Mr Speaker, I move without notice:

Agreed to.

Mr Speaker, I move:

That, notwithstanding the provisions of Standing Order No 18, with effect from Monday, 17 June, the hours of sitting shall be as follows:

1. (a) Monday and Tuesday:
   14h15 to 18h45
   20h00 to 22h30
2. (b) Wednesday:
   09h00 to 12h45
   14h15 until the House adjourns upon its own resolution.

Agreed to.

Mr Speaker, I move:

This Bill gives effect to the income tax proposals contained in the Budget Speech made on 18 March 1985. It also proposes a number of amendments to the Income Tax Act, 1962, in regard to the taxing of fringe benefits, as well as other amendments which are aimed at ensuring the more efficient functioning of the Act.

Income tax is still our largest source of State revenue. It is estimated that the proceeds from this source for the 1985-86 financial year, including the tax payable by mines, companies and individuals, amount to R15,5 billion out of a total estimated State revenue, excluding loans, of R28,3 billion. The necessity for protecting the tax base against erosion as a result of artificial avoidance schemes has received special attention during the past two years. A disparity has arisen between the proceeds from company tax and those from personal tax, to which special attention was given by the predecessor of the hon the Minister of Finance.

The statutory amendments which were approved by parliament last year were primarily aimed at eliminating loopholes and tightening up collection procedures. The amount of company tax collected, mines excluded, rose from R3 256 million in the 1983-84 financial year to R3 774 million in the 1984-85 financial year. The amount collected for 1984-85 included R136 million in respect of the third payment of provisional tax which was made compulsory last year in respect of years of assessment of companies ending on 30 June 1984. In addition this measure ought to have a positive effect on the amount of company tax collected during the present financial year, although the detrimental effect of unfavourable economic conditions in certain sectors could influence the estimated amount collected.

The distribution of the pressure of taxation is, from the nature of its terms of reference, a subject to which the Margo Commission will give attention. Consequently it is not desirable to recommend any drastic changes in the tax structure as a whole at this stage. The effect of inflation on the progressive rates of individual tax is one of the factors which contributes to the increased tax proceeds from that source—that is, in comparison with those of company tax—and attention has in fact been given to this matter. In these basic rates of tax for individuals which are being proposed in the Bill the income notch on which the top marginal rate of 50% is reached is being raised from R40 000 to R60 000 in the case of married persons and from R28 000 to R42 000 in the case of unmarried persons. Although it is necessary—for the reasons mentioned in the Budget Speech—to propose a temporary surcharge of 7%, considerable tax relief is being granted in the case of persons in the middle and lower income groups whose income in most cases consists of cash remuneration. The increased primary rebates and the increased rebates for persons over the age of 65 years will also offer a large measure of relief to those in the same income groups.

The Bill also gives effect to the announcement made on 13 February 1985 during the debate on the Part Appropriation Bill in regard to the phasing in of fringe benefits tax. The phasing in over seven years in respect of the interest benefit which is granted in terms of the rules of certain approved housing schemes will also apply in the case of new entrants to such schemes, but will be subject to certain conditions.

The interest benefit of other “soft” loans, as well as the benefits relating to the private use of motor vehicles, whether in the form of a company car or a car allowance, will be phased in over five years instead of two. After further consideration we arrived at the conclusion that the benefit associated with the provision of free or inexpensive accommodation should also be phased in over five years, and the Bill therefore makes provision for this. Although the latter benefit is sometimes compared to the benefit associated with a “soft” housing loan, it must be borne in mind that the rules for the valuation of free or inexpensive accommodation are in most cases, in view of prevailing rental values, exceptionally beneficial.

The Bill also proposes other amendments in regard to fringe benefit tax which were drawn up in the light of the experience that had been acquired in the meantime. It can be expected that further refinement of the provisions will be necessary in future. The Commissioner of Inland Revenue has already issued a guide to employers. Numerous seminars on the subject have also been presented, and I trust that the rules in regard to fringe benefits tax are now general knowledge. Although fringe benefits are not yet fully taxable, I feel that the present provisions are an important step in the direction of the neutral treatment of income, however it may be constituted, and that schemes for the exploitation of the tax system by means of the granting of so-called tax-free benefits will in due course lose their appeal.

†Clause 17 of the Bill introduces a new section into the Act, numbered 40B, which is, I think, a logical extension of section 40A which was introduced last year. In terms of section 40A the conversion of a private company into a close corporation is facilitated by a provision enabling it, when the conversion is effected, to make a payment of tax equal to 10% of its accumulated distributable profits and reserves. The tax so paid is in effect payable in lieu of the higher tax which the shareholders would have paid if the conversion had not been effected and the profit and reserves had in fact been distributed by way of a dividend. The shareholders’ potential liability for tax would otherwise have inhibited conversions. The 10% tax is in most cases a windfall for the State coffers.

It has been brought to my notice that the shareholders of a large number of companies which qualify for conversion to close corporations would like to liquidate their companies or have them deregistered. They can take advantages of the provisions of section 40A in order to do this, but are for various reasons reluctant to do so. The proposed new section 40B, the provisions of which are explained in the explanatory memorandum, eliminates the necessity for such companies to convert to close corporations, and liquidation or deregistration will now be possible subject to payment of the 10% tax. It has been brought to my attention that the provisions of section 40B could be improved upon so as to cater more fully for those companies which go into liquidation but derive further income before they are finally wound up. The Minister of Finance intends to introduce amendments to provide for such cases.

Clauses 21 to 25 of the Bill relate to the classification of insurance policies as standard policies or non-standard policies. Any gain made in respect of a non-standard policy is subject to income tax. The provisions of the Act are to be found in the Sixth Schedule to that Act, which was introduced in 1972 in order to curb certain undesirable practices whereby policies were being exploited as though they were savings accounts. The purpose of the Schedule was to discourage the marketing of such policies. Since then various methods of circumventing the provisions of the Sixth Schedule have been found, and increasing numbers of borderline policies which are technically standard policies were taken out with no thought of insurance but simply as investment instruments. Where such a policy is taken out by a company or, in certain circumstances, by an individual, the taxation advantages are considerable, and this can influence to a considerable extent the choice that a person makes in deciding upon one kind of investment or another. This can, of course, have undesirable economic effects.

