
||
Other |
6 100 |
8 700 |
2 600 |
|
Sale of capital equipment |
20 |
50 |
30 |
|
State property rights: |
||||
Leasing and property rights moneys |
35 400 |
35 800 |
400 |
|
Sale of land, buildings and structures |
5 700 |
5 700 |
||
Moneys prescribed by law: Registration and inspection fees |
6 200 |
6 500 |
300 |
|
Fines and forfeitures |
33 200 |
32 000 |
1 200 |
|
Witness fees |
20 |
17 |
3 |
|
Pension contributions |
1 700 |
1 700 |
||
Other |
59 600 |
70 400 |
10 800 |
|
Moneys not prescribed by law: |
||||
Leasing |
500 |
500 |
||
Domestic services |
3 500 |
4 000 |
500 |
|
Profit on trading accounts |
57 500 |
60 700 |
3 200 |
|
Commissions |
4 900 |
4 900 |
||
Other |
15 200 |
13 600 |
1 600 |
|
Miscellaneous income: |
||||
State Oil Fund |
151 000 |
151 000 |
||
Sasol stocks |
195 000 |
258 800 |
63 800 |
|
Recoveries |
8 200 |
8 300 |
100 |
|
Reserve Bank profits |
25 000 |
33 270 |
8 270 |
|
State Trust Board |
38 |
38 |
||
Other |
105 300 |
120 700 |
15 400 |
|
621 240 |
874 850 |
2 828 |
256 438 |
|
Gross total for inland revenue |
25 055 346 |
22 351 569 |
3 100 905 |
397 128 |
R1 000 |
R1 000 |
R1 000 |
R1 000 |
|
Less: |
||||
Amounts payable to self-governing national states (Act 21 of 1971): |
||||
Persons and Individuals (sec. 6(2)(a)(iA) ) |
330 000 |
262 000 |
68 000 |
|
Companies (other than tax on mining) (sec. 6(2)(a)(ii) ) |
300 |
300 |
||
Sales tax (sec. 6(2)(a)(iv)) |
20 000 |
17 250 |
2 750 |
|
Amounts payable to independent Black states (Acts 106 of 1976, 93 of 1977, 105 of 1979 and 118 of 1981) |
b |
140 000 |
140 000 |
|
Total for inland revenue |
24 705 046 |
21 932019 |
3 240 905 |
467 878 |
Customs and excise duties: |
||||
Customs duty |
1 475 000 |
1 370 000 |
105 000 |
|
Excise duty |
1 875 000 |
1 885 000 |
10 000 |
|
Miscellaneous |
80 000 |
75 000 |
5000 |
|
Gross total for customs and excise duties |
3 430 000 |
3 330 000 |
110 000 |
10 000 |
Less: |
||||
Surcharge repayments |
5 000 |
5 000 |
||
Amount to the credit of Central Revenue Fund (sec. 22(1)(d) of Act 25 of 1969) |
250 000 |
250 000 |
||
Payments in terms of Customs Union Agreements (sec. 51(2) of Act 91 of 1964) |
1 300 000 |
1 160 000 |
140 000 |
|
Total for customs and excise duties |
1 880 000 |
1 915 000 |
115 000 |
150 000 |
Grand total |
26 585 046 |
23 847019 |
3 355 905 |
617 878 |
Net increase: R2 738 027 000
Second Reading resumed
Mr Speaker, the Budget debate on general affairs under the new constitution takes place in a somewhat different context to the debates in years gone by. Firstly, it commences a considerable time after the presentation of the Budget, and economists, businessmen, tax lawyers, accountants, business associations and, I may say, politicians, among others, have all made their own analyses of the Budget and have all already commented to a considerable extent both in the media and in seminars. Secondly, the budget has for the first time been considered by a standing committee of Parliament, the report of which is before Parliament and is before this House now. While I believe that much has still got to be learnt in regard to the workings of the committee and many problems still have to be solved, I think it is already clear that the committee is a desirable innovation. I believe that, if it is properly used, it can contribute substantially to the formulation of policy, to legislation and to financial control.
Let me take the opportunity right at the outset to thank the chairman of that committee and also the other members of the committee for the manner in which the affairs of the committee were conducted and for what I believe was beneficial work that was done. I think the chairman in particular has developed great patience and I would personally like to thank him for exercising such patience.
I believe the debate will benefit from both these factors; and in the light of the public testing thereof, in the light of the evidence given before the committee and the issues raised by the committee, as well as in the light of this particular debate, I believe the authorities should be prepared to adapt their fiscal policies and measures. In other words, the Government’s fiscal stance should become more receptive to modification and the nature of the financial process, the nature of the debate, should become more constructive, and the Government should take note of this. I am not for one moment implying that faults should not be pointed out or that alternative policy proposals should not be put. However, I believe fiscal policy should become more of a “people’s business.” The measures applied should therefore be measures that are imposed as a result of the feelings of the people and not measures that are imposed upon the people. Fiscal policy should, as I have said, be a “people’s business.”
Under the new dispensation the Budget debate will of course continue to deal with financial, economic and also political matters, and we will certainly seek to continue the tradition that the voting of money for use by the State is the traditional occasion for testing the policies of the Government. The substance of the debate on this occasion will be dictated to a considerable extent by the events taking place around us and by the demands of the future. The conduct of the debate in three separate Chambers or Houses will no doubt result in stress being laid on different political as well as economic aspects of policy by the three different Houses. It would, for example, be very interesting—and I look forward to learning of it—to see how the majority party in the House of Representatives puts forward its economic policies. I look forward to seeing how the hon the Minister of Finance will deal with those policies when it comes to dealing with his Cabinet colleague who does not believe in supply-side economics, who does not believe in “Reaganomics” and who holds views quite opposite to those held by the hon the Minister of Finance in regard to economics. It will be quite fascinating to observe that aspect of the new constitution.
During the period that has expired since the last Budget, the country and its people have undergone a substantial transformation, both in the political and economic spheres. We cannot really separate the economics and the politics of South Africa. As I shall demonstrate, there is no doubt that the economic position affects the political situation. There is also no doubt that political actions and conditions affect economic conditions. However, the reality is that nothing in South Africa will ever be the same again. In fact, all of us have to adjust to quite a different situation—and I mean all of us in South Africa!
The change under way is without doubt of a very substantial nature and is taking place at a very substantial pace. All of us should be aware of this. However, the form of change and the direction of change are aspects about which there is not such absolute certainty. In this regard, one of the things which troubles us—and I want to submit this right away so that we may consider it and bear it in mind—is that some of the long-term or even medium-term objectives that have been stated by the State President and which have been welcomed all over, are in fact being negated or sabotaged in large measure by short-term actions and actions of such a nature that they bring those long-term intentions into disrepute. We should take care to ensure that those long-term objectives are not frustrated by short-term actions, particularly by what are sometimes ill-conceived and ill-thought out short-term actions.
It has become apparent that if the road ahead of us is to be one of peaceful reform, it will be neither practical nor in fact possible for the Government to walk it alone. It was said long ago that “it takes two to tango.” The reform tango in South Africa cannot be danced alone.
It is true, there is no shortage of discussion on change in South Africa. There are times when there is hardly a household in South Africa where, if the state of the economy is not discussed, the situation of unrest or the pressure from outside is not the topic of conversation. However, what is troublesome is that these discussions, while understandably conducted from the viewpoint of the interest group concerned, are being approached from quite different poles. To one group unrest means the disturbance of stability and threats to existing rights; to another it is a means of expressing dissatisfaction, or represents the actions or reactions in respect of a resented law enforcement authority, while to yet another group it means that their moderate views and hopes are imperilled by increasing polarization.
The inability of people to communicate adequately is becoming an increasing flashpoint for conflict. The people of this country are drifting apart at the very time when they should be getting closer together. They are throwing stones and shooting when they should be talking. Those who are committed to peaceful reform cannot allow this polarization to continue. A lead needs to be given, not from weakness or with loss of face but because of the belief that solutions must be worked out by recognized leadership at a conference table and not by confrontation in the streets.
We have to move towards evolving acceptable mechanisms to determine true leadership and an acceptance of participation and to ensure that such determination is made by democratic means by those who are to be represented. Without an acceptable framework within which leadership can participate without jeopardizing credibility, the discussions and negotiations cannot commence with real prospects of lasting success. Once that is done, the discussion, the debate and the eventual evolution of an acceptable constitutional programme can in fact proceed.
I start then today by appealing to all concerned to take the issues off the streets and onto the conference table. South Africa must do this before the sounds of crying and firing drown out the voices of those who want to reason and listen to each other.
In the light of what I have just said, I want to move an amendment which will deal with both the political issues that confront us and the economic issues. I accordingly move the following amendment:
- (1)
- (a) to renounce apartheid as a political philosophy or policy to be applied in the governing of South Africa;
- (b) to support a proposal directing the Standing Committees of Parliament to review all legislation falling within their particular portfolios in order to recommend to Parliament the removal of all provisions which discriminate on the grounds of race or colour; and
- (c) to take steps, after adequate consultation, to create machinery to enable members of the Black community by democratic means to determine their leadership, and with such leadership to evolve structures to bring all communities into a consultative and negotiating process culminating in a national convention to determine the future constitution of South Africa; and
- (2)
- (a) to review its economic policy so as to ensure long-term stability and deal with the major structural problems confronting the country, in order to ensure that employment and housing and other essentials of life may become available to the rapidly increasing population;
- (b) that it will immediately take more meaningful measures in order to alleviate the hardship caused by high levels of unemployment and inflation; and
- (c) to broaden the composition of the State President’s Committee on National Priorities by making it a non-party body representative of both public and private sectors.”.
If this amendment were to be accepted today it would in fact change South Africa overnight. It would create a new stability internally. It would give new hope to millions of South Africans. It would change the Western World’s attitude towards us. What does this amendment do? It bans the word “apartheid” from our system of government and it commits us to remove statutory discrimination. These two issues have separated us from the democratic world and divided peoples who live in the same land and who should share the same loyalty.
The committal to negotiate with true leadership and evolve a constitution that protects both the individual and his community would put us on a path where South Africa could really benefit from the resources of its land and people. I have no doubt that the acceptance of these principles and the undertakings which we asked for would dramatically change the whole picture in South Africa within a very short time.
I want to turn now to financial and economic matters. Our basic approach to this Budget is that due to the incorrect management of the economy including inadequate control of State spending and a failure to appreciate the impact which factors such as the drought, the gold price and dollar movements would have, timeous action was not taken by this Government. As a result there has been a major deterioration in the South African economy. The Government has now presented us with an ad hoc Budget seeking to deal with the situation and making the safeguarding of the balance of payments and inflation as its major priorities. The Government has failed, however, to address itself adequately, and in some cases at all, to the longer-term structural problems of the country, or to a rapidly changing political environment both internally and in regard to South Africa’s international position. The Government has also not sufficiently applied itself to the consequences of its policies in the short term which not only aggravate the problems of employment and bankruptcies but are also a contributory factor to the unrest and thus constitute a threat to stability.
The need for meaningful action to deal with the casualties of recession must be stressed, and I will go into that in some detail later. So too must it be pointed out—and I think the hon the Minister should take particular note of what I am saying—that the policies applied in the United States, the United Kingdom and West Germany cannot be held up as examples of what needs to be done in South Africa. Not only are our political problems, the social make-up of our population and our wealth and income distribution quite different but South Africa also does not have the massive social security programmes which those countries have to cushion the effects of mass unemployment. I am gravely concerned about the enthusiasm of this hon Minister for “Reaganomics” and his seeking to apply them in South Africa as well as seeking to apply, for instance, what Gelder writes in Wealth and Poverty to South Africa without taking into account what our real situation is in this country. I wish the hon the Minister would put aside Gelder’s Wealth and Poverty and read a little old-fashioned Keynes because it would do him a lot of good. If he were to read a little Galbraith, it might also help in that direction. However, he appears to be taken up with Gelder followed by Milton Friedman, and there are many examples of the disastrous effects of the application of those policies in the Argentine and in Israel, to give just two examples.
The Budget also fails to pay adequate attention to the following: Firstly, to the change in the composition of South Africa’s recent foreign capital investment particularly since the abolition of exchange control for non-residents and in the light of threatened disinvestment action against the country. At the time when exchange control for non-residents was abolished, I pointed out the dangers and said that it would be far better had we allowed resident institutions, in order to deal with the liquidity problem which existed at that time, to invest abroad in dollar securities so that we would have the income and also be able to bring back the money if we wanted it. With hindsight—that is always what is said—if that advice had been followed, imagine the tremendous profits that would have been made. No loss would have been incurred. Secondly, it is now said that there has been a substantial inflow into the stock exchange. However, these are all speculative shares in gold mines and those shares are classified as long-term capital by the hon the Minister.
No.
Oh yes, the hon the Minister’s department says it is long-term capital. I am pleased that the hon the Minister says it is not because then he and I agree. The reality is, however, that all that capital could flow out of the country overnight. Whereas previously an outflow of that kind of capital could not affect the reserves, it does now and, when we talk glibly about an additional R700 million or R800 million that came in during the second half of last year, we must realize that if things go wrong, that money can flow out just as quickly, and that will affect the reserves.
The final point I wish to make in this regard is that if one wishes to assist the disinvestment lobby, one could do no better than abolish exchange control for non-residents. The selling of shares will affect the reserves whereas previously, if one sold one’s shares or one’s investment in South Africa, one could only take the money out by reason of the financial rand mechanism if somebody else bought those shares. The position now is quite different, and I wonder why this fact was not taken into account at the time because it does create a situation in which the selling of shares affects our reserves adversely.
The second point I wish to deal with and which I feel is more than important is the fact that there has been a deterioration in the external trade position of the country taken over the past five years, and that there is an urgent need to reassess export policy. If I have the time to do so a little later, I shall deal with this question in detail.