The issue of so-called “5 by 5” policies has been causing concern for some time and the Minister made reference to this in his Budget Speech. It is clear from the literature I have seen that his remarks on that occasion were interpreted as an announcement of early action to prevent the sale of these policies, and brokers and agents were actually urged to market these policies actively before it became too late. I think it is fair to say that the insurance industry was well aware that certain abuses had occurred. Since the Minister’s recent announcement that amendments to the law were to be proposed, the insurance industry has been consulted. In view of the tight parliamentary timetable the representations that were received could not be considered in time for incorporation in the Bill. We have now considered the matter very carefully and the Minister will propose certain amendments which will, broadly speaking, be to the following effect: Firstly, small pure endowment policies issued to natural persons will continue to be recognized as standard policies in certain circumstances, provided the total annual premiums on all such policies held by the taxpayer do not exceed R1 500. Secondly, the rule limiting premium increases to 15% per annum will be deleted and the existing rule whereby premiums in any one year shall not be more than double the premiums in any other year will be retained. Thirdly, the granting of a loan on a standard policy owned by a natural person will not result in the policy becoming non-standard. Fourthly, insurers will be given until 14 June to accept policy proposals which were in their possession on the date of the Minister’s announcement on 24 May, and such policies will not be subject to the new conditions.

In regard to these policies, mention has been made in the Press of the Margo Commission. I must emphasize that the measures proposed in the Bill were not referred to the commission and should not be regarded as emanating from it or as in any way carrying its formal stamp of approval. Like the rest of our tax laws, these measures now introduced will be subject to any recommendations that the commission may see fit to make on the subject.

In conclusion I should like to refer briefly to two administrative measures included in clauses 41 and 42 of the Bill, the actual provisions of which should be clear. Clause 41 relates to the raising of income tax assessments in respect of fringe benefits for the 1985 tax year and previous tax years, ie for tax years prior to the date of commencement of the fringe benefit provisions introduced last year and now amended by the Bill. In view of the uncertainty surrounding the subject and the lack of adequate administrative provisions in those tax years, it is considered fair and reasonable not to require the Commissioner to raise assessments for those years in the circumstances mentioned in clause 41, especially as to do so for a number of years in the case of a person who acted innocently could cause hardship.

Hon members will recollect that the hon the Minister announced in his Budget Speech that a period of grace would be allowed until 30 June 1985 to those taxpayers whose tax affairs are not in order to enable them to come forward to rectify matters, the Commissioner having agreed to treat them with leniency. The response has not been very great in spite of a Press statement by the Commissioner making it clear that penalties would not be imposed. Clause 42 has been included in the Bill to make it clear that the offer is a serious one in that it now completely precludes the imposition of penalties in certain circumstances, and to extend the period within which the concession will apply by two months until 30 August 1985. I trust that any cause for hesitation on the part of any person who may wish to make use of this concession will now be removed.

A detailed explanatory memorandum has been made available for the information of hon members.

Second Reading resumed

Mr speaker, this particular Income Tax Bill covers a large range of issues, some of which implement the provisions which were announced in the Budget, some of which complete the fringe benefits legislation, and on the other hand, some are purely technical and some are entirely new. Before I deal with the individual provisions, I would like to touch upon two things which I regard as important.

The first is that the State President appointed a commission of enquiry to investigate the tax structure of South Africa and, under the chairmanship of a distinguished judge, that commission has started its work. As we understand it, it has already given some advice to the hon the Minister of Finance. One of the things which concern us, however, is that instead of the whole tax structure at all its levels being dealt with by the commission in accordance with its terms of reference, we are still finding that ad hoc measures in respect of taxation are being implemented. Secondly, we find that tax measures which have far longer-term implications are being implemented without being referred to the Margo Commission.

I cannot understand how one can ask a commission to deal with an overall tax situation at all levels in South Arica and then introduce taxation which is of a fundamental nature as is being done in the Regional Services Councils Bill which was introduced this morning. This matter should have been referred to the Margo Commission for consideration. If there is a need for taxation at the regional level we are now not looking at the picture as a whole but confronting the commission with the reality that this law is already on the Statute Book. We find that most difficult to understand, because it does not only involve the taxation itself but also the bureaucracy to collect that taxation.

One of the most remarkable things about the Bill itself is the way it was dealt with by this Parliament. For example, when I was asked by my caucus to give evidence before the standing committee in respect of the Regional Services Councils Bill on the taxation aspects and the implications of it, that committee decided that it did not want to hear any evidence—not only not my evidence but no evidence at all. So we have a fundamental taxation situation in which a standing committee of this House as a result of a majority, decides that it is going to deal with that matter without any reference to the experts on taxation—and there are people who are more expert than I am in this respect who also could not be heard. I consider that a very unsatisfactory situation and one that we must draw attention to right away.

There is another matter which arises. I hope the report that I am going to refer to is an accurate one. In a newspaper called The Sunday Star of 9 June, an article appeared under the headline “Cut Income Tax is Margo’s Opinion”. I understood that the commission was sitting to hear evidence in order to make its decision. The report state:

It goes on to say:

He emphasized that he was speaking in his personal capacity, but he is the chairman of the commission:

Those are quite important pronouncements from the chairman of the tax commission. If the situation is that that view is already held, then anyone who gives evidence will now have to try to persuade the presiding judge of this commission that he is wrong in his view or that he should modify his view. This obviously creates a position where one says to oneself: “Well, if that is the judge’s point of view, what is the point of my going to give evidence before that commission?” I myself—and I use myself as an example again—have been asked to give evidence before the commission, but I must state that, in view of the Third World nature of a portion of our economy, I hold certain views as to the desirability of the proportion of direct and indirect taxation which should be imposed. It is, after all, fairly clear that it may not be the fairest form of taxation in a community where there is a tremendous disparity in incomes if one were in fact to decide to base taxation on consumption as opposed to income. In those circumstances, therefore, one has to look at the composition of the community because even though there may be equality of taxation in regard to the community as a whole—in other words, one cannot have differentiated systems of taxation—the mix of taxation still has to take into account the nature of the community being taxed.