Thirdly, there are the social and political consequences of massive and accelerating unemployment particularly in view of the fact that more of the unemployed have higher levels of education than in the past. This fact is also not given sufficient attention in this Budget. One of the things that has to be appreciated is that there is actually a difference between an unemployed person who is not educated or trained, and a trained and educated person. Both of these are hardship cases and both need attention, but the more one trains and educates a person and the less he will accept the fact that this is an economic situation, the more he will turn to political activism in order to deal with his problems. Therefore, when one educates and trains people, one has to make sure that there are jobs for them to go to because job creation is as if not more important than the education of people. It is hopeless to train people and then to tell them that there is no job for them to go to.
The fourth instance in which this Budget fails is in regard to the need that exists in South Africa, in my opinion, to encourage personal savings in order to have capital formation for investment purposes. I think that there is inadequate incentive towards personal savings in this Budget.
The fifth point in regard to which this Budget fails is in regard to the desirability of incentives for investment in equity capital in South Africa for foreigners, other than the decentralization incentives, to act as a counter to disinvestment campaigns. I want to commend to the hon the Minister that he give consideration to making concessions in respect of the equity investments of people who are going to establish themselves here permanently to act as a counter-measure to the disinvestment campaign.
Sixthly, there is the relatively stagnant position in regard to productivity on the part of both capital and labour. This is a matter that requires attention and it has received inadequate attention in this Budget.
In the seventh instance, there is also the need for the South African economy to be less dependent on the gold price and to set aside the benefits of a higher gold price when they occur for stabilization purposes so that they may be used in less advantageous periods or for special projects in order to solve urgent social needs. What has happened in the past is that every time we have had this gold bonanza, we have blown it; we have not actually looked after it and used if for the purposes I have mentioned. What is even more remarkable is that when in years gone by one appealed to the Minister to borrow money when it was cheap, to set aside the benefits of the gold price when they were available until such time as we needed them, he pooh-poohed these ideas and would not accept them. I believe that this Budget does not recognize the importance of dealing with this matter in this way either.
The tragedy is that this Government appears both politically and economically to be reactive rather than proactive. We wait for something to happen, we wait for something to go wrong and, as somebody said to me: If things go wrong in South Africa, the Government manages to make them go worse. If things are better in South Africa, somehow or other they make them go worse even when they do tend to go better. What we should actually be doing is planning for the future. We should not be practising reactive politics or economics, but we should be proactive and we should be in a leadership situation. When they do react, the tragedy is, as has been demonstrated in respect of the gold price and the dollar and the drought, that they delay their reaction with the result that we all have to pay. There is no question about it that if we had for example taken timeous action in regard to the problems that have beset us over the past couple of years, the medicine would not have had to be as harsh as that which has to be applied today. The hon the Minister may say to me that he did not hold the job at that time. I concede that he was doing something else, but he was a member of a Cabinet which has collective responsibility. It is no use saying today: “It is Mr Horwood.” The reality is that Mr Horwood was a member of the Cabinet which has a collective responsibility.
Who said that?
I said that it was not use saying that; the hon the Minister can work out who is saying it and when it is said.
Nobody said that. [Interjections.]
Nobody said that. I do not think the hon the Minister should put his credibility at stake over this issue. I think he should just sit there quietly. It will do him much more good. There are more important credibility issues that need to be faced. [Interjections.]
The problem with the Government is also—and here I again speak specifically to the hon the Minister—that the Government commits itself to policies to which it pays lip service. The hon the Minister of Trade and Industry is a major culprit. He uses expressions like “capitalism”, “free enterprise”, “market mechanism” and “supply side economics”, and yet in reality the Government acts completely contrary to the philosophies it announces. [Interjections.] You like “Reaganomics”? [Interjections.]
I do not use expressions like those.
The Government’s ownership of the means of production, the Government’s intervention in the market, often on an ad hoc basis, its endeavour to manage and control when it should not, and its failure to lay down ground rules when it should, all add up to a confused picture of the Government’s actual economic philosophy.
What happens is that buzz-words become popular from time to time. At the moment we have a new buzz-word, namely “privatization”. That is what is the scene now. “Priorities committee” are now new buzz-words, but the hon the Minister forgets that that priorities committee has been brought into life by this Government after being in power for more than 30 years! Where has it been all this time?
Other buzz-words are the “informal sector”. That is now a concept which is being explored after years and years of overregulation, and overregulation by nobody but this Government. What I believe the Government really needs to do is to get its economic act together, to use the available brains in the country to evolve an economic policy and then have a plan and issue a statement of intention to implement it.
That is not the position at this moment. The reality has to be accepted by the hon the Minister and by the Government that South Africa is a mixed economy. It is an economy with large wealth and income gaps, with a growing population with increasing expectations, with limited resources and increasing external pressure. We need to see the real South Africa, not theorize on unattainable ideals.
South Africa is changing not only politically but also economically. “Change” in itself is a buzz-word which is being used. However, the more important question has to be asked, and I hope the hon the Minister will answer it, namely: Change to what? Economically the answer is not forthcoming either in this Budget or elsewhere in regard to what we intend to change to as far as our economy is concerned.
Let me deal with some specifics and outline them. Firstly, whether the expenditure is going to be kept within the specified limits, only events are going to show because, regrettably, as I will show in a little while, we have had too much talk of financial discipline before. The proof of the pudding is going to be in the eating. When we are here in a year’s time, then we will be able to say to the hon the Minister: “Yes, your credibility is established”; or, which I hope will not be the case, we will merely have a repetition of what was said last year. I have a string of quotations here which time unfortunately does not permit me to read to hon members, but almost the same words were used last year in regard to the Budget as the hon the Minister is using this year when we talk about financial discipline.
Secondly, Sir, I submit to the hon the Minister that we have very serious difficulties in connection with this magic new deficit of 3% in relation to the fiscal deficit without regard to cyclical movements. We have difficulties too in connection with the question of the deficit before borrowing as it exists in this particular Budget. That I will point out in a moment.
Thirdly, Sir, in relation to the matter of the taxation proposals, we believe—and I think I will be able to demonstrate this on the figures—that the GST increase could indeed have been avoided without preventing this Budget from achieving all its objectives. I say this, of course, provided the figures are correct, and provided the hon the Minister keeps to his estimates. I say it provided financial discipline is really there and we are not being told a fairy-tale as we were a year ago. If that is indeed so, and if credibility can really be attached to the hon the Minister’s figures, the GST increase could clearly have been avoided. However, I do give the hon the Minister the benefit of the doubt in this instance. Today I believe him, and I will confirm in a year’s time whether I was right or wrong in believing him. If I take his figures, however, it is clear that the GST increase could have been avoided.
In regard to the question of the other tax proposals, we have very serious concern about ad hoc tax measures which are being applied ahead of the Margo Commission’s report. What worries us is that when one deals with something on an ad hoc and temporary basis, it has a habit of becoming permanent. This is what worries us in regard to some of these tax proposals that are before us. I shall deal with them all in detail later.
Fourthly, we have very serious misgivings about some of the spending priorities of the Government, and I intend to deal with those in detail. We particularly have misgivings about those spending priorities relating to job creation.
The fifth factor with which I want to deal is the fact that I am concerned that there is a complete absence of incentive given to South Africans to buy South African products. There is an utter reluctance on the part of the Government to become involved in any sort of “Buy South African” campaign, despite the fact—as I will point out—that it will have very real benefits for South Africa. If one buys South African products one is not only assisting the current account on the balance of payments, one is not only assisting in the fight against inflation because one is allowing the slackness in industry to disappear so that unit costs can go down, but one is actually also creating jobs and helping to keep jobs in South Africa. I really do not understand why this Government will not give incentives to the people of South Africa to buy South African products, and why they will not embark upon a “Buy South African” campaign.
Sixthly, Sir, we are not satisfied with the nature and the effectiveness of the anti-inflationary measures taken by the Government, since we believe there are other less painful and more effective steps that could be taken. I will deal with some of those as well.
Seventhly, Sir, the measures to relieve the lot of the unemployed—and this is a matter on which I want to dwell at length—and of the deprived people of South Africa are totally inadequate. Furthermore, the assistance which is given to viable businesses, which are indeed under strain because of the present economic conditions in the country, is also inadequate despite the fact that such assistance can provide people with jobs and help them to survive.
Next I want to deal with the spending patterns which have been shown in this Budget. I want to see whether the Government can actually achieve its own stated objectives. The first of these is to limit the rate of increase in State expenditure. I pointed out before that a true comparison is actually the one based on the year-to-year situation. When we compare this Budget with that of last year, we note that the present one is more than 21% higher than the previous one. The issue which I raised with the hon the Minister earlier was that we had all the protestations of financial discipline last year. We had all the promises of regular monitoring, of co-ordination of fiscal and monetary policies, and indignant objections to any suggestion that targets might not be met. That is why I say to the hon the Minister that the proof of the pudding is going to be in the eating, and we will have to wait until next year to see what is really going to happen. Nevertheless, I believe that fears in regard to overexpenditure cannot be brushed aside, not only because of past experience but because of some other reasons too.
Firstly, the hon the Minister himself concedes that the spending demands of the departments of State were R34,9 billion and were cut back to R30,9 billion. So, there is a pent-up demand that remains, and if one does not exercise absolute control that demand will in fact expand.
Secondly, there is an inherent risk of more demands for money due to the prevailing high rate of inflation and in view of the State’s method of budgeting for the impact of inflation on expenditure. The State has a particular way of taking into account the situation in respect of inflation as it exists at the time of the Budget and not as it actually exists when the Budget is presented.
Thirdly—and perhaps most important—there is the unscientific manner in which in the final result the last cuts to the Budget were effected. I want to quote from the evidence that was given before the standing committee:
When one has an arbitrary decision and one does not have proper zero-based budgeting, one has a potential for going wrong. I must say that I am surprised that the hon the Minister allowed a certain situation to develop when in the end it had to be just an arbitrary cutting across the line by the Cabinet. From what I have quoted it was truly an arbitrary decision to get to a certain total in the end. I am sorry, but that is not good budgeting. Zero-based budgeting is good budgeting, not an arbitrary decision just to reach a total in the end. It is no wonder that the evidence given before the standing committee reflected a wait-and-see attitude by the Treasury, at least in respect of whether or not the savings on staff would materialize, particularly when it appears that despite the cuts on bonus cheques—which has caused so much controversy—personnel expenditure on overall Government, not merely the central Government, is going to increase by approximately 12,5% in the forthcoming year. That is a very substantial increase bearing in mind the rate of increase in the Budget as such.
However, there are other things to consider. By taking some activities into the Budget and taking some activities off the Budget, by the changes coming about in regard to the provinces, is it not illogical and perhaps misleading to look at the general affairs Budget of the Government in isolation? Should we not actually look at Government expenditure at all levels, whether included in the Budget or excluded from it, whether or not by a department or by a parastatal, and whether or not by own affairs or by the provinces? Should all of this not be put into an account so that we can ascertain the true picture of Government expenditure and of “Government” in the true sense of the word?
Secondly, new demands by the central Government for long-term borrowing are reduced in terms of this Budget, with the clear and stated intention by the hon the Minister of increasing taxes. He says that he hopes that will reduce interest rates. However, the truth is that Reserve Bank activities in the same type of stock are not included, as they are said to be for the purposes of monetary policy. The activities of the parastatals, such as Escom, Iscor and others, are not included either. In the result, the vacuum in the market which may be predicted by the hon the Minister now may not exist or come about at all. Furthermore, by having hived off services and bringing others back, by allowing inroads into the capital market by what are really arms of the State machinery, or by clothing some with separate tax powers and others with the right to levy service charges for monopolistic activities, the economic scene is presented in a fragmented and incomplete form in the Budget presented to this House. That is something which we find unacceptable because we really need to look at the whole picture of State expenditure.
We then come to the question of priorities of Government. In the standing committee evidence was given to the following effect:
I want to stress the words “Government policy is concerned”:
That is a very significant statement. Again the following statement is made:
In the first instance, while the total level of expenditure certainly has admitted economic effects on us, money spent on unproductive political ideologies has serious economic consequences as well as social and economic repercussions. One therefore cannot just put all expenditure in one pocket.
Secondly, the nature of Government expenditure has differing effects on the economy; for example job-creation activity as against other expenditure, say cultural activity, has a completely different economic effect. So, too, the economic consequences of money spent on export incentives, for example, differ from those of money spent, for example, on pensions—not that they are not both desirable. The effect, however, is completely different. So, while overall Government expenditure has certain economic consequences, the components thereof are equally important and also have particular economic consequences.
In the standing committee we tried to ascertain the Government’s priorities. The evidence disclosed defence, education, housing and perhaps pensions. Other priorities are added lower down the scale. The other priority is regional development. It appears that only now is the Government taking decisions in regard to priorities. In the past it was the expenditure departments that took those decisions. That was the evidence given. Even now the priorities committee is not functioning fully in South Africa.
Can one imagine a business functioning in the way in which the Government has been functioning over the past 30 years? It has only been the availability of the vast resources of South Africa and sometimes of the printing press that has enabled the Government to escape the same consequences that would follow if a business functioned in this way.
When one talks about priorities one agrees that stability is a major priority. While we agree with the Government that job creation is a major priority, we say that the application of the policies of homeland development, decentralization and deconcentration over the years has for the money invested produced utterly inadequate returns, and I think this can be described as one of the grand failures of the NP Government. [Interjections.]
The reasons are not far to seek. The activities conducted over more than 30 years have been ideologically based and have evolved in an unbusinesslike, open-ended manner with insufficient regard for eventual viability without assistance and concessions and without adequate regard for job creation per rand invested.
We found it staggering to hear in the standing committee that as long as one complied with the little brown book—this is not Chairman Mao’s book—the application would be approved. We got a letter afterwards explaining it, but that was the evidence and that is really what is taking place. Even now the process is an open-ended one with no real conception on the part of the Government as to what the eventual cost will be. We are now discovering that there has to be a new investigation and that reassessments have again become necessary, and this after 30 years!
It is true that more money is being spent on education, and we believe correctly so. Training, however, is far too inadequate as opposed to academic education, and job creation, I submit, is receiving inadequate priority. I do not think that the money spent on it is cost effective to the degree required.
The priorities which we should like to see are also related to stability, but a stability in particular brought about because we have a population which is able to earn a living either by its employment or through its entrepreneurial activity, and which by means of its earnings is able to obtain whether by direct payment or by tax paid by the community adequate housing and education, health and other necessary social services. Those are the priorities which we see for a stable South Africa, and to this end we believe the long-term objectives of the Budget should have been directed.
One of the other things I have mentioned is the question of the casualties of the economic policy and the casualties of the recession which presently exists. We have the situation that while there are the errors of the past, we now have an ad hoc Budget to deal with the problems. The country is being asked, as it has been repeatedly asked by political leaders, to make sacrifices.
To fight inflation is the priority of the Government. The following is the evidence which was given to the committee, and I quote:
We note that he says we are going to pick up all the problems such as unemployment and other difficult problems such as unrest.
The hon the Minister himself has repeatedly spoken of the sacrifices that will have to be made. I would like to pose a number of questions to him. Firstly, would it not have been possible to combat inflation with less severe measures if they had been timeously taken? The economists’ answer to this is a clear, unequivocal “yes”. This has been admitted to be so by the authorities and I can give the quotations from the various people who gave evidence and from the various documentation that, had we taken more timeous action, we would have been able to deal with it.
The hon the Minister will say: “Yes, that is hindsight,” as is so often said. Hindsight is 20:20 vision, we are told. The reality is, why do we actually have a Minister of Finance? Is it to have hindsight or to have foresight? Why do we have advisers? Is it to have hindsight or to have foresight? On top of it, the reality is that in this very House and outside the warning to take action was given by people in authority and people who know.
Let me give an example of, say, the hire-purchase restrictions. We asked for these restrictions to be imposed. This is a tough thing for an opposition to do, but we asked for them to be taken. What was the answer given to us? “It is not the right time; we should perhaps have done it a year ago.” A year later the Government does this very thing and imposes these restrictions. Today it is admitted, and the quotations are all there, but the step should have been taken at the time we asked for it.
Everybody has hindsight, but the leadership of the country needs to have foresight, because that is the reason why leaders are supposed to be there. The excuse that hindsight is 20:20 vision does not hold at all. It is nonsense to think of using it as an excuse.
The second question is: Is it not possible now to fight inflation effectively and perhaps more effectively with less stringent recessionary measures combined with other measures? The answer is again “yes”, if the Government will adopt a more realistic approach to administered prices, for example, which the Governor of the Reserve Bank has by the way estimated will increase by an average of 20% this year—and we have an inflation rate of 16%—and if the Government will accept that there are factors other than the money supply which influence costs. This is something we simply cannot get across. Somewhere in Government circles there is a hang-up that inflation is only dealt with by means of the money supply. It is not so; there are other factors and these need to be dealt with.
The third question I want to ask is: If sacrifices are to be made, are they spread evenly over the population? I believe the answer to this question is an unequivocal “no”. The policy adopted by the Government acts as a redistributor of wealth. Some are protected against inflation and the recession by reason of the nature of their economic activities or their investments, while others have their living standards eroded, their businesses bankrupted or they lose their jobs. I have dealt with the fact that the policies as they are in other states are not necessarily applicable here. When policies are deliberately applied that cause unemployment and hardship and that have been said to be a possible cause for unrest, those who apply them have a duty to assist the casualties of their policy. This is what I ask should be done today.
They should also realize that in the absence of remedial measures there is a potential for even greater unrest which I think events have now demonstrated to be at the very least a contributory cause. In otherwords, what has happened is a contributory cause to the unrest we have had in South Africa.
I concede that some relief is provided in the Budget, but it is wholly and utterly inadequate. This is the time not merely to create more pick and shovel jobs but to give assistance by creating jobs to create infrastructures in areas where those infrastructures do not exist. In this way one can solve two problems with one form of expenditure. The dignity of work as opposed to the dole is self-evident. The knowledge that the work is beneficial to one’s community is even more so.
Secondly, direct relief to the impoverished needs to be stepped up to further supplement the outstanding work of voluntary organizations such as Operation Hunger, to which I would like to pay tribute. In addition, assistance to keep otherwise viable businesses going should be increased. The approximately R30 million voted last year, has been partially used and is to my mind utterly inadequate. The Small Business Development Corporation, within two weeks of the announcement of the availability of the R30 million, was flooded with 2,500 inquiries and applications for what are called “survival loans”. Dr Vosloo, the director of the SBDC, said the following:
We assist farmers to stay on the land—we supported those measures and we continue to support them—why then do we not assist workers in greater measure to stay on the job and to maintain those jobs for the future? To create jobs costs more than to keep people going. Once bankrupt, the jobs of that firm are lost forever. By keeping workers on the job, one keeps them off the streets. In that way one not only helps them but one also helps to maintain stability, and this helps all of us. If that does not persuade the Government, I might add that if the business is export oriented, it will help the balance of payments and, if directed at the local market, it may substitute imports and improve competitive conditions. The money earned will be spent on goods which will keep others employed and bring taxes into the Government’s coffers. Saving jobs is good business as well as being good sense.
There are many things that can be said about the Budget. There are many things that still need to be said. When one looks at the Budget, one has to agree that it is anti-inflationary and is designed as an ad hoc measure to deal with the present problems. If this is so, we must ask ourselves whether we are giving relief to those adversely affected, and are we laying the foundations for the solution of the long-term problems of South Africa. I believe this is where the Government has failed. There is inadequate planning for the future of South Africa. There is inadequate planning to deal with the structural problems of South Africa. There is inadequate planning to deal with the tremendous growth in the population and the number of economically active persons we are going to have to accommodate. These are the things we need to apply our minds to. This is why we ask the Government not to determine the priorities on its own but to use the brains that are available to it in South Africa. Consult the people in the private sector who are available to help the Government. Bring them onto the Government’s priorities committees and let them work out the real priorities for a stable and safe South Africa.
Mr Speaker, I should like to thank the hon member for his kind words. Coming from him, no easy-going man, one appreciates them all the more.
The hon member for Yeoville is a person who made a good contribution on the standing committee. It is a pity that he is sometimes inclined to indulge in a little party-politics. When that happens, we find that he places party-politics before the interests of the country.
I want to begin by expressing my gratitude and appreciation for the co-operation which I received from hon members of the Standing Committee on Finance. I think we were able to build up goodwill and mutual trust. In addition, history was made with the establishment, terms of reference and functioning of the committee. We had to break entirely new ground and literally determine every step we took. In terms of rule 41 the committee heard evidence for six days and deliberated on the budget proposals of the hon the Minister of Finance. The committee heard evidence from the Governor of the Reserve Bank, the Department of Finance and 12 other Government departments. The committee wishes to convey its gratitude and appreciation to these officials for their contribution, and a special word of thanks and great appreciation to Dr De Loor and Mr Wronsley, who were present throughout, for their very valuable contribution. I also want to thank the secretariat and their officials very much for the valuable services which they provided, for without their much appreciated help, matters would not have gone so smoothly.
The committee received written representations from the public and interested parties, and also expresses its gratitude and appreciation for the interest shown. Owing to a lack of time it was unfortunately not possible to hear oral evidence, but all the evidence will be printed and tabled. I want to recommend that hon members make a thorough study of it. Personally I think that this new procedure presents great advantages and holds great promise for the future. The members of the committee should in future always guard against questions, recommendations and resolutions which may be of a party-political nature. If the committee is going to indulge in party-politics, it is doomed. The place for that is the second reading and Vote discussion debates.
The hon member for Yeoville’s amendment consists of five subdivisions. What they amount to briefly is this: To renounce apartheid; to remove all provisions which discriminate on the grounds of race or colour; to participate in a consultative and negotiating process culminating in a national convention; to review economic policies and to adopt measures to counteract unemployment and inflation. There is nothing new. These are merely old, platitudinous PFP slogans. [Interjections.] Furthermore the hon member also expressed a considerable amount of unjustified criticism, and said nothing about the PFP’s economic policy and its social democracy.
I have not finished with the hon member yet, for in the part appropriation debate on 12 February 1985 the hon member for Yeoville asked the following of the hon the Minister. I am quoting from Hansard, col 825, as follows:
With the commencement of the new Constitution, Joint Rules and Orders for the Houses were drawn up. Rule 41, to which I have already referred, provides:
- (1) On the day on which a Minister has in terms of Rule 40 delivered his budget speech on an appropriation bill, the Speaker shall refer the appropriation bill concerned, the budget speech and the papers laid upon the Table by the Minister to the appropriate standing committee.
- (2) The period for the deliberations on the appropriation bill and the papers referred to in subsection (1), shall be limited, in the case of—
- (a) the Standing Committee on Finance, to a maximum of seven consecutive days on which Parliamentary business is disposed of.
The hon member for Yeoville, as vice-chairman of the committee, is well aware of this. Moreover he is also aware that not only the hon the Minister and the Department of Finance, but also other hon Ministers, together with their respective departments, may appear before the committee.
On 18 March 1985 the hon the Minister delivered a Budget Speech which complied fully with the hon member’s request of 12 February, to which I have just referred. The rules of this House afford the hon member an opportunity to deliberate for seven days and debate matters with hon Ministers and their departments. That is why I was so astonished to find the hon member commenting on this speech on television on the evening after the Budget Speech had been delivered. The next day his comments were in all the newspapers. For example I want to quote from Die Burger of 19 March 1985, as follows:
When I listen to the arguments of the hon member I want to suggest that the exercise of the hon member serving on the Standing Committee on Finance for six days was futile because he was biased before he went on to it. What is more, we who know the hon member well, know that because he adopted a standpoint in advance no one or any further explanation would be able to sway him, and so we would never be able to achieve consensus of any kind, as the hon member for Turffontein also said on one occasion. I shall leave it at that.
Therefore his reason for adopting the same standpoints here this afternoon is clear and understandable. In fact, as I have said, he said nothing new. I shall deal with some of the matters which he touched upon during the course of my speech. I also want to say that if this is and is in future going to be the approach of this hon member and other hon members, the exercise of serving for seven days on the Standing Committee on Finance will be futile for them and their parties and such an exercise would consequently serve no purpose.
Mr Speaker, may I ask the hon member whether he expects the Opposition to say nothing at all about the Budget for a whole week after the Budget Speech has been delivered by the Minister of Finance?
I think that if members who are going to serve on the committee were to be asked for their comments, they would be able to say that they would like to comment after the evidence had been heard. That is what my standpoint would be.
Before and after the presentation of the Budget it was interesting and enlightening to learn from the media and from written representations to the Standing Committee on Finance in what light every individual, from the pensioner to the plutocrat, as well as various interest groups viewed the Budget, and what their opinions on the Budget were. After analysis, however, it is very clear to me that self-interest and political convictions keep on surfacing in their criticism and recommendations. There are numerous examples of this. Time does not allow me to elaborate. The best one I found, however, was in the “Budget Preview” of The Argus of 14 March 1985. The headline was: “Try Reagan’s Recipe”. I quote:
To say that the Security Services and departments such as that of Health, Welfare, Pensions and Education should be operated on a profit basis while, as we know, even larger amounts are being insisted upon, demonstrates the real ignorance of this person. He may be a good businessman, but I am afraid that he has no knowledge of State finances. To people like this I want to say: Let the cobbler stick to his last! It sounds to me so typical of the things the hon members for Yeoville and Lichtenburg say, for like them he merely makes a lot of nonsensical statements without explaining how what he is proposing can be accomplished and what the results would be.
The popular topic of conversation, the "in thing” today, is the excessive Government spending. It has almost become a term of abuse. Although one of the highest budgetary priorities is to curb Government spending, particularly as far as current expenditure is concerned, the other side of the coin must also be shown. According to the Statistical Economic Review for the 1984-85 financial year, the expenditure on our Security Services amounted to 22,5%, on welfare and health services and pensions, to 15,4% and education to 19% of the total Government expenditure. If it is borne in mind that these three components comprise 56,9% of the total Government spending and that their importance may not be underestimated, even a man like Mr Searll, whom I quoted, must realize and admit that his solution of “Try Reagan’s Recipe” is not all that simple. That is why the well-known Prof Brian Kantor was quite justified in saying inter alia the following in the Sunday Times of 10 March 1985:
I am not trying to imply in this way that I am opposed to the curbing of Government spending. I am merely trying to indicate that a balanced viewpoint in regard to justified and obligatory Government spending ought to exist among the public. Consequently I wish to confine myself briefly to the Budget itself.
Basically circumstances require an effective continuation of our strategy to curb the expansion of total spending by means of monetary and fiscal policy measures. We must accept that the economizing adjustments in the economy will present certain challenges to our economic administration. They will consequently require a measure of hardship and sacrifice but this is the only way in which a sound foundation for growth and prosperity can be laid.
The Budget seeks to give preference to (a) the combating of inflation and (b) the strengthening of the balance of payments. As such it complies in full with the basic requirements. Firstly the rate of increase in Government expenditure is only 11,4%. This is less than the present rate of inflation, and it means that in real terms there will be a negative growth in Government spending. Secondly, no current expenditure will be financed from loans, while capital expenditure will increase by 17,4%. Thirdly, the deficit before loans is 2,2% of the GNP. This is considerably lower than the 3% which was originally set as a target. Fourthly, the deficit ought to be entirely within our financial means without any need for us to make use of bank credit.
In view of fiscal requirements in the coming financial year and with the object of spreading the burden as widely as possible, this matter is being gone into with the help of every important sector capable of making such a contribution. Consequently the following increased taxes are being introduced: An increase in GST from 10% to 12% in contrast—and this is very important—with a reduction in personal tax, as I shall indicate later; an increase in customs duty on imported luxury goods; a special temporary additional surcharge of 5% on gold and diamond mining companies; a special surcharge of 15% on all mining companies; a special levy on insurance companies, which amounts to an effective tax of 7,5% on gross income, and a special levy of 0,25% on all deposits kept by banking institutions. The hon the Minister could hardly have introduced better distributed increased taxes.