Then the learned judge made what I think is also an extremely important statement. This is a factual statement not a policy statement. According to the report:

I note the word, Sir. It is not tax avoidance but tax evasion and the country is losing R10 billion per year through tax evasion:

If these figures are correct, they are startling indeed. It is a startling fact that the country is losing R10 billion per year through tax evasion. I think the hon the Minister has to deal with this issue because if the payment of R10 billion in tax is being evaded—and I think the judge is a responsible and experienced person who is unlikely to make a statement he cannot substantiate—the situation is very serious. I want to stress this: If one quarter of the tax that has to be paid is in fact being evaded, in other words, illegally not paid—evasion is an illegal act as opposed to avoidance which is arranging one’s affairs in such a way that one pays the least possible amount of tax—and it amounts to some 10% of the GNP, the situation is very serious. When one looks at the growth rate of the economy and one assumes that 10% of the GNP is in fact being lost through tax evasion, one can see that we are actually in a very, very serious situation. Therefore, I do not believe that these remarks can go unheeded. I think the hon the Minister must react to them and he has to deal with the situation.

I also want to deal with one other matter and I want to do so in a broad sense. It actually relates to the debate which took place here yesterday. I want to make a point in regard to one of the things that were said. To illustrate the point I want to make, I shall quote from par 4.7—not the entire paragraph but just the second half of it—on page 111 of the Kannemeyer Commission’s report:

I want to make a suggestion to the hon the Minister. As I understand the position, some 72% of the expenditure by the Police is in respect of personnel while only some 26% of expenditure is non-personnel related. In cutting back on the expenditure of the Police or in restricting their numbers to particular levels while not taking into account the increase in the population—and there is an increase—we have, I venture to suggest to the hon the Minister, created a situation where we now have an insufficient number of policemen in South Africa.

I would like to illustrate this point by means of comparison. I have seen on television the riots and disorder which occurred in regard to the miners’ strike in the UK. I have seen the number of police used in order to contain the activities of the miners. I have tried to compare that with the number of policemen who are expected to deal with large numbers in South Africa. I have to ask the following question: Would there not be less temptation to use what is here called “heavy calibre arms” or shot of heavier type if the Police had adequate manpower?

I want to say to the hon the Minister—and I have said it before—that in cutting back State expenditure one has to take into account the priorities of the individual departments. I believe in so far as manpower in the Police is concerned that unless they are given the money to have that manpower, we are jeopardizing the security of the State.

I am all in favour of fighting inflation. I am all in favour of seeing to it that our current account in respect of the balance of payments is sound. However, there is very Little point in having 1% or 2% less inflation if the country is in flames. The first priority is to see that one has stability in a country so that reform can be carried out. In such an atmosphere of reform one can effect the kind of changes that one needs and apply the kind of economic policies that one wants.

I want to make an appeal to the hon the Minister. If something positive is to come out of the Kannemeyer report, it is that the hon the Minister should lend a more sympathetic ear to the pleas of those people who want more money for more policemen. They are asking for more policemen on the beat, for more policemen to protect us against crime and more policemen to prevent a situation such as described by the learned judge in his report from recurring. [Interjections.]

Mr Chairman, may I ask the hon member why they were so opposed to the SA Police Special Account Bill, if these are the questions he is asking?

What that hon member does not understand is that the SA Police Special Account Bill dealt with the accountability for funds to Parliament. At the end of each financial year we would have an account of what had been spent and any surplus would be returned to the kitty to be used. The only reason why a Police Special Account was required was to deal with equipment, not with manpower. The Police Special Account cannot be used for manpower; it has to be used for equipment. As chairman of the Standing Committee on Finance he is the one person in this House from whom I do not expect such a silly question. He should know that. [Interjections.]

I want to refer specifically to the provisions of the Bill. I want to start off by talking about fringe benefits. I think the concept of the taxation of fringe benefits has now been accepted by the public, whether reluctantly or otherwise, as a reality. It is here to stay and I think people will learn to live with this new structure.

However, there are still some aspects which need to be reviewed in order to ensure that one of the main principles of taxation is adhered to, namely that there is equity among the various taxpayers in respect of their income. It is for that reason that there is a recommendation by the standing committee not only that this matter should be under constant review but also that after the first year of operation we should specifically look to see where inequities exist and how we can remove them.

The question of equality of treatment between the public and the private sector is one which we also need to look at again. There has already been one departure from that. A law was passed by Parliament this session in which that was departed from. I was hoping that we would not depart from it.

Which one was that?

The one relating to judges. I must say I hope we are not going to take this further, because to us it is a fundamental principle that there must be equality of treatment between the public and private sectors. There is one other departure from it in this Bill, and that is the one exception which I think one can have, namely in respect of the Head of State. In regard to others, however, I do not believe there should be any difference in the way the private and public sectors are treated and I believe that this is what the taxpayers of South Africa in fact desire.

There are some technical matters to which I should like to refer. The hon the Minister knows what the view of the standing committee is in respect of the official rate of interest. I, for one, would like that official rate of interest to be reduced in this Bill to 16%. I understand that one of my colleagues in another House suggested to the hon the Minister that it should be reduced to 15%. As I say, I suggest 16%. The reason for that is a very simple one. As I understand it, we have in the past experienced a period of rising interest rates. I think the hon the Minister will agree with me, that, as regards those interest rates, they have not only reached a peak but they are now probably in a downward phase. I listened to the Governor of the Reserve Bank this morning talking about the third change in the discount rates within a relatively short period of time. It is therefore clear that there is a downward movement. In the circumstances I believe the rate should be changed in this particular Bill to 16% with effect from 1 March. Now is the time to do it and it should be done for the full financial year. It is true that the Minister can do it for a portion of the year in terms of the legislation as it now stands, but I think it would be better to make it effective from 1 March this year so that for the full financial year we would have 16%. Unfortunately I am not allowed to move an amendment to that effect because it has certain revenue implications. Only the Minister can move such an amendment and I invite him to do so.

There are other problems. There is, for example, the question of the R30 per month allowed in respect of the cost of maintaining a vehicle, including the cost of repairs, servicing, lubrication and tyres. That is provided for in clause 30(b)(ii). I should like the hon the Minister to arrange for my car to be attended to in respect of maintenance, repairs, lubrication and tyres for R30 per month.

Barend’s Service Station.

Barend’s Service Station, I am told, will give that service. If Barend’s Service Station will do that for me, I am prepared to enter into a long-term contract with him for that. The argument will be that the other tariff items are also adjusted, not on the basis of full costs, but on 80% of the figures for August 1984. However, by inserting here a figure of R30, one is actually making sure that no one is going to use this provision. So, with due respect, this is actually nonsense. It is just not going to work. If in fact it can work, I want the hon the Minister to stand up and say that that is a realistic figure and that he is prepared to guarantee that that can be done for R30 per month. That is what I want him to do.