But what do the concessions look like? Many important concessions have been granted, particularly to pensioners and the lower income groups, but even to other individuals as well. Social pensions are being increased by R14 per month and a further non-recurrent bonus of R36 is being granted in May 1985. Civil pensions are being increased by 7è% to 15%, while military pensions are also being increased by 15%. The tax rebates for senior citizens over the age of 65—and that includes me—are being increased to R500. Hon members can therefore understand why I support this motion. Primary rebates for married persons are being increased to R880 and for unmarried persons to R620. The thresholds of tax-paying liability for married persons are being raised by more than 36% to R5 988 and for unmarried persons by more than 18% to R4 232. This was brought about by increasing the basic tax rate.
In addition there is further alleviation in regard to personal income tax for unmarried persons through the maximum applicable tax rate being increased from R32 000 to R42 000. Deductions for medical expenses for married persons under the age of 60 are being increased to R1 500, for those over the age of 60 and under the age of 70 to R4 000, and there is no limit—this is very important—on medical deductions for people over the age of 70. This very day I received another letter in this connection in which the author requested that we look into this aspect.
The amount of income derived from interest and dividends which is exempted from tax is being increased from R100 to R250. Although the surtax on individuals is in fact being increased from 5% to 7%, the majority of taxpayers are going to pay less income tax this year than they had to pay in 1984. Only people with a taxable income of R80 000 will have to pay more this year.
In this connection I just want to furnish a few examples. If the taxable income is R10 000 per annum, married persons with no or up to three children will pay R80 per annum less. On an income of R20 000 the tax is R301 less for married persons without children, R308 for those with one child, R315 less if there are two children in the family and R318 less in the case of three children. Even with an income of R40 000 per annum the tax is R567 less for married persons without children, R574 less in the case of one child, R581 in the case of two children and R588 if there are three children in the family.
I support this Bill wholeheartedly because the Government’s strategy with this budget will in the long run contribute to curbing expenditure, improving the balance of payments, strengthening the exchange rate, counteracting the upward tendency of the inflation rate, paving the way for more rapid and sustained economic growth, providing our growing population with employment opportunities, and last but not least to inculcating confidence in the management of the South African economy; in other words everything for which the hon member for Yeoville asked in February 1985, and yet he and his party are rejecting this measure. That is why I quote with acclamation the comments which appeared in the Business Times of 24 March 1985, namely:
With such a Budget and such a Minister we can march into the future with confidence.
Mr Speaker, if the hon member for Yeoville’s amendment were passed and applied in South Africa, it would change conditions in our country within the short term but what of the consequences? South Africa would be doomed to distress, chaos, poverty, unemployment, heartbreak, misery and insolvency. I therefore move as a further amendment:
- (1) stop unnecessary State expenditure, will not further increase the general sales tax and the fuel price this year and will not further impoverish the consumer;
- (2) retain section 16 of the Immorality Act and the Prohibition of Mixed Marriages Act;
- (3) not implement power sharing with Blacks at any level of government;
- (4) maintain law and order; and
- (5) maintain the status quo in respect of Indian occupation in the Orange Free State and Northern Natal.”.
Today I also wish to ask the NP to permit its members to vote freely according to conviction for or against this amendment and not to place them under party discipline. Then we shall see how our people will vote. [Interjections.]
The hon member for Yeoville praised the hon member for Smithfield extravagantly. I can understand that; I would have done the same. The Standing Committee on Finance sat for six days and sweated for six nights to come up with the right cross-questioning. The committee met again and what happened then? On the 27th the hon member for Gezina, who represents the strong and mighty NP, the party ruling from a position of strength, proposed a motion, namely:
What happened then? The hon member for Yeoville just looked at it, laughed and said: “Man, take that little thing of yours away.” He then submitted a document of 4½ typed folio pages to the committee and requested that we discuss that. The NP members nearly collapsed, they did not stir and said: “All right, let us accept that.” I have the document here that was drawn up by the hon member for Yeoville. It formed the basis of the entire discussion and here it is exactly as the hon member proposed it. So much for the mighty, powerful NP! That is how it governs. It is feeble; it is spineless; it is paralysed and without a policy. [Interjections.]
What happened further? People from National Education appeared before us for an hour and only the chairman and two members of the NP were present. The rest were obviously not interested in national education. Four minutes before the time expired, an additional NP member arrived. We and the Official Opposition had to provide a quorum to keep the people from National Education there. The NP is not interested in the Whites; it is merely obsessed with its diabolical consensus politics.
The hon member for Smithfield referred to State expenditure. Let us talk about that. In 1984-85 an increase of 11,7% was budgeted for but in the event the increase was 21,8%. Can we believe this Cabinet; can we trust it? This year the same Cabinet with a different Minister budgeted in conjunction with the Committee on National Priorities for an increase of 11,4%. I can tell the hon the Minister now that it will be much more than that.
How much?
Much more than that. Probably about 20% again.
20%?
It can easily amount to that. In any case it will be much more than 11%.
State expenditure has therefore risen within two years from R22 328 million to an expected R30 293 million or by 35,7%. That is 16,5% on average provided we keep to this year’s figure. I doubt if we shall. According to the SA Reserve Bank’s bulletin for March 1985 real Government consumption expenditure—and the State is the greatest contributor—in the calendar year of 1984 rose by 9,4%. Over the past three years the average annual increase in real Government expenditure was 5%. In the same period the real gross domestic product rose by 0,07% per annum.
What do we find further? Real gross fixed investment fell by 4,5% per annum and we see that real gross domestic expenditure declined by 1,4% per annum. If that is the state of affairs, we cannot say we are confident about the South African economy. It is shocking. The share of real Government consumption expenditure in real gross domestic expenditure increased from 14,4% in 1981 to 17,4% in 1984. I wish to state very clearly that this great increase in current State expenditure over the past 3 years is the greatest single cause of the problems of the South African economy. The hon the Minister knows this—he will not contest it because it is a fact.
I therefore ask myself what the accuracy is of the figure of 11,4% growth in expenditure during 1985-86 announced by the hon the Minister. I think we should examine this a little further. The hon the Minister has already foreseen that it could be exceeded further and has budgeted for a further R400 million from the Stabilization Fund. The hon the Minister has already foreseen this and I do not blame him. I think he has had a vision of the future there. In consequence there will be an even greater increase than I have already mentioned. Now I wish to know, however: What about losses on the forward exchange contracts of the South African Reserve Bank contracts? No provision has been made for those. I should not be surprised if they amounted to approximately R1 000 million this year.
Furthermore I wish to know what has happened to subsidies. Have subsidies been curtailed by this amount or not? We are not in favour of large subsidies—we are putting this very clearly—but if subsidies have been curtailed or abolished or if this is to be done, then tax should be reduced. If the hon the Minister has not done so, it is merely yet another indirect tax he has imposed here.
The hon the Minister says capital expenditure will rise by 17,4%. What will happen if extra-budgetary Votes are removed? What will the increase in capital expenditure be then? The hon the Minister can tell us when he replies to the debate.
In the hon the Minister’s summary of the Budget he said he had budgeted for a real decline in expenditure. I wish to say to him now—and I have said it already—this will not happen. Let us examine the deficit before borrowing which is naturally a very important amount. It is a good thing that the deficit is not so large this year. It looks significant but it is relatively small. Nevertheless it would have been wise of the Minister to prune expenditure. But what happened? It was reduced as a result of enormous tax increases. [Interjections.] Yes, officials’ bonuses also had to be cut.
Without tax increases the deficit before borrowing would have been R1 971 million plus R1 711 million. That is R3 682 million. If I had added this R400 million, the deficit would have amounted to more than R4 000 million which is not too encouraging. That is why I say this Budget is not such a good budget, however hard the Minister has tried.
I wish to point out further to the hon the Minister that over the past 3 years, from 1981 to 1984, the individual’s current income rose by 54,3% or 15,6% per annum. What happened, however? Direct personal taxation of the individual over the 3 years rose by 131,2% or 32,5% per annum. Income rose by 54,3% but direct taxation by 131,2% over the three-year period.
That is terrible. [Interjections.]
In 1984 current income of the individual rose by 17,5% but direct personal taxation by 41, 9%. Add General Sales Tax to this and I put it to the hon the Minister that the pressure of taxation on the ordinary man is intolerable. And then the hon the Minister of Constitutional Development and Planning comes with his regional tax as well.
The hon the Minister is ruining the public. Direct personal tax expressed as a percentage of the current income of the private individual was 7,5% in 1981. Three years later, in 1984, it stood at 11,2%. We can see clearly where it is heading. Company profits have slumped; things no longer look so rosy. In 1977-78 direct tax paid by companies, also expressed as a percentage of their current income, was 18% but this fell to 10,9% in 1984.
In addition I wish to know from the hon the Minister why he has deviated from the previous policy. A surcharge of 7% has been imposed on individuals but not on companies. Why not?
Regional tax, Oom Jan!
No, Sir. Previously we always attempted to keep company and individual tax on a par. The individual now has to pay other forms of tax in addition. The individual also pays General Sales Tax. This is a little matter on which we are eager to have further replies from the hon the Minister.
This brings me to another subject on which I have a few comments—namely the whole matter of secret funds. In this year’s Budget we have altogether R95 million intended for secret funds. We have spoken about this before but I wish to refer to it again today. These little documents issued by the Government in 1982—I have one with me here—cost R68 497 altogether. It is nothing but pure NP propaganda! [Interjections.] It is unadulterated National Party propaganda! Now I wish to know how much money the National Party applied from secret funds for its campaign during the last election as well as for various other party matters. The Advocate-General supposedly found that these publications made the policy of the Government known. It is naturally not the Government’s policy but the National Party policy announced in these publications. The National Party is one thing; the Government is something quite different. [Interjections.] National Party policy becomes Government policy only when it has been passed in the form of legislation by this Parliament. The propaganda aimed at carrying out the diabolical policy of the National Party, however, was nothing but pure NP propaganda. If the financing of these publications from secret funds is justified, the Government can just as well compensate the organizers of the National Party from these same secret funds. [Interjections.]
Further we can obviously also note the increase in State expenditure this year. With regard to Parliament, increased expenditure amounts to 101,8% altogether. In addition increased expenditure on the SATS is 106,4%, the Department of Constitutional Development and Planning 16%, the Department of Foreign Affairs 51%, the Commission for Administration 114%, the Defence Force 13,8% the Department of Trade and Industry 69,9% and the Department of Finance 26%. These are enormous increases. I followed up a few of them but unfortunately do not have time to go into the matter further.
Hear, hear!.
I can furnish figures relating to other State expenditure which has also risen appreciably. If the Government had set about the matter fairly, I believe there could have been a saving of R982 million on this expenditure. Even the recent population census could have provided a saving of R20 million. I can continue in this way and point out more areas in which saving was possible but we can discuss this in more detail at a later opportunity.
Naturally I believe the Government has been backed into a comer. In consequence taxation has been increased to such an extent that the Whites are being taxed to death. Surely they are the people who provide work and make the country’s infrastructure possible. In one of these publications to which I have just referred the National Party contends that more should be done for Black pupils. They say nothing, however, about Blacks who burn down their own schools, hurl stones and murder policemen. All I wish to say on this subject to the hon the Minister is that he should not kill the goose that lays the golden eggs. [Interjections.]
Mr Chairman, I wish to refer very quickly to what the hon member for Sunnyside said right at the beginning of his speech as regards the procedure in proposing the motion and amendment during the activities of the Standing Committee on Finance. It would appear that in the first place the hon member for Sunny-side regretted not proposing an amendment himself that day. He had the opportunity to do so but he did not use it. He heartily participated in our discussion and decision, however, on the motion proposed by the hon member for Yeoville. He also enthusiastically took part in the discussion and agreed on the majority of the recommendations included in the hon member for Yeoville’s motion. [Interjections.]
The hon member for Sunnyside can therefore not point a finger at hon members on this side of the House now. He was obviously not thoroughly informed on what it was all about. [Interjections.] I wish to know from the hon member, however, whether he was present throughout the full seven days on which the Standing Committee on Finance sat. He referred to the fact that not all hon members of the National Party were present throughout but I wish to know whether he was.
Yes, all seven days!
Mr Chairman, the hon member was not present throughout. [Interjections.]
Listen to the cock crowing, Karel!
He was not there all the time. He was not present throughout the meetings of the Standing Committee on Finance. Neither did any of his fellow party members attend the discussion to hear what was going on. I shall leave him there for the moment and return later to other aspects he referred to.
In a period of economic levelling off, when there is a cyclical movement to the bottom of the curve and when the consequences of this are becoming obvious, for example in high interest rates, a scarcity of savings and distorted prices, the ordinary man comes especially to the fore and becomes aware of the weakening economy. Everyone then becomes a financial expert and is prepared to make certain contributions and express criticism on the financial position. Reasons and a scapegoat have to be sought. Often that scapegoat is found very easily. There will always be a Minister of Finance and he is readily available always to bear the blame. In conjunction with him there will obviously be the Government. It remains the fault of the hon the Minister of Finance and the Government that the economy has weakened. Sometimes a finger may certainly be pointed at the Minister and the Government over a deterioration in the financial position. We do not wish to exculpate them entirely but we forget so readily and easily that the Government continues to have an absolute obligation which has to be fulfilled. I am thinking, for instance, of the weakening value of the rand and in addition R2 billion had to be spent on drought relief. No provision was made for this in the Budget but no one is likely to argue about this sort of expenditure which had to take place. Nevertheless quite devastating criticism as regards State expenditure spread like a tidal wave. All sectors came forward with fierce criticism as the hon member for Sunnyside has just done. Possibly such criticism was not unjustified because State expenditure was high and almost beyond control. What worried me was that most of the criticism was of an unqualified, censorious nature. There was no reference to contributory causes. As became a good, realistic patriot, however, the hon the Minister of Finance and also the Government acknowledged in this Budget that excessive State expenditure had taken place. Determined efforts were made in this direction and they resulted in the past Budget. State expenditure will increase by only 11,4% in the coming financial year. That is not mere lip service, as the hon member for Sunnyside has just implied. [Interjections.] Necessary measures are also being taken to realize this.