Then there is the question of long-service benefits. I agree that a change has to be made here, because it seems as if a game is being played, it seems as if there is a race on between the Commissioner for Inland Revenue and certain skilful tax accountants and lawyers. As fast as he drafts a provision which he thinks caters for a situation, someone finds his way around it. Then the Commissioner must again run forward and so this race goes on. Long-service benefits is one of the aspects involved. What happens, of course, is that one finds oneself in a situation where one tries to close every loophole, and I believe that in this case we have gone a little too far. I think that casual, small amounts in respect of long-service benefits for shorter periods of time should in fact be allowed. The Minister, I understand, will accept the recommendation of the Standing Committee on Finance to reduce the period from 20 years to 15 years, but that does not cover the position in respect of the casual, small amounts for shorter periods.

I would also like to make a special appeal that the Guide on Fringe Benefits which was published in March this year and is a useful book on which I think the Commissioner’s office should be complimented should be brought up to date because there are changes in this Bill which are not contained in it. I think we should have an up to date book that can be amended from time to time by inserting new pages so that we will not have to print new books every now and then.

As far as fringe benefit taxation is concerned, I think it is something the public accepts reluctantly but that it is here to stay and that it is merely a question of applying it on an equitable basis and reviewing the situation from time to time.

I come now to the question of initial allowances. The provisions in this regard implement certain announcements which have been made, but the view of the standing committee which is also the view we hold is that these provisions should be regarded as being of an interim nature, that they should go to the Margo Commission and that they should be completely reviewed.

One of the things we are unhappy about is the reduction in the allowances in respect of industrial buildings. Let me give an example. The Small Business Development Corporation in Port Elizabeth is busy with a scheme to put up an industrial building in order to gather together individual tradesmen to start their own businesses under one roof. The corporation is going to supply them with the machinery and tools. Many people who have not been in business on their own will have the opportunity of operating in one composite building. I think this is a laudable project but instead of giving encouragement in this respect the benefits are being reduced for that kind of structure. I would have thought that at a time when there is a downturn in the economy and some people are prepared to put up industrial buildings they would be encouraged to do so. The reduced benefits result in the discouragement of that kind of activity. I think this change is being effected at the wrong time and in respect of the wrong aspect concerning these allowances. I would rather see an encouragement of it. In fact, I would go much further. Where such projects are initiated in order to try to encourage more people to go into business themselves by a body like the Small Business Development Corporation in an effort to create structures for the informal sector, there should be special allowances for them. It may well be that instead of doing it by way of tax allowances it can be done by way of tax benefits, but something should be done in order to encourage this kind of cooperative industrial effort by small traders in the informal sector.

I want now to turn to the question of taxation itself. We have a surcharge of 7% which raises the top marginal rate to 53%. The question at issue does not concern the wealthy taxpayer or the benefits that are going to be given as a result of the increased rebates due to the change in the tables but whether it is a desirable practice if one wants to encourage the entrepreneur of South Africa to build and create it to take away more than half of what he earns I think there is a fundamental psychological barrier the moment one takes away from a man more than half of what he earns. He will then ask himself why he should be working and trying to create. This dividing line of 50% is a very important psychological line and I want to ask the hon the Minister to give attention to this. We should ask the Margo Commission to consider the whole principle of whether at any stage the fiscus should take away more than half of what a person earns.

There are other matters some of which I raised in the Budget debate and to which I did not get answers. Let us take the diamond industry as an example. I still cannot understand—and I do not hold any particular brief for the diamond industry—why, at a time when we anticipate a reduction in the income from tax from the diamond industry because the diamond industry is in some international difficulty and there are tremendous stock piles, one can actually say to oneself that one is going to increase the tax payable by the diamond industry. I should like to have an answer to that because I would have imagined that when an industry is in difficulty and the amount of revenue one is going to collect from it is less because of that difficulty, that is not the time when one increases the taxation. It seems to me to be an illogical principle and there must be some other reason why it is being done.

I just want to touch on the question of tax-free investments because they are dealt with in this Bill. I had to read about this in the White Paper on Industrial Strategy, by the way, as I did not receive this information from the hon the Minister. I understand that the tax-free investments of the building societies are being phased out. I want to ask the hon the Minister a simple question: Over what period does he intend to phase that out; and secondly, is it intended that in the future only the State should make tax-free investments available? Does he perhaps have at the back of his mind a plan to abolish the tax-free investments that are made available to the public by the State as well so that there will be no tax-free investments in South Africa whatsoever?

I also want to ask him why the R250 exemption in respect of interest and dividends is now being limited to interest. We dealt with this matter in the standing committee and, unfortunately, I find the answers completely unconvincing. Take the example of a unit trust where there is a combined income from dividends and interest. This is something that the small saver should encouraged to go into because here he gets some combination of both income on the one hand and protection against inflation on the other. It is illogical that the one half is exempt from tax but not the other half. If the hon the Minister insists on excluding dividends as such then at least dividends which are part of a unit trust disbursement should to my mind be exempted.

There are many other technical details we can deal with, but I just want to touch briefly on the insurance amendments because I think they are important.

We support the concept of saving in South Africa, and we believe it should be encouraged, and I do not believe it is being encouraged enough. Secondly we accept that part of the savings process is insurance. Thirdly we believe that the long-term insurer’s functions are in the main for the benefit of the private individual. As we have heard from the evidence, there have been gross abuses particularly in regard to companies, and whereas we accept that one is entitled to arrange one’s affairs legitimately to pay the minimum amount of tax, we also believe that when advantage is taken of a situation which is so contrary to the intention of the law, one cannot complain if the legislature takes action to correct it. I think this is what has happened here. We believe there should be consultation. We believe, and we were told in the committee that there had been consultation. There is evidence in two journals of that consultation. We believe that warnings were given. We also do not believe that legislation should be made retrospective in order to penalize people tax-wise retrospectively. However, when people want to indulge in abuses, where companies get involved in policies running into R20 million and R30 million and where they use property as a premium, where they disguise it in order to have it accepted and at the end of the period get the property back, then they cannot come and squeal when there is legislation to deal with them. We want the individual to be protected. We do not want the individual to be dealt with retrospectively but we will support this legislation which is designed to root out this abuse. Therefore we will support any reasonable legislation in that direction to put this matter right.