Do you remember what you said the night before? You said one could not trust P W Botha with anything.
No, you keep quiet!
The members of the Cabinet will bear the responsibility for the overexpenditure themselves. In conjunction with that the hon the Minister of Finance has granted the Standing Committee on Finance a supplementary function—the so-called monitoring function. It would therefore appear that the standing committee concerned will be able to make a real contribution by the timeous identification of certain tendencies to overexpenditure and calling attention to them. The standing committee in its report on the Budget expressed itself strongly in favour of this function.
Permit me briefly to congratulate the hon member for Smithfield, who acted as chairman of this standing committee, most heartily on the way in which he has handled the standing committee up to this point. It is a difficult task and a difficult committee. We also have difficult members serving on that committee but the way in which he handles this committee deserves congratulations and we thank him very much.
Secondly the hon the Minister announced that the deficit before borrowing in future would not exceed the maximum of 3%. Current expenditure cannot be financed from loans. This announcement by the Minister illustrates the drive and an absolute determination to maintain financial discipline on the side of the State.
The demands of the times will in future ask more of us than mere financial discipline—they will exact financial patriotism from us as well. Financial patriotism means that specific financial sacrifices will have to be made by everyone in the interest of South Africa and in addition it demands the acceptance of certain responsibilities.
Public servants have to give up one third of their bonuses this year which is definitely a sacrifice. The ultimate approximately R300 million by which the Exchequer will benefit in consequence is definitely not the most important aspect; the gesture, the attitude which this reveals is surely what should be noted.
It is a fact that officials have not merely accepted this docilely. To some the curtailment of the bonus has definitely created some measure of financial embarrassment as they certainly depended upon receiving the full amount. After the initial reaction of shock and disappointment, the financial patriotism rooted in our people triumphed. The interests of one’s country transcend one’s own interests and officials at present see the sacrifice of a part of their bonus as a humble contribution to an ultimately sound and flourishing economy. One put it to me like this: It is an investment I am making now in the knowledge that the ultimate dividend will be worthwhile.
I am firmly convinced that the consumer as such has also committed himself to this financial patriotism. Judged against the spending pattern of a year ago, at present there is definitely a decline in excessive spending. I am of the opinion—statistics also confirm this—that there has been a perceptible decline in the purchase of luxury articles. If in conjunction with this an increased inclination to saving starts developing in the ordinary man, we shall be placing South Africa on the road to prosperity because as soon as the upswing in the economy starts we shall be prepared for new initiatives and investments.
I also wish to thank the Press which has played a part in establishing and consolidating this financial patriotism. The Press—I am referring specifically to that part of the Press which has South Africa’s interests at heart—adopted a very positive attitude against the objectionable disinvestment propaganda. Some newspapers also provided an exemplary supporting service in this respect during a time of economic pressure on the consumer by supplying him with space for complaints and problems. We should like to thank them heartily in this respect. Here I should like to refer to the consumer page published by Beeid. It is dealt with most professionally and competently. We wish to thank them for this as well.
Under the most difficult conditions imaginable over the past few years the farmers in South Africa have also made a very real contribution to this financial patriotism. We have great appreciation for them too.
In future financial patriotism will become increasingly important. We are entering a period in which we shall have to sever ourselves from self-interest and establish certain priorities which will have to take precedence over such interest. Through the hon the Minister in his Budget address the public sector announced certain measures which will make demands upon it. I have already referred to the pruning of the bonus as well as the fact that there will be no salary increment and in addition longer hours will have to be worked. There will also be a controlled striving to increased productivity and an effort to bring about savings in Government spending. All this sets high demands and even greater demands will be made of public servants in future, demands that can be met only if there is total and absolute dedication and self-discipline. I believe this will eventuate.
If the public sector is to expose itself to these demands, it is surely only reasonable to expect the private sector to make its contribution too. Financial patriotism is not only the obligation of the public sector but everyone will have to contribute. To abuse, reproach and point the finger at each other will be of no avail. Self-examination is also vital. The individual as the consumer will have to tighten his belt to a greater degree. Spending will have to be done more responsibly again. The business sector will have to accept that for some time matters will remain tight and on a short rein. Maximum profit-taking cannot be the private sector’s only consideration. Price adjustments to restore the consumer’s confidence will be necessary for a reasonable time to come.
Both the public and private sectors will have to do everything in their power to restore mutual confidence. It serves no purpose, as I saw recently in the magazine Finansies en Tegniek, to launch an undeserved attack on the pension schemes of public servants. A good pension scheme is an assured, future-orientated security and it provides the pensioner with an independent and peaceful retirement.
Your pension will be 30 pieces of silver! [Interjections.]
The private sector will also have to assume this responsibility in full.
Mr Chairman, on a point of order: Is it permissible for the hon member for Jeppe to say the hon member’s pension will be 30 pieces of silver?
What did the hon member for Jeppe mean by that?
Mr Chairman, by that I meant the image of the hon member who is now speaking is that of a traitor among our party as he used to be one of us. The best way to describe a traitor is to say he has 30 pieces of silver. [Interjections.]
The hon member must withdraw that.
Mr Chairman, I withdraw it.
A guilty conscience prompted the hon member to make that remark. I shall ignore it completely.
I wish to refer briefly to the various population groups who should say the following to each other: We must cease the foolish idea of isolation. An Afrikaner homeland makes Whites into objects of caricature and absolute ridicule. Whites involving themselves in this pettiness of Afrikaner isolation are exhibiting a lack of confidence in South Africa. Other Afrikaners I know and I do not wish to be associated with this strategy of panic. We will not run and hide; our sense of responsibility demands our loyalty and patriotism towards the entire South Africa. In a sense of patriotism, and especially financial patriotism, we are pleased to support this Bill.
Mr Chairman, I trust the hon member for Gezina will excuse me if I do not follow on in his train, but I would like to take up one point he made and that is in congratulating the hon member for Smithfield on the patience he exercises as chairman of the Standing Committee on Finance. I have commented on it once or twice before to him personally. Everybody on that committee is, naturally with the exception of myself, a very awkward person. The hon member really exercises great patience. [Interjections.]
This Budget indicates that the Government is at long last slowly awakening to the fact not only that it has limited funds available, but also that those funds have to be spent more wisely and equitably than in the past.
In this tricameral Parliament our Coloured and Indian co-members are in the position to speak for themselves in so far as their share of the pie is concerned and to stake their own claims. I therefore do not wish to make any comment in this regard except to say that I believe the Government is fully aware of the fact that the hon representatives of Parliament in the other Houses have to be seen to achieve something for their communities, otherwise they will have no credibility at all, and if they have no credibility the whole system will collapse.
I believe that the Cabinet is aware of this, and for that reason the profligate spending on matters of ideology has to some extent been curbed. However, it has not been stopped, because although the aggregate increase is somewhat below the rate of inflation and Government personnel have been persuaded to take something of the order of a 3% decrease in emoluments, considerable extravagance and unnecessary expenditure still prevail in many departments. This Budget will, to some degree, achieve the effect the hon the Minister of Finance has in mind, namely to slow down the economy—“cooling” the economy is, I believe, the expression used—but if that is the case I am worried that it may not only cool it but freeze it solid. As a consequence of the economic situation that prevails at the moment, there are a large number of businesses going broke, there are a large number of people losing their jobs, and the situation is, frankly, worse than it has been—and I am not original in saying this—since the great depression of the thirties. All of us will agree that we in this country can afford less than most to have massive unemployment.
It cannot be gainsaid that South Africa is potentially a very wealthy country with incredibly diversified natural resources which have been exploited over the years to a very high degree. Yet I am sorry to say we are beginning to degenerate financially into a position not much different to that of some of the so-called banana republics. This is happening not because we do not have the potential, both human and material, but because we have wasted a great deal of our substance on selfish ideological spending. I am not naturally a pessimistic person and the members of my party are not naturally pessimistic people, but one sometimes wonders if we have not allowed matters to go so far as to require really major economic surgery to put our situation right, especially in the field of Government spending. Bluntly put, we in the White community have enjoyed the fruits of the good life for a long time, perhaps for too long, and as is always the case when one has had a good time, one has to pay for it. The time of reckoning has come.
As I mentioned earlier, we lack jobs for all our people. We are short of housing and of a well-educated workforce. One of our major problems is that we have jobs that would be available if the masses were sufficiently educated to take those jobs on. In the past we have relied on immigrants to do much of the work, but of course we are not enthusiastic about bringing in immigrants today in the lower categories of jobs. In this Budget, with the exception of education, there is very little to enable us to make real progress in upliftment insofar as jobs and housing are concerned. We are, however, still spending masses of our limited resources on extravaganzas such as the Reserve Bank Building, something which has received a considerable amount of publicity. I believe that building will cost R117 million.
Not in this Budget.
I did not say it was in the Budget. I said it was part of the extravagant spending that goes on in South Africa among Government agencies of one sort or another. The new building for the Human Sciences Research Council will cost another R41 million, and this is in the Budget. Then there is the money spent by Escom on gardening amounting to R25 million. That was over a period of three years, that is perfectly true. Again roughly another R60 million was spent on this Parliamentary complex. This is the sort of expenditure which, I say, is beyond our resources, certainly at the moment. Yet we are doing this. It is part of the extravagance to which we have become accustomed.
Let us have a look, again covering extravagance generally, at what it is costing to run Parliament today. It will give us some idea of how our costs are running away with us. I came to this Parliament only as recently as 1981 and at that time Parliament had 20 Ministers and six Deputy Ministers. The total cost of running Parliament was R7 million. Today we have 30 Ministers of one sort or another and ten Deputies and the cost of running Parliament has escalated to R31,8 million; in other words, more than four times the cost of four years ago. I agree that this is a relatively small proportion of our overall Budget, but I think one will agree that this cost of legislation has increased alarmingly in such a short time. This, of course, still accommodates the political aspirations of only one third of our population.
This increase, of course, is only the start of the costs.
Did you vote “yes” or “no”?
Does that hon member ever make his own speeches or does he just poke his nose into other peoples’? [Interjections.] This increase is only the start of the costs, however, because all the Ministers and Deputy Ministers we now have must have their departments which, if past precedent is to be followed, will expand rapidly. In addition, all of these highly placed people—and I am referring now to these Ministers and Deputy Ministers—have a couple of cars; and they have a couple of houses. Some of them have three houses. I believe that especially the Indian Ministers from Durban have three houses, and if they do not have three houses, they get paid R1 000 a month for the municipally built houses which were originally built for R4 000. However, they get R1 000 a month for that. This is the kind of extravagance that I am not particularly enamoured of. They also have drivers and dozens of guards to protect them. I gather most of these Ministers and Deputy Ministers have guards day and night and over weekends at their homes and the like. I do not know how many each of them have.
Twelve.
Twelve each. [Interjections.]
If we are going to be serious about and effective in curbing Government expenditure, then I believe the curbing must start right at the top, and not half way down or at the bottom, taking the little away from them who have little to give it to those who have plenty. It has to start at the bottom … At the top, rather. [Interjections.] As far as I am concerned, most of the Cabinet are the bottom anyway! [Interjections.]
That is what is known as “bottoms-up”!
How can we possibly expect the lesser mortals seriously to curb expenditure when the princes of South Africa, the Cabinet, are just not really interested in cutting their own expenditure and reducing the lavish scale at which they live at public expense? I do not query the State President having to have security guards. It would be foolish not to put such a person under proper guard. There are too many idiots around who want to throw bombs, as I have mentioned earlier. I have been subject to them myself. I am not over-fond of having bombs thrown at my property, so I can understand the State President not wanting to have them thrown at him! But, surely, to have a dozen or thereabouts for each Minister or Deputy Minister …
You are talking nonsense! Where are the facts?
I do not know. I have just been told it is a dozen. [Interjections.]
Told by whom?
The CP know; they were part of your firm for a long time. [Interjections.] In any case, I am quite sure that in most other countries they do not have several guards and security men hanging around each Minister.
Mr Chairman, on a point of order: I do not have a single bodyguard. I do not need one.
Order! That is not a point of order. The hon member may proceed.
Yes, that is hardly a point of order. May I have injury time, Sir? [Interjections.] I do not query the State President having these security guards, but I think it is a bit superfluous for every Minister and Deputy Minister to have them.
[Inaudible.]
Similarly, I think it is utterly superfluous for these Ministers …
[Inaudible.]
That hon member must make his speech in his own time.
Order!
I think it is superfluous for many of the Ministers to have all the very expensive luxuries they do have. Those should be cut down. Just in passing, just to make sure that everybody is happy, let me say that I think there are too many members of Parliament as well and we should cut their numbers down too. [Interjections.]
I believe that the late General Smuts would turn in his grave at the luxuries Ministers and Members of Parliament enjoy today. Do you know, Sir, that in the days of the late General Smuts, who was probably the greatest Prime Minister this country has ever had, the whole of South Africa was run by him with a cabinet of 12 men? As I mentioned earlier, we now have 30, plus 10 Deputy Ministers. [Interjections.] I do not want to go into details. People will say there is a bigger population today. That is true. The total population of South Africa at that stage was approximately 12 million; today it is 18 million. That may surprise hon members. I have taken that from the South African Yearbook for 1984 and I have excluded, naturally, the homeland states. They are not part of the population of South Africa, unless we are kidding somebody.