Mr Chairman, I want firstly to refer to the remark by the hon member for Yeoville on Police expenditure. I am sure it is true that we all want to see the manpower position in the Police improve. The answer he gave the hon member for Smithfield with reference to the question the hon member put to him on the fact that they did not want to agree to the legislation that dealt with the Police special fund, is very interesting.

It is true—the hon member cannot get away from it—that in the present set-up as far as safety in South Africa is concerned, manpower alone is probably not adequate and that sophisticated apparatus and sophisticated weapons are also necessary to ensure it. Nevertheless, the hon member for Yeoville denies this and says it is not necessary.

We must be prepared to deal with that situation in the future and to obtain such apparatus and arms. After all, we all know that the open market is not freely available for us to obtain such items. I do not believe that hon members of this House should take it upon themselves to create obstacles to mechanisms so that they cannot be obtained.

The Standing Committee on Finance has considered this measure as well as the other tax proposals. It is true that in terms of the rules regarding standing committees, we had only two days to consider these three measures. I want to say right at the outset that it is a particular privilege to be able to be part of the Scof in order to be able to accommodate in our discussions this specialized information which we receive from the officials and also from persons and bodies outside. Not only does this broaden one’s knowledge but I think too that with the recommendations we have made to the hon the Minister and his department—we cannot of course come to light with amendments—we have laid down certain guidelines to which I believe the hon the Minister and his department will give attention.

The Legislation we are dealing with at present gives substance to the Budget proposals which were submitted to Parliament at the beginning of the year. I want to express my thanks once again on behalf of the ordinary man in the street for the particularly favourable Budget we are now finalizing here.

The demands made by the Budget on the pocket of the ordinary man have been brought into line with the principle the hon the Minister spelt out in his Budget, namely the principle of curtailment and cutting back. If expenditure can be kept under control, I believe this Budget will prove to be the most successful one we have had for many years.

As far as the measure before us is concerned, I want, in the short time at my disposal, to direct my attention mainly to the fringe benefits dealt with in the measure. I accept that the hon the Minister will allow himself to be led by changes in prevailing interests rates which will then help him to determine the official rate. It is true that we hope, believe and trust that the prevailing interest rate will be lowered in the future. The hon the Minister will then have the discretion to lower the official interest rate accordingly. We believe that the hon the Minister will consider this matter most carefully so as to be able to do so if it becomes possible.

As far as this Bill is concerned, I want to refer further to certain measures embodied in it.

The Bill deals mainly with changes that have been effected to control housing subsidies and the use of company cars. Unfortunately it is tragic that it is still necessary to have to effect amendments within a year to eliminate so-called loopholes in the Act. It is true that fringe benefits are frequently abused by people and institutions in order to evade tax, and there are evidently people who make it their business to find such loopholes.

I should also like to express my personal thanks for the amendment effected by clause 37(b). Last year, with the discussion of the original legislation, I expressed my concern that new receivers of the existing housing subsidy could not share the benefit of the phasing in of tax. I am grateful that this amendment does in fact make it possible for new entrants to enjoy the benefit. The amount is limited to R50 000 which I find a realistic amount, and I am very happy to accept the amendment. The phasing-in period of five years which applies to loans and the utilization of company housing and cars is welcome. We are grateful that that phasingin period is being instituted by clause 38.

I want to conclude by making an appeal to both the employer and the employee—the recipient of the fringe benefit—to treat these fringe benefits prudently and with the greatest sense of responsibility. I am fully confident that employers and employees will, with the utmost responsibility and patriotism, declare these fringe benefits and treat them as normal income. I also believe that the tax on fringe benefits will not place an impossible burden on the taxpayer. It is manageable and reasonable and one would therefore not want to see it regarded as a punitive measure rather as a normal obligation that each taxpayer in South Africa has towards the State.

In respect of the amendments in this measure I want to request the department, if they are going to amend the little yellow book by means of replacement pages in pursuance of the request by the hon member for Yeoville—I think this is a fine and good idea—to provide us with those amendments so that we can insert them into the guide. It is a privilege for us to support this measure and we are therefore happy to support it.

Mr Chairman, the hon member for Gezina referred here to the general public and to the hon the Minister’s speech, particularly to what the hon the Minister had said about the cutting back and so on that is going to take place. I want to say, however, that the general public worldwide looks at any country’s budget. There is probably nothing as important in any parliamentary session as the budget that is introduced annually because it is true that this is what everyone looks at.

I think, however, that the taxpayer in South Africa has been hard hit because nothing has been cut back to his advantage. The surcharge of 7% over and above the marginal tax of 50% will certainly not encourage saving in this country.

Last time the hon the Minister said that that 7% surcharge was imposed over and above the 50% maximum as a result of relief in respect of the scale. It is true that the amount to be paid will be more or less the same. We are forgetting, however, that general sales tax in this country of ours has been increased and that more money will have to go to the regional services councils. What it boils down to is that the taxpayer in this country has actually been much harder hit than was the case previously. When the hon the Minister of Finance appears on television it is no wonder that children throw a cloth over the screen because they are afraid he is going to look to see what he can still tax. This is the sort of joke people are making. The State must have money—and it is on record that I have always said the State must have money—and it must therefore collect money. We say, however, that a man should not be taxed beyond his ability to pay.

Last year I received a letter from the department in which I was asked whether I would be available to serve on a commission to investigate certain aspects of tax. I consented to this and awaited the first meeting of the commission. After a time, however, the Margo Commission was announced and, shortly after that announcement, I received a letter in which I was informed that the commission on which I was to have served was no longer necessary because the matters that were to have been discussed had been referred to the Margo Commission.

We now have this Income Tax Bill and in the new dispensation there is no longer a committee stage. Where previously we had three chances to speak per clause, we can now no longer discuss a clause with one another across the floor of the House. When this Bill was submitted to the standing committee we specifically allowed clause 1 and the Schedule to be held over because the hon member for Yeoville—and he can tell me if this is not the case—asked specifically that the hon the Minister appear before the standing committee since certain matters regarding political policy, not technical aspects, had to be cleared up with him. We are still waiting for the hon the Minister.

I shall answer you. I happened to be at a Cabinet meeting.