So, Sir, I believe that for our economy to be modified and to be really straightened out, we will have to start cleaning it up through the top and from the top. [Interjections.] Yes, through the top and from the top. Then it may percolate through the ranks and they will find thousands of ways to save money. They would then at least realize that the Government was serious. How can one expect them to consider the Government to be serious in the light of the luxury in which Government members are living?
Let us take this question of the stabilization of the South African economy further. We in this party take it very seriously. Prosperity is the key to peace in this heterogeneous society of ours and there will be no peace or prosperity without a sound economy. If the Government does not get down to serious thinking now on the issue of cutting down expenditure on non-essentials and cutting loose from such drains on our resources as South West Africa, for example, which has sucked our blood for years, then we have little hope of survival. The money saved must be spent on educating our masses, on housing our masses and on providing jobs for our masses. If they do not have these things, I want to say there will be nothing but trouble ad nauseam. Hon members will want to know what we are going to use for money, since I am now talking about spending money. That is perfectly true. However, if we stop wasting money, the money we save for example on providing benefits to people opening businesses in—what is that called again?—…
Decentralization.
Yes, decentralization. We are wasting money in huge quantities on this. Hon members can have a joke. That is the trouble with the Government of South Africa. It has been there too darn long and the Government members are complacent. [Interjections.] Yes, they have been living off the fat of the land for a long time. They are complacent. But let them just wait till the next election. I may be gone then, I probably will, but most of them will be too, because the public will be sick of the complacent Government that does not think of the people—not only their own little community, but all the people.
As far as this expenditure is concerned, let us consider merely the few items we were talking about, for instance the Reserve Bank Building, the flowerpots of Escom and a few other odd things like that. With that money one could build thousands upon thousands of housing units for our various underhoused communities. The money to be spent on the one item alone namely the Reserve Bank Building could be used, if we use as an example the module of Khayelitsha at R5 000 per unit, to build 23 400 units. The money used for the botanical extravaganza could also have been used to build another 5 000 units.
I have indicated before that the building industry is in trouble. [Interjections.] We have the stupid situation where they are dying on their feet in the building industry—of course those hon members on the other side of the House laugh. They do not mind that the building industry is dying on its feet. They are well-fed; they are in a lovely, comfortable position. [Interjections.] However, the building industry … No, no, no, I am well-fed too, I know, but I do look after the building industry a little; I do not sneer at it as those hon members have done. [Interjections.] Let us get this straight: The building industry is short of work and yet we are at this moment desperately short of a quarter million homes. What sort of government allows that sort of stupid situation to prevail? Those hon members can laugh that one off if they please. [Interjections.] Yes, the Government is supposed to create a climate; the Government is supposed to make sure that the land is available, certainly for Black housing, although they have suppressed that situation for a long time.
I feel we cannot really call the system that prevails in South Africa a free-enterprise system. Businesses are going bankrupt and yet at the same time we are taxing them so that they cannot prevent themselves from going bankrupt. As I mentioned once before, in the case of a business with a turnover of R2 million per annum and a profit on paper of 10% of that amount, the Government gets R240 000 in GST and Company Tax and the businessman gets R100 000 which he pays and distributes to his shareholders. Even then, the shareholders have to pay tax on the dividends they receive. What does one call that in the way of free enterprise? [Interjections.] I do not call it free enterprise at all.
In conclusion, I would like to say that this Budget is an honest first attempt to cut the cost of Government spending, and I congratulate the hon the Minister of Finance for having had the guts to do this. I believe, however, that there are one or two major flaws. That being the case, I move as a further amendment:
- (1) greater cuts are made in Government spending;
- (2) decentralization incentives are reduced and the money saved is made available for additional housing for non-homeland Blacks;
- (3) the general sales tax is reduced to 10 per cent and part of the difference is made up by further taxation on alcoholic liquor and tobacco; and
- (4) an effective programme is implemented to eliminate the socio-economic and political frustrations now being exploited by revolutionaries.”.
Mr Chairman, the hon member for Umbilo really amazed me this afternoon. I wonder whether he should not have his blood pressure tested. He commenced his speech in his usual level-headed, constructive, critical way, but then he lost the thread completely and came up with a number of arguments that are really not well-founded. He came and spoke about bodyguards after the State President had been in Moria City with 2 million Black people on Sunday with only one bodyguard and his aide-de-camp! I think that was in poor taste. He also complained about the cost of this Parliament, after having worked positively on this new dispensation 18 months ago, knowing what it would imply. Let me tell him what we tell the CP every time, viz that there are cheaper ways of governing in this world, of course. A system of one man, one vote in a unitary state would of course be much cheaper. Surely the present system is precisely what the hon member and his party chose when they voted yes. He must therefore not come and complain about extravagance now. These are absolute essentials.
I should now like to deal briefly with the hon member for Sunnyside. In my opinion, he said two interesting things. Firstly, according to him, when the standing committee was having its meetings, he lay awake at night to think up questions he could put to the officials. [Interjections.]
I prepared, something which you did not do. [Interjections.]
The hon member, a frontbencher of the CP, is that party’s spokesman on finance. The fact that he lay awake at night thinking up questions about a Budget he had in front of him, proves only one thing to me. That is that it is an excellent Budget. [Interjections.] However, I cannot understand him at all.
Did you go over the Budget?
I went over it very thoroughly.
Secondly, the hon member for Sunnyside placed a great deal of emphasis on the fact that the motion the hon member for Gezina moved in the standing committee was not accepted and that an amended motion of the hon member for Yeoville was accepted. However, if ever there were sound proof that the system of standing committees and the policy of consensus in the new dispensation can work, it is the above-mentioned fact.
It is total surrender! [Interjections.]
I have the minutes of the meeting of Thursday, 28 March, here in front of me. There was unanimity on each of the points written in here. The points on which we did not agree have been omitted. It is therefore really ridiculous for the hon member for Sunnyside to come up with this kind of argument at this stage.
Mr Chairman, may I put a question to the hon member?
I am sorry, but my time is limited and I can therefore not reply to questions now. [Interjections.]
Order! The hon member may proceed.
I should very much like to turn to the hon member for Yeoville, who unfortunately is not here now. However, he has apologized for his absence. I wish to dwell for a moment on three points he raised. Firstly, he said that this was an ad hoc Budget. That is a ridiculous statement, however. All the comments I read in Afrikaans and English-language newspapers and in trade journals said that this Budget, more than any other Budget in recent years, is a means whereby the present Government can account for, elucidate and take further its goals for the country. They say that in that respect the Budget has succeeded very well in its aim. Therefore, to claim that it is an ad hoc Budget, is really not fair.
Secondly, the hon member for Yeoville said that the Budget was reactive instead of proactive. I have set out a few points whereby I wish to prove that the Budget was in fact proactive to a large extent. I want to mention a few examples.
A large sum of money was voted in the Budget for the population development programme. What greater proactive element could one think of than that appropriation? A considerable sum of money was voted for investment in the infrastructure of our roads. There are also active attempts to stop the disinvestment campaign and to combat inflation. Then there is the declared policy of privatization, which the hon member for Yeoville simply wants to dismiss. There is greater opportunity for the development of the informal sector. In terms of the Group Areas Act, central business centres are being opened up and there is the transferability of section 10 between the prescribed areas. Furthermore, healthy competition is being encouraged by the greater powers of investigation of the Competition Board. Surely these are all examples of proactive things for which provision is made in the Budget.
The hon member for Yeoville mentioned a third point with which I disagree completely. He said that these expenditure priorities are a new thing all of a sudden. He knows just as well as we do that this is not a new principle at all. For the past 10 years there has been a Government committee that has to decide on priorities. The only difference is that that committee has now obtained statutory powers. That is a ridiculous statement by the hon member for Yeoville which is meant to mislead this House, viz that priorities are now being determined for the first time in South Africa.
I should very much like to focus the spotlight on the choice the Government and the Cabinet had to make of introducing a popular Budget on the one hand, a popular Budget which would at the same time lead to a lengthy recession and to pessimism with a self-perpetuating effect, or a profound process of adjustment with sound results for the future of South Africa. This Cabinet, under the leadership of the hon the Minister of Finance, had no choice but to take cognizance of the high real interest rates in the countries of our Western trading partners, the low inflation in those countries, the strong US dollar and the protracted drought to which hon members have referred. The Cabinet simply had to take cognizance of these things. Let us be fair. In my opinion, provision is made in this Budget for five or six very important adjustments. I want to name them very briefly. Firstly, there is a psychological adjustment—and I think the hon member for Umbilo referred to this. That is, to be less dependent on a gold price, on a high commodity price. We are all aware that, of all the countries in the world, South Africa is blessed with what is probably the best mineral resources under its surface. However, I agree with the hon member for Yeoville that this should rather be regarded as a bonus, and not as an asset which may replace hard work and productivity. As far as I am concerned, this Budget complies 100% with the requirements of this adjustment.
The second adjustment is that the State has to realize that its capabilities may not be exceeded, since those capabilities cannot be extended continually. Surely this is precisely what is being envisaged with this Budget. I should now very much like to refute a statement I have heard very often from hon members of the CP. That is that this country is supposedly bankrupt.
The Director-General said so himself.
In a completely different sense. The total Government debt on 31 March 1984—and I wonder how many hon members realize this—was R30 billion.
What is internal debt?
93,3% of that. Foreign debt is 6,7% of that.
And that of the banks?
Mr Chairman, I am speaking about the debt of the Government of South Africa. [Interjections.] On the other hand, the expenditure of this Government amounts to R31 billion. Is it such a sin to discount one year’s revenue in advance? Compare this with our trading partners. Compare this with America, whose total public debt is much more than one year’s revenue. Compare this with the position of individuals, which we are all concerned about. The building societies lend people four years’ salary. The debt of the Government of South Africa constitutes one year’s revenue. I am not talking about the total foreign debt—that is an additional R37 billion—but this is not money for which the Government is responsible in the first instance.
The third adjustment we shall have to make is one which we have already discussed a great deal in this country, viz that individuals, whether they are attached to the public or the private sector, will have to learn to earn their income and not only rely on inflationary salary increments. As far as that is concerned, I agree 100% with the hon member for Umbilo. We shall have to learn to live within our means and not to discount our future income too far. As far as that is concerned, the only way to break the inflation spiral is by freezing wages and salaries. I realize that in a heterogeneous country one would probably not be able to do so, but I think the time will come when the Government will have to tell the private sector that it is going to grant a salary increase of 5,5% per annum—that is the normal salary increase the State grants annually—and allow the private sector to be able to deduct up to 5,5% as an expense item for tax purposes. They would be permitted to give more if they wish, but it will then have to be deducted from their profits. We shall have to break that inflation spiral in some way or another.
The fourth adjustment is that an active attempt will have to be made to bring the ration between capital and the current expenditure of the State into the correct proportion. I found it very interesting to see that 10 years ago, in 1974-75, the total Budget of this country was R6 billion; the capital expenditure was R1,5 billion. Of that Budget, 25% was used for capital expenditure. The building of infrastructure, the building of roads, dams and everything connected with that was paid out of that sum. Now the capital expenditure is a little over R3 billion—for which we are very grateful. This represents an increase of 17,4% on last year. However, it is only 10% of our total expenditure. I think the hon the Minister is moving in the direction—a direction in which we shall have to move increasingly rapidly in the future—where a larger portion of our total expenditure will have to be utilized in the form of capital.
There is a final adjustment we will have to make. We shall have to continue making structural adjustments in the system of taxation, and the privatization of Government services will have to be given substance. We shall have to reflect seriously on the fact that each year R5 billion is granted by the State to individuals and companies in the form of concessions. We shall have to look at that aspect very seriously.
This year food subsidies amount to R500 million. I find it very interesting that that R500 million is five times the budget of the Department of Manpower, to which the hon member for Umbilo referred. Is it really necessary for a loaf of brown bread to be subsidized for the members sitting in this House, as well as for many people outside? Should we not think of a method of giving food subsidies to those people who really need them? I am thinking of the indigent, pensioners, etc.
It is a great privilege for me to support this Budget.
Mr Chairman, the hon member for Paarl has, among other things, criticized the hon member for Yeoville for saying that the Budget was ad hoc. He said that he had not heard that comment from commentators outside. He does not even have to look outside. If he reads the Minister’s Budget Speech, he will see that the Minister himself indicates that in many respects it is ad hoc. For example, he says:
During the course of his Budget Speech the Minister, in his revenue proposals, referred to surcharges for individuals and companies, a levy on synthetic fuel producers which he said was temporary and a temporary tax on life insurers—all of which are, by their very nature, ad hoc measures. If he wants the opinion of an outside commentator, he can read what the managing director of the SA Permanent Building Society, Mr Robert Tucker, had to say when he likened the budget to the rearrangement of chairs on the Titanic. Even in terms of the hon the Minister’s own words, many aspects of this Budget can justifiably be seen as ad hoc.
The hon the Minister has, in some respects, had it easy; in other respects it has been difficult for him. The bad news was the fact that he inherited a financial mess when he took over his present portfolio. The good news for him was of course the fact that the Budget he presented last month was to be compared with the fiasco of last year. I believe he would agree that it would be difficult for any budget to compare badly with that of last year.
I believe, however, that the Budget the hon the Minister presented to us was full of words, many of which were unrelated to the realities of our economic and political situation. It is a Budget which illustrates the inability of the Government to manage the economy properly and to accomplish the ideals of security and prosperity for South Africa to which the hon the Minister himself referred. This failure is a direct result of the unwillingness on the part of the Government to change fundamentally its discredited policies. Unachievable ideological objectives continue to be pursued irrespective of their political or financial cost to our country.
The Budget has both political and financial elements. The hon the Minister, in the political sphere, identified four broad goals which I should like to mention briefly. The first was the maintenance of an orderly society. Gaming from an hon Minister of a political party that has been in power for 37 years, a party under the rule of which we now have a country in which death and the destruction of property no longer even make the main headlines in the newspapers, in which schools are disrupted on an ongoing basis—which has been the order of the day for many months—in which police and community councillors in many areas have to live in hiding, in which meetings are banned and in which reigns a perpetual state of semi-emergency, I believe this cannot possibly be regarded as a more appropriate illustration of failure than anything else we have seen so far.
The second goal to which the hon the Minister referred was the addressing of the constitutional complexities of this country. By excluding 75% of the population from any say in the constitutional process the Government has aggravated racial polarization in South Africa, and I have no doubt that the myriad problems of unrest with which we have to contend now are partially caused by that.
Thirdly, the hon the Minister referred to addressing a wide variety of social needs. Insofar as education is concerned, we do indeed welcome the increased expenditure. Education enjoys a deserved priority after decades of neglect. The hon the Minister will know, however, I am sure, that money alone will not solve our problems in the field of education. We need a greater freedom of choice and an abandoning of the philosophy of apartheid in education before further progress will be made.
A great deal is said about the need for and the cost of improving Black education and about the efforts being made by the Government in this regard. We do, however, need to keep things in perspective. This Budget provides for an increase in expenditure on education of nearly R1 billion, but of that increase 56% is to be spent on Whites and only 29% on Blacks. The difference between the total expenditure—not the per capita expenditure—on White and Black education respectively has grown as a result of this Budget; it has not decreased.
Finally, in setting out his goals, the hon the Minister talks of the Government’s commitment to free markets and to a free-enterprise system. Surely he must be joking! A society burdened with influx control, with group areas, with no freehold for Blacks in our cities, with massive State monopolies and with numerous agricultural boards fixing prices can certainly not be considered a free-enterprise society with free markets.
The goals to which the hon the Minister refers will neither be achieved nor will they ever be achievable while the apartheid ideology remains unchanged.
To turn now to the financial aspects of the Budget, I should point out that I believe these are characterized by contradictions and by faulty analyses. It identifies more problems than solutions, and it places the burden for resolving our economic problems on the shoulders of those who did not cause them in the first place.
I wish to address myself to two particular aspects, namely the question of overkill and, secondly, who is being called upon to make the sacrifices.
As far as the question of overkill is concerned, the hon the Minister accepts in his speech that our economy is in an economic downswing. He says that in the second half of 1984, the seasonally adjusted annual rate of real gross domestic expenditure fell by 5,5%, while its main component, private consumption expenditure, fell by 9%. There is no doubt that we are in a severe recession, yet the hon the Minister says that “the chances of so-called overkill in the economy as a whole” are remote. Has he not heard of the thousands of people who have lost their jobs? Has he not heard of the hundreds of businesses going bankrupt?
Dr Chris van Wyk, the managing director of Trust Bank, says the Budget tax proposals will stop the economy in its tracks, if it has not stopped already.
Furthermore, the hon the Minister sets a target of a maximum deficit before borrowing of 3% of the gross domestic product. He then—in the middle of a recession—budgets for a deficit of only 2,2%! To achieve this he raises general sales tax, thereby hitting the already hard-pressed consumer and giving an immediate boost to inflation.
The Budget is going to cause unnecessary hardship and it is going to deflate the economy further in the midst of a severe recession. There was no need to have such a small deficit before borrowing, neither was it necessary to increase GST to produce a balanced, non-inflationary Budget.
With regard to the question of sacrifices, the Government has said that sacrifices are necessary because of our economic difficulties. However, the question to be asked is: Who is making what sacrifices? The hon the Minister now accepts that many of our economic problems have been caused by the Government’s inept monetary and fiscal policies in recent years. A great deal has been said about the plans the Government has to control its expenditure. No real growth has been budgeted for this year. The same thing, of course, happened last year. We shall therefore have to suspend final judgment until later in this financial year. However, there are certain matters that deserve further consideration.
Firstly, the proposed initial increase of 11,4% is based on the revised figure for 1984-85, a year in which Government expenditure went disastrously out of control. In addition, special drought aid running to hundreds of millions of rands was involved in last year’s expenditure. Therefore, the 11,4% increase is based on a year in which Government expenditure was abnormally high. Government expenditure could and should have been curtailed further, just as the private sector has had to cut its costs drastically.
Secondly, the question is not just how much the Government is spending but also what it is being spent on and how well the spending is controlled. Sacrifices have been called for, but what sacrifices have been made by the Government? I should like the hon the Minister to tell us, when he replies, what ideological expenditure has been jettisoned or at least postponed. Very little, I would suggest.
This Budget, for example, provides for R627 million to be spent on decentralization based on ideological considerations. [Interjections.] It allocates R177 million for homeland consolidation. So one can go on, department by department, identifying duplication and wastage because of the Government’s apartheid policies.
The financial management of very large sums of taxpayers’ money is totally inadequate. I will give some examples. Firstly, over the past few years almost a billion rand has been budgeted for or spent on industrial decentralization, but the Government itself does not know how many jobs have been created, how many businesses have been established and what the future financial commitments of the Government will be in terms of the programme which has already been launched.
Secondly, insofar as influx control is concerned, the Government itself does not know what it costs directly or indirectly to implement its policy. The third example relates to the cost of defence. We have been told in this House that figures are not available as to what is paid by Government departments to public servants while they are doing national service and subsequent camps and are not available to work in the departments because of those commitments. These are three areas involving hundreds of millions of rand each year, yet the Government has no real idea of what the efficacy of that expenditure is.
The simple fact is that it is the ordinary people of this country, already battered and bruised by the recession, who are being called upon to make the real sacrifices.
The hon the Minister blandly states that “a temporary decline in average standard of living, before it resumes its upward movement” must be “accepted as inevitable”. The fact is that the average standard of living of the people of this country has not been on an upward movement. It is lower than it was 10 years ago and was also lower in 1983 and 1984.
The Government appears to have lost its head completely when it comes to taxation. It wants to grab anything it can from anyone or anything which appears to have any money at all. [Interjections.] Millions of people, ranging from those below the breadline upwards, are being grossly overtaxed to pay for the Government’s folly.
If just five years ago, in the 1980-81 financial year, GST had been 12%, the Government then could have completely abolished all individual tax, all stamp duties and fees, all transfer duty, all estate duty and all tax on interest and dividends, and it would then still have had no deficit whatsoever before borrowing! That is what has come to pass in this country. Today we have GST of 12% yet, in total, individual tax is more than four times what it was just five years ago. I mentioned all the taxes which could have been abolished five years ago had GST been 12%, but we find that combined they are up by 223% since then. What an indictment of the Government and its financial management of our economy!
We cannot afford the Government—politically or economically. It gives me great pleasure to support the amendment moved by the hon member for Yeoville.
Mr Chairman, I listened with interest to what the hon member for Cape Town Gardens had to say. After having sat for many years in opposition benches, I am now experiencing my first Budget debate while sitting in Government benches. I must say that the debate thus far has been quite an experience. At the outset I must say that I can support this Budget as introduced by the hon the Minister. [Interjections.] The hon members on the other side may laugh, but all I ask them to do is to read my Hansards and the amendments I moved while in opposition. They will then find that much of what the hon the Minister has now done is what I proposed when I was in the NRP.
The hon member for Cape Town Gardens said that the average standard of living in South Africa was lower at this stage than 10 years ago. I agree with him, but I want to ask him why this is the case.
Overspending.
The hon member made his speech, and now I want to make mine. [Interjections.]
Why is the average standard of living lower than it was 10 years ago? I say it is so because of a lack of economic growth in this country. Why have we had a lack of economic growth in this country? The answer is that inflation is eroding our economy. Why do we have inflation in South Africa? It is because, as the hon member for Umbilo says, this country has been spending more money than it has earned. Yet it was the hon member for Cape Town Gardens who said the hon Minister was incorrect in raising GST, because he should have borrowed more money to balance or contain his Budget. [Interjections.]
I want to tell that hon member that the hon the Minister of Finance says 3% of the GDP is the maximum he would like to see as the deficit before borrowing. I want to say to the hon member for Cape Town Gardens that the hon Minister has come with 2,2% in this Budget, with which I agree. I want to tell the hon member and also the hon the Minister that I read the other day that the ideal figure is not 3% but 2%. That is the maximum deficit before borrowing that one should have if one wants an economy to be really healthy and growing.
In the USA at present, if the deficit continues to grow the way it is growing now, it will reach 5% of their gross national product by 1990. At that time the interest on the national debt alone will amount to $150 billion per annum. In 1984 servicing the national debt was the third largest item in the Budget after defence and social spending. So, I want to say to the hon member for Cape Town Gardens that it is all wrong to come here and say that the Government should borrow more money to finance its expenditure when it is trying to overcome inflation.
I would like to refer to what the hon member for Yeoville had to say—it is unfortunate that he had to go away. He said the creation of jobs is as important as education, and I agree with him. Again I ask the question: Why have we in South Africa not had the creation of jobs in recent years that we should have had? This might I say, is not only a South African problem but it is worldwide, it is experienced throughout the Western World. One only has to look at the unemployment in Europe and the USA. Why do those countries, which have highly educated people, have unemployment at the present levels? The reason is the lack of real growth. Why is there a lack of real growth? It is because of inflation.
The hon member for Yeoville said there is inadequate incentive for personal savings. Again I ask, why is there inadequate incentive so that people are not saving today? It is because there is no incentive to save at all if there is inflation. It is better to spend one’s money.
The hon member for Yeoville then went further and said another problem in South Africa is the lack of productivity. I want to ask the hon members of the PFP why there is a lack of productivity in South Africa today. It is because there are some basic structural problems in this country, not only in the public sector but also in the private sector, which have to be corrected. There is too much waste in South Africa and too high wages are demanded for too little work in South Africa. These things our nation has to face if we want to overcome the basic economic problems of the country. In South Africa the average output per worker or per rand investment is too low. But again I ask the question, why is it too low?
It is because too many of them work for the Government.
That is not entirely correct. I want to say to that hon member that special interest groups from the private sector come to this Government to lobby for concessions and subsidies to fatten their own wallets regardless of their own efficiency or productivity. This is partly the reason why we have inflation in South Africa today. I speak from experience as a practising sugar farmer and I know that my industry has been guilty of that in the past. We tried to correct it and we did correct it last year with an amendment to the Sugar Act in regard to cane transport, and we will be correcting it later this session with another amendment to the Act regulating the price of sugar-cane, based on the income from our domestic and export sugar sales. We will be going into an A and B pool price structure which will mean that we farmers will have to tighten our belts, look to our laurels and become more efficient if we wish to survive, especially when it comes to export sales. That is what South Africa needs today. [Interjections.]
I keep returning to the matter of inflation. I submit that it is often caused by special interest groups lobbying Government for subsidies or concessions. We had it here today from the hon member for Yeoville. He asked whether it was not possible to fight inflation without such harsh restrictions as we have had from this hon Minister. He then answered his own question by saying, yes, by rather looking at administered prices. He said inflation is not only controlled by controlling the money supply. Then in the very next sentence, after suggesting chopping administered prices, he asked: Seeing that we assist farmers financially in order that they stay on the land, why we do not assist industry financially in order to keep their workers employed. Here, once again, is yet another special interest group. What he is saying virtually, is that we should cut administered prices but that the Government should give subsidies to other businesses to keep their workers employed. This type of misguided economic thinking is the root cause of what has happened in South Africa and in the Western World over the past 20 years.
The greatest economic evil facing nations, not only South Africa, is inflation. Inflation is the silent thief that steals the value of the savings of people, of hardworking citizens, which are often built up over a lifetime of hard work. It is the economic disease that destroys people’s will to save, and thereby saps the investment lifeblood, namely investment capital, so urgently needed for real economic growth. Inflation is the evil that corrupts the worker, because it destroys people’s productivity. Yet productivity is what we need to ensure economic security and prosperity in South Africa.
There are many people today who believe that we should live with inflation in South Africa; that because of our peculiar circumstances as a so-called Third and First World nation double-figure inflation is inevitable, intractable, indomitable and unassailable, but this is just not true. The high inflation rate can and must be brought down. There is no mystery about what causes inflation, no matter what hon members of the PFP might say. Inflation is caused by too many demands by too many people upon a limited amount of national wealth. Thus, instead of both the private and the private sector spending real money, real wealth which has actually been earned through the sweat on the brow of our manufacturers, farmers, miners and labourers, our demands for more have forced the Government in the past to resort to bank credit and to the printing of the so-called “funny” or paper money. In this connection we are all to blame, not just the Government. It is we who sit in this Parliament who are especially to blame because it is we, like the hon member for Yeoville and the hon member for Cape Town Gardens, who allow ourselves to be misled by special interest groups to grant concessions and subsidies no matter whether the funds are available or not. Conversely, it is the politicians, as we see from hon members of the PFP and also to a degree from hon members of the CP, who scramble to obtain voter acceptance who so often make promises that are more than the economy can realistically provide.
The cause of inflation is no mystery to those who understand it, but the cure is far more difficult to prescribe because it involves discipline, limits, sacrifice and guts. This hon Minister has surely shown this Parliament and South Africa that he has the will and the guts to do the very things I called for five years as official spokesman on finance for the NRP, and that is why I take pleasure in supporting him today.
I believe the Budget is an attempt to bring our rate of expenditure back to its correct level. Firstly, the hon the Minister has clearly indicated his intention to bring the growth in the money supply down to within correct limits. We know that it has gone over the 20% and 30% mark in the past and that 17% has been suggested as being the ideal. I am very pleased to hear the hon the Minister say that he has appointed a committee to investigate this matter, and I sincerely hope that it is not going to take too long to tell South Africa what the limit should be. Once these men, in their wisdom, have determined that limit, let all of us in South Africa stick to that limit and not overshoot the mark year after year. I call upon my colleagues in the House to support the hon the Minister in this particular task regardless of the political consequences because it is right for South Africa, it is right for our people, it is right for the future of this country that we should stick to that limit.