But the hon the Minister of Finance also happened to be busy when previous legislation was being discussed. He then consulted one of the officials who had to appear before the committee. The hon the Minister did not appear before the standing committee himself then either. [Interjections.]

Mr Chairman, I just want to ask the hon member for Sunnyside whether he was present on the standing committee when I pointed out that the hon the Minister was prepared to meet the standing committee that evening after six o’clock but that problems then arose regarding a quorum? [Interjections.]

That is quite correct. The chairman of the standing committee said that the hon the Minister was prepared to appear before the standing committee but he did not say at six o’clock; he said from six o’clock right through to eleven o’clock.

Twelve o’clock. [Interjections.]

Fine, the hon the Minister said that he would be available until twelve o’clock. He knows, however, that under this new dispensation we cannot get a quorum of the other Houses. [Interjections.]

He only told us the following day that the Minister had been available from six o’clock onwards. Why did he not tell us before the time? [Interjections.]

That is quite correct. I heard the following day that the hon the Minister “would have been available yesterday evening”. [Interjections.] If we have to pass legislation in this House in that sort of way—where for example it is said that the hon the Minister would have been available the previous day—it is not going to work. I want to tell the hon member for Smithfield that we cannot continue in this way.

I want now to ask the hon the Minister—apart from the Margo Commission which is going to sit on matters affecting tax—whether the Standing Committee on Finance or another committee is going to meet again during this recess to investigate certain aspects regarding taxation or whether it is going to be held over to be discussed only next year. I admit that to most people it seems a technical matter and that they quite possibly feel that Parliament and the Cabinet may just as well look at these things. An Income Tax Act is, however, extremely important. It is technical but it affects every living soul in this country.

I want to ask the hon the Minister whether in spite of the additional taxation announced in the Budget which is to be levied in terms of this legislation, he is still of the opinion that we are going to collect the tax that has been budgeted for.

We heard on the news this morning that there had been 85% more bankruptcies than during the same period last year. This figure is going to increase further. There are going to be 100% more bankruptcies. This worries me because these businessmen or companies going bankrupt can no longer pay tax. Their employees have no earnings and so cannot pay tax either. Last night we heard again about the terrible unemployment situation prevailing in Durban and over the whole country.

The hon the Minister must collect taxes. He must tell us, however, whether he is still of the opinion that we are going to collect these taxes. If we are not going to collect them, what is he going to do to obtain the money to cover, for example, State expenditure?

As far as fringe benefits are concerned, the hon member for Yeoville referred to the 18% and suggested that it should be less. I also want to tell the hon the Minister that the 18% is too high. For very good reasons such as the fiscal and monetary policy etc interest rates are tending to fall. I want to repeat, however, that this 18% on fringe benefits is in my opinion too high. Fortunately the hon the Minister has the authority to be able to reduce this figure. It cannot, however, be summarily reduced in one financial year. I would say that if one wanted to be realistic and practical one should lower the figure at the end of the financial year for the next year.

Since our time is limited I do not want to discuss this Bill further. I merely wanted to make these few observations to the hon the Minister.

Mr Speaker, it is difficult for me to speak after the hon member for Sunnyside. Each of us who serves in the Standing Committee on Finance tries to make a modest contribution, but finance, especially in South Africa, is so involved that not one of us can speak on it with authority. The hon member for Sunnyside will agree with me. In a standing committee of this kind and especially in a discussion such as this one in this House, we must at least strengthen the Minister’s hand, however, and find a crutch for the financial problems of South Africa. We cannot merely criticise without suggesting a solution.

The hon member for Sunnyside knows the hon the Minister of Finance is very busy. There are Cabinet Committees and Cabinet sittings that he has to attend. The hon the Minister was asked, however, to appear before that commmittee and the chairman can bear witness that the hon the Minister has never refused to come. The hon the Minister was willing to come in this case, but because of unavoidable circumstances he could not be there. The hon member for Sunnyside knows that we have begun to speak informally about when we are going to sit during the recess to study this involved legislation and discuss it properly in the presence of the Minister. The Minister and his department have never refused to put the top officials such as Dr Jacobs, Dr Burton and Mr Schweppenhauser at our disposal. They were prepared to appear before that standing committee day and night.

But they may not reply to political questions.

Sir, in what way are politics and finance involved in this Bill to such an extent that one has to say first that this is politics and that is finance? The problem of the hon member for Sunnyside is that he worries so about public opinion that he does not know what South Africa’s financial position is. [Interjections.]

It is very easy to stand and shout here today, but what about the man in the street? We have sympathy with the man in the street. No one in this House wants the man in the street to pay more tax, but really, Sir, we have a country to govern. We have a Public Service which has to function properly. If there are no funds, who will be the first to criticize the Government? [Interjections.] What are we doing in respect of this report? What are we doing when we debate the Income Tax Bill? [Interjections.]

May I put a question to the hon member?

No, sit down! The hon member can sit down! He is not in the city council now. [Interjections.]

We are trying with this Income Tax Bill to extend the tax structure of South Africa. We are not merely collecting tax from the taxpayers left right and centre. We are rather trying to establish a broader perspective, trying to establish a broader connection, to get tax from various sectors, and to distribute the collecting of tax evenly in South Africa. We do not merely come down on the individual for income tax or sales tax. We are creating a structure, after all, and I believe the hon member for Sunnyside will agree with me on that. [Interjections.]

This Income Tax Bill contains mere ad hoc measures. It is purely temporary. The Income Tax Act is an Act, which has to be changed every year, however for there is a Treasury that has to be filled. There is a country that has to be governed. We know—the hon member knows it himself—that the Margo Commission was appointed. The hon member himself will get the opportunity to give evidence before the commission. I am sure of that. We are making these submissions with the Margo Commission, however, in order to effect a better tax structure in South Africa. [Interjections.] We have implemented tax on fringe benefits, and we have to tell each other today that fringe benefits tax is here to stay. [Interjections.] We cannot always put the fringe benefits tax aspect on ice. It is time it was implemented. The reason for the immediate implementation of tax on fringe benefits is that a proportional distribution of tax has to be established. Without fringe benefits tax we are allowing the poor man to pay more tax pro rata than the rich one. We are trying here to judge everyone by the same yardstick.

We are not against that.

Yes, but the hon member is making a noise about too much tax while we are trying to bring about a proportional distribution. [Interjections.]

In addition I want to plead with the hon the Minister this morning to ensure that penetrating attention is given to what the hon member for Yeoville said about industrial buildings etc. It is an important aspect which I believe requires the attention of the hon the Minister and the Government.

I also believe that certain insurance companies—I shall not say they have broken the law—have really exceeded their limits. Therefore, and also to protect the whole investment structure in South Africa, I feel it is necessary for these measures to be implemented in this way. With these words I should like to support this Bill.

Mr Speaker, coming in as a fifth speaker after such an erudite person as the hon member for Yeoville, I find it somewhat difficult to think of something new. He is very knowledgeable on his subject and he certainly gets his teeth into all the juicy portions of whatever Bill we happen to have before us. [Interjections.] Of course, I believe that that is his duty. It is his job as speaker for the Official Opposition. I am not querying his actions but simply saying that he does make other people’s lives a little more difficult.

There are, however, a couple of points he mentioned which, I believe, are very well worth repeating and touching upon again. I refer in particular to certain aspects of the fringe benefits tax. It is no particular secret that I personally—I am not referring now to my party—have never been wildly enthusiastic about fringe benefits tax. Nonetheless, I can accept that there is a certain equity in the thing. However, I feel one should not go too far with it even if one is going to accept the principle of it.

There are certain aspects which I think are a little silly. I think we are screwing down a little bit too tightly at the moment and I repeat a particular point made by the hon member for Yeoville, namely that this R30 a month in respect of vehicles is about as ridiculous a figure as I have heard of for a long time. A company with which I am very well associated has something in the region of 20 vehicles, and even with a large number of vehicles one cannot average out at that sort of figure. [Interjections.] It is just not possible. It is a figure that bears no relation to fact. If one is going to put in a figure at all, it should have some relation to something.

Again, in respect of motor vehicles, I am not at all happy with the value added to a person’s income, particularly in the higher brackets, for a motorcar. It is something of the order of R800 per month—it has gone up from a lower figure—and it means that at the end of four years a person has actually paid for a motorcar of R40 000 and it still does not belong to him. Admittdely he has not paid the interest and he has had the use of the car, but it still does not belong to him although it has been added onto his income as a taxable amount at a rate of about R800 per month. I think this is something of an inequity.

In any case—I have said this not once but many times—the wealth of this country is built on the backs of successful businessmen. They take terrific risks and they accept a terrific responsibility for their shareholders and in regard to their own capital. Throughout history the people who take the risks and the responsibilities and who do the real grind have always been entitled to certain little privileges. I am afraid there is no privilege in being a top businessman today.

I want to refer to the race between the tax man and the tax accountants which the hon member mentioned. This will of course become an even sharper fight than it is now. They found this in Britain. Britain was, as one will remember, and to a large extent possibly still is one of the most heavily taxed countries in the world. This heavy taxation of the people of Britain first of all drove many people from the country. I am one of the persons they drove out many years ago and they have been driving them out ever since with their heavy taxation system.

Apart from that, it has turned a great percentage of the British population into spivs who make money and do not declare it. That probably also accounts for some of the R10 billion shortfall which we have here. Exactly the same thing is happening here on an ever-increasing scale because the higher one’s taxation rate and the higher the gross amount one is expected to pay in tax, the more attractive it becomes to avoid paying tax. This is something that a taxman has to bear in mind so that he does not become counterproductive in his taxation system. This is becoming a tendency everywhere.

When I first came to this country—I can talk as somebody who came to this country from outside—this was an attractive country to come to. It was a terrific country for an immigrant. I am not only referring to the way of life here etcetera, but when a person went into business he could really get going, make money, save a certain amount, expand his business etcetera.

I am a South African: I am proud of it and I have no thoughts or wishes to be anything other than a South African. However, I am very honest when I say that if I was outside the country I would think very, very seriously about emigrating to South Africa today, because the tax structure is becoming murderous. It is really getting very rough. I am not only referring to income tax but also to all the other taxes which we have to accommodate as well. I would say that one has to be very, very careful in this regard.

The hon member also referred to the marginal rate of 53%. This also discourages people. There is very little incentive. I know of businessmen who sold their interests and left the country fairly recently. Their reasons were that taxation, including the perks tax, the removal of privileges and things of that nature, made it no longer attractive to five here.

The Reagan Administration in the USA has learnt that one cannot overdo it when it comes to the businessmen because they will just say that it is not worth the candle. In Britain the same thing applies under Margaret Thatcher’s government. They say one cannot overdo it and knock the businessman too hard.

If it were only the hon the Minister of Finance who was getting his sticky fingers onto business, that would perhaps not be too bad, but now it seems that other Ministers are coming in on the act. There are, for instance, the proposals of the hon the Minister of Constitutional Development and Planning. I am, however, not going to discuss that now, as it will be discussed at a later stage. If that comes about, however, that will make things even more difficult. As it is, other Ministers in the past have got into the act by way of transport subsidies and the like, but the proposals of the hon the Minister of constitutional Development and Planning appear to me to be very serious. So, this, together with all the other matters, seems to me to be leading to the stage where we are overburdening the people who are producing the goods.

As far as the man in the street is concerned, the proposal to phase out tax-free investments is perhaps not too wise. I know that here again it may be said that certain people derive greater benefits than others as a consequence of this, but it has been a means of providing relatively inexpensive money, for home building, and this, I believe, is something that must be borne in mind. Presumably the Post Office will carry on with their tax-free investments, but those do not help people to build homes. That scheme merely helps the Post Office to introduce more sophisticated and elaborate post offices and so on. It is going to be vitally important, however, to ensure that people do get money as cheaply as possible for homes. The question of phasing out tax-free investments is something which I believe is going to be detrimental to the man in the street.

As regards the rest of the Bill, it is very largely the general sort of thing one gets and, as far as we are concerned, although we have certain objections, we must obviously support the Bill.