The second aspect of the Budget which I support fully and which is something I fought for consistently when I sat in opposition is the cut in Government expenditure in real terms. The hon the Minister says that he hopes perhaps to cut it even further in real terms as the time goes on. He says he is attempting to reduce the Budget from its peak which last year, if I remember correctly, according to him reached 37% of the gross domestic product. He said a few years prior to that it was around 35% of the GDP. I want to say to the hon the Minister that, while some figures in this connection were bandied about here today, I was reading an article, written about 18 months ago, according to which, at its peak in the USA, federal spending was about 29% of their gross national product. So, I ask the hon the Minister: What is the ideal level for State spending in South Africa? Personally I would say let us bring it down to below 30%. That is my personal view, but I sincerely hope that this matter is going to attract the attention of the hon the Minister and his staff. I think 37% of the GDP is far too high. However, there is much satisfaction in the knowledge that this hon Minister is doing something about it.
The question that arises immediately when one considers reducing this percentage is: How can Government reduce expenditure? The first thing to do is to economize. The hon member for Yeoville said that to impose an across-the-board cut of a certain percentage was not sound planning. He said that evidence before the Standing Committee on Finance revealed that the hon the Minister or someone had said that in the end the State President had said just chop all expenditure by a particular percentage. Well, maybe when one has taken over a portfolio like the hon the Minister of Finance has done such a short time ago, and bearing in mind that the planning of this Budget was done way before this hon Minister became Minister of Finance …
In December?
Next year’s budget is already in the planning stage, but be that as it may, this Government is trying to do what is right for South Africa. It is trying to put things right, whether it is in the constitutional field or in the economic field. This hon Minister is trying to put things right. The point I want to make is this: When one has the determination to reduce costs, whether one is in Government or in business, and the chips are down, so to speak, then one tells one’s people: “Cut! cut and see what happens.” I believe that the Government has tried to economize during the past few months. [Interjections.]
The second point where Government can reduce its expenditure—and I put it to the hon the Minister—is to review entire programmes, to review entire areas of expenditure. This requires an in-depth study; it cannot be done willy-nilly. However, I believe that the hon the Minister and his staff are going into this matter. We have, in other words, to reduce the extent of bureaucracy in South Africa. The hon the Minister hinted at it in his second reading speech when he said that he is having an investigation into deregulation. I believe that he should press on with this. Perhaps we have too many regulations in South Africa. A relative of a friend of mine bought an hotel in the Drakensberg, and he wanted to expand his business and get an addition to his liquor licence. However, before he could get that licence, he had to go through—I forget the exact number of departments—quite a number of them—but the paper work, red tape and loss of time was considerable. I want to know whether this is really necessary.
There is also Nosa, the National Occupational Safety Association, which we all agree with because it attempts to prevent industrial accidents. However, perhaps we are going a bit overboard in trying to achieve the ideal. They now have, I believe, what they call a five star safety rating for industries, but I have been informed that if industries are to comply with this, it is going to raise their costs, and what will it really achieve? I know of one large industry that is not even going to try to achieve the five star rating because they believe it is unreasonable. I think this is counter-productive. Sometimes we give bureaucrats—God bless their souls, we need them—certain powers, but they end up going overboard. I believe that this must be looked at.
Another way to fight inflation and cut Government expenditure is to ümit the growth in State, provincial and local government pay-packets. The hon the Minister tried to do this. We hear all the complaints of the CP and the PFP about the poor teachers and so on. I ask these hon members to look westwards and northwards to what had to be done in other countries in the Western World in order to overcome inflation and do what is right for the country. If we do not contain the growth in the total public service salary and wage packet, our rand will sink even lower. The reason our rand is worth what it is today is that we are spending too much and we are not producing enough. Those hon members, if they are true South Africans, will tell their economic truths to our people because that is what is needed in order to overcome our economic difficulties. I remind hon opposition members not to forget what happened in Britain and the USA. Those governments of Margaret Thatcher and Ronald Reagan, who held a tight rein on their economy, were returned to office the second time round with the biggest majorities ever in their history because the people realized their government was being honest with them about the economic realities of the time.
Mr Chairman, the hon member for Amanzimtoti said that he was in heartfelt agreement with the Minister and made a speech with which one could not find much fault except that it was not really directed along economic lines.
†However, I want to ask the hon member whether he really agrees with the Government and that Minister when it comes to the Prohibition of Mixed Marriages Act. He must tell us. Would he like it scrapped or not?
Yes.
As a Nationalist?
Yes, as a South African, as a South African Nationalist.
So, as a South African Nationalist, he wants it scrapped. Did he tell the party? Did he get up in the caucus and tell them that he wants it scrapped? [Interjections.] Wait a minute. This is something I want to know.
Order! I am not going to allow a dialogue in this House. The hon member for Langlaagte must continue with his speech.
Thank you. Then the hon members must keep quiet. I want to ask the hon member—and I want him to reply to my question—whether he wants the Immorality Act scrapped. Well then? [Interjections.]
Do you need it?
Did Dr Malan need it?
Yes, did Dr Malan need it? Did P W Botha need it ten years ago? Did the hon the Minister of Constitutional Development and Planning need it ten years ago? They allowed this country to go to rack and ruin economically because of a homeland policy which they imposed and are now doing away with. They are now dismantling it piece by piece. They stand accused in South Africa of incurring expenditure over the years on something which they now say is not working. However, they do not have the courage of their convictions to say that they are removing it from the Statute Book. Now I want to ask them a question: Are they going to continue to incur that expenditure which, as they themselves say, is going to yield the country no return? [Interjections.]
Go and apply it in Morgenzon.
Sir, it is usually the jokers in Parliament who have to save the Government when it has no answers. We have seen this too often.
Today I want to talk to the former Prime Minister, the present State President. Firstly I want to say to him “Kgotse”, in the fine language of the South-Sotho. I want to ask him: Did I not speak to him on 16 April 1982 and warn him? Did I not tell him that he was allowing economics and politics to become confused in this country and that he had become the dupe of Harry Oppenheimer and the Carlton Conference? Does he remember that? Does he remember that I said the next step would be political power-sharing and that 60% of what Mike Rothschild, Harry Oppenheimer, Raymond Ackerman and the others had said there was concerned with politics and only 40% with economic aspects and that they had in any case resolved not to support this Government’s economic policy because it did not have a sound economic foundation? The State President then told me: “Weep for yourself and leave me alone”. By crying “Wolf! Wolf!” that State President and his Minister of Foreign Affairs have unleashed American violence against this country. People like Amy Reagan are today demonstrating in front of our Embassy.
It is Amy Carter.
This Government cried “Wolf! Wolf!” and now the wolf is at the door. The danger in this is that the present hon Minister of Finance could experience problems in future. If I read the banking industry throughout the world correctly, South Africa is regarded as a risk for any long-term investment. [Interjections.] This is clearly apparent from the reports of Morgen Trust, Citibank and other companies. There is no doubt that South Africa is becoming a risk.
I shall tell the hon members why. [Interjections.] Let us consider only the ordinary financial arrangements.
†If one’s interest rate is 25% and the value of one’s money has depreciated by 50%, can one expect other people to rate one above average? For instance, if a person who has approached a bank has to pay 25% interest in normal times, the bank’s credit rating is wrong.
Therefore, South Africa has an enormous problem. Even as interest rates rose, the rand continued to depreciate in value. This is something we have never seen before. The rand value has now stablized, but I say this is only for a while. I want to tell hon members in this House today that within the next two years the value of the rand will have dropped to the equivalent of 20 American cents.
I am of the opinion that this Government has not put its cards on the table. [Interjections.] It is not telling us about the real problems of this country. [Interjections.] This Government knows that millions of rands in foreign exchange have been lost and it is not laying its cards on the table in this regard. Many of the departments have suffered these losses, and I have not included their current losses in my calculations. Any organization that is listed on the stock exchange in any country and that does not divulge its real losses will find itself in trouble. Why is this Government not doing it?
Doing what?
That hon member said: “Doing what?” I simply cannot bring home to that hon member the problems in the daily management of an elementary, ordinary household; and now he says “doing what?”! It is absolutely meaningless to ask such a question. [Interjections.]
We can take only one example of this Government’s actions. The hon the Minister must not laugh like that: I am being very kind to him. He has a difficult task. [Interjections.] Since 1982 something has gone completely wrong in this country. We simply allowed interest rates to soar. We stopped trying them to the bank rate. Big businessmen simply sat looking at them, but then they immediately began to play the game they know best. We then discovered that Anglo American shortly afterwards had more than R2 000 million in shares in companies outside this country. That was very, very shortly afterwards.
What is more, it was then said that they had slowly but surely been taking it out of the country for a long time. In a very short space of time, however, they became the largest foreign investor in America and Canada. One of the main reasons for that is the fact that exchange control was done away with. Why were our banks in South Africa caught napping so badly with these foreign exchange transactions? For example, a man like Bennie Slome said that he and Gencor lost approximately R108 million in forex dealings. Why, did he ask, did the banks—he even mentioned a bank’s name—not keep them better informed? My question is this: Why were those earlier arrangements of Dr Bob de Jong in 1982 thrown overboard so rapidly? What did the Government’s advisers expect to happen?
Unfortunately it is very difficult to make a speech on the economy within 15 minutes. I put it to the hon the Minister, however, that we have a tremendous bottleneck in our economy, and that is the tremendously high interest rates. In America, England, Germany and Japan there is a simultaneous rise and fall in the capital flow and the consumer index. Consequently if there is a heavy inflow of money the inflation rate is low. But that is not the case in South Africa. What is the reason for this? It is because we have a so-called free economy. Seven to ten cartels in our country are constantly insisting upon a free economy. However, they are making the idea of a free economy ridiculous. During 1981-82, when money flowed into the trade, they simply increased their interest rates in order to acquire all the available money. In that way they set off another spiral of inflation.
Many people think that since interest rates are so high now, there is a great deal of capital in the trade. But that is not the case. It is created credit, on which 25% interest must be paid. The person who borrowed money has to pay it back with money which he still has to earn over a period of a year or two. For that reason 25% inflation is eroding the expenditure of that person. I think the inflation rate will go up from 14% to 16% this year.
The fact of the matter is that we are not imposing certain restrictions on the ordinary credit card. If we reduced the credit card spending limit from R1 000 to R800 or even R500 it would already be an improvement.
Where can the rich or small businessman obtain capital today at less than 25% interest, with an inflation rate of 16%? That amounts to approximately 40%, when one is raising capital for such an enterprise. How can such a businessman still show a profit and carry on with his enterprise?
In the meantime 28 people have telephoned me from Johannesburg to say that they are going to lose their homes because they cannot pay the 22% and 25% interest on their bonds. Is it a joke that even the money which they invested earlier as capital in their properties, is now in fact being swallowed up by these high interest rates. The hon the Minister and his advisers believe that the increased interest rates of 25% will help bring down the inflation rate, but that is not the case. It is a temporary phase, but hon members will still see how inflation will within a very short time wipe out those profits that were made, unrealistic profits on what was in any case created capital, and South Africa will suffer.
Mr Chairman, the hon member for Langlaagte covered a very broad field and I do not wish to reply to all the points he dealt with. I wish to reply only to his statement that South Africa under NP rule has become a risk for long-term investment. If that is so, I want to ask him what the position would be if the Party to which he belongs were the Government of the country. [Interjections.]
The hon member for Paarl referred inter alia to food subsidies. He said that R500 million had been budgeted for such subsidies of which R200 million had been earmarked for bread. I contend that the greatest part of that R200 millions’ worth of bread does not get eaten. It is the part which lands on the rubbish heap and is regarded as refuse because in the old days a loaf by regulation weighed 2 lb—I think it is 900 g now. A loaf of 900 g is too large a unit for the small families of today with the result that a subsidized loaf is bought but cannot be finished. Part of that loaf is therefore wasted. I wish to state that the portion of the loaf representing the subsidy is the portion wasted.
In consequence, if we could change the regulation determining the size of the loaf and reduce the weight—someone has said there is no such thing as half a loaf and that is true—and a loaf of 450 g could be baked by regulation, I maintain we could discontinue the subsidy because the entire loaf would be eaten. Then there would be no wastage of bread as at present.
I do not wish to say anything on the maize subsidy as I have a few comments on State Revenue. The State derives its revenue from various sources, inter alia from sales tax, company tax, customs duty and in future also from tax on fringe benefits. On one’s listening to some people, the question arises whether the avoidance or evasion of tax has not become a national sport in South Africa. The Exchequer in this country loses millions; I contend that hundreds of millions of rand in income which should go to the Exchequer do not reach it.
If the current cry is that State expenditure should be limited, I wish to suggest that expenditure as regards the collection of tax should be increased. A corps of capable tax inspectors should be trained to see to it in a professional way that the tax due to the State in fact reaches it. The reason for this is the fact that the salaried worker is the one person who has to bear the brunt of this because he cannot conceal income to evade tax. It is deducted from his salary regularly under the pay-as-you-earn system and he has to pay GST. He also has to foot the bill for the share which should have been paid by the tax evader to make good the outstanding amount.
It gave cause for concern to learn from the reply of the hon the Minister to the Part Appropriation debate that of the 17 000 audited statements of companies which were checked, 4 000 were incorrect. That meant R250 million extra taxable income to the State which consequently provided it with R125 million in extra income. The auditing profession is a most valued one which performs an essential function in the national economy. That is why it was pleasant to hear the hon the Minister had held discussions with members of this profession. I hope the hon the Minister will obtain the co-operation of this profession because it is necessary to obtain this co-operation either voluntarily or by compulsion as it is the one profession which through its co-operation with the State can ensure that the money which is due to the State in fact reaches the Exchequer. In respect of only two taxes, namely GST and the tax on fringe benefits, auditors play a most important role. Each of us is only too aware of sufficient examples of where the obligation to the Exchequer can easily be evaded in the form of these two taxes. If almost 25% of the 17 000 audited statements which were incorrect could provide the State with R125 million in income, it gives one an indication of the extent of what is actually going on.
In accordance with Standing Order No 19, the House adjourned at