Mr Speaker, after listening to the hon member for Umbilo, I speak with a certain amount of feeling about the high rate of taxation on the individual. The hon member for Yeoville also mentioned that he felt that a rate of tax in excess of 50% of a person’s earnings is too high. I think that we in these benches are inclined to agree with those hon members. I should like to remind the hon member for Umbilo that at one time in Britain the supertax was 19/6 in the pound. That was some years ago. In this country it was at one time over 70%, I believe. I think that in the last decade or two governments have realized that such high rates of tax on the high incomes of entrepreneurs, businessmen and others were not a good thing, because they acted as a disincentive to work harder and create wealth. It is for this reason that we have in recent years lowered it to 50% in South Africa. Might I say that President Reagan came to power on the platform that he was going to reduce income tax, which he did in fact do. The net result of that has been, however, that today the US is facing a deficit of something like $100 billion per year. Although President Reagan has come with a second package of tax reforms, his problem is the politicans themselves and the lobbyists and pressure groups who are pressurizing the politicians not to pass the tax reforms because they have their own sticky fingers in the pie. As we found when studying this Bill in the standing committee, certain business people have been exploiting the Act as it presently stands in order to avoid paying tax. I think this is the biggest problem the Government has. When it is conscientiously and sincerely trying to lower income tax rates, the problem it has is how to achieve a system of taxation that has a very broad base and catches everyone in the net. In other words, how does it prevent certain people, either through tax avoidance or tax evasion, which the hon member for Yeoville mentioned Judge Margo put at R10 billion a year, getting away with it? That is the problem we have and that is why there have to be certain amendments to the Act every year in order to close some of the loopholes.

The other thing a government must do in order to keep its tax laws in good repute is to ensure that the taxation system is as equitable as possible. This is the dilemma the hon the Minister and the Receiver of Revenue have to face in trying to find the revenue to finance State expenditure, but at the same time not to overtax certain people. I believe the tax-free fringe benefit is one of the reasons why we have the high rate of GST and such high rates of personal taxation today. Over the past decade or so a lot of emphasis has been placed on finding ways and means of receiving as part of one’s remuneration certain tax-free fringe benefits. We have had many debates on this and a commission investigated the subject, but I personally hope the day will come when employers cease to give their employees fringe benefits. One way of enforcing this practice will be by taxing fringe benefits. I say this because I believe that too many people seeking jobs today first ask what the fringe benefits are. In the past these benefits were tax-free, but they will be taxed in future. In this process many of the fringe benefits resulted in sheer extravagance. People got very expensive houses, trips overseas, holidays at the coast, expensive motor cars and many other luxuries under the guise of so-called tax-free benefits. I repeat what I said in the House before that when I was on the commission I asked delegates from Assocom if employers offered employees the cash rather than fringe benefits which they would the prefer. The answer was that an employee would prefer the cash because he could spend that money in a manner which he believed was in the best interests of his family. For example, the hon member for Umbilo said that if one gets as a fringe benefit a large luxury motor car it is going to be assessed at R800 per month …

That is stupid. I bought my own last time.

You see, Sir, he has now bought his own. For a full year that R800 per month works out at R10 000 per year. This amount will be added to a person’s income and he is going to be taxed on it. In future an employee may tell his employer to give him the R10 000 and decide to buy a less expensive car and save some of that money and use it for the education of his child or something of that sort.

The people making the luxury motor cars will then go out of business.

If we are a nation without people who are earning the kind of money that enables them really to afford a luxury motorcar, perhaps South Africa cannot afford these luxury motor cars, especially the imported ones selling for R80 000 and R100 000. I believe that the sooner fringe benefits are taken out of an employee’s remuneration package the better. We already see abuses in this respect. The Bill attempts to deal with them, for example, in clause 28 where the question of so-called long-service awards is addressed. Those of us who sat on the commission investigated this question and decided that it was fair that a person who had worked for a company for 20 years should be allowed a long-service award. We put a R2 000 maximum on it, but what do we now find? We find that companies are issuing long-service awards more frequently. As I said in the standing committee, one can get the ridiculous situation where after twenty years service a company can give an employee a long-service award of R2 000 for every additional year of service. So one sees how the taxpayers or, in this case, the companies try to abuse, as the hon member for Yeoville said, the intent or the spirit of the law. In terms of clause 29 we are closing a gap which companies took in giving their employees certain assets to use, for instance a suit of clothes.

It is a grant.

The hon member for Umbilo says it is a grant, but what I personally should like to see is a much lower personal income tax rate. Just as they are trying to achieve in the United States so there should be across-the-board rates of taxation with no allowance and no exception at all—none of these so-called fringe benefits. I think that if we achieve that, the hon the Minister will be able to lower the tax rates.

We find in this Bill the closing of the loophole as far as insurance policies are concerned. The hon member for Yeoville also referred to this. I think it is absolutely shocking that an industry such as the life insurance industry which is supposed to be a reputable industry should have allowed this type of policy to be written in the first place. I believe that these are professional people, and as such they should know what the intention and spirit of the law is, and this type of policy should be beneath them. As the hon member said, policies had been written for tens of millions of rand. Companies put up their property towards this so-called endowment policy, and what was worse, they borrowed the money back and then tried to claim the interest as an expense. This is a flagrant abuse of the intention of the law, and I believe this has to be exposed.

I think the time has come for the public of South Africa to condemn this type of action on the part of so-called responsible businesses in South Africa. I think it is only public condemnation that will cause these people to think twice before they try to avoid paying tax in this sort of manner.

I am told that I have, used up the time available to me, and therefore I say that I take pleasure in supporting the Bill.

Mr Speaker, the hon member for Amanzimtoti covered a number of points, many of them of a descriptive nature, but I should like to say at the outset that I am pleased that he agrees with this side of the House that 53,5% is too high a marginal tax rate. He has mentioned that he is concerned about fringe benefits, the way they have developed and about the extravagances related thereto Many people will agree with him. But he must recognize equally that the ingenuity which people use in discovering fringe benefits and ways to avoid tax is very often directly related to high taxation, high inflation and negative after-tax real saving rates. It is a question of a chicken and egg situation because I think the two are very closely related.

My general criticism of this Bill and the Government’s approach in this area is the whole question of the ad hoc nature of various tax measures. I think the hon member for Overvaal referred to the whole Bill as being an ad hoc measure. One accepts that the Margo Commission is looking at taxation, but nevertheless this ad hoc approach is not a new one on the part of the Government. It instils very little confidence in the people interested in the economy and the business and financial sectors when they see measures repeatedly applied on an ad hoc basis. We heard this morning about the regional services councils taxes which can have an enormous impact in various areas.

I wish to refer to a couple of aspects. The first one relates to the use by the hon the Minister of the word “avoision” in relation to tax matters. He did so last year, but I am pleased to say that I have not recently read a report in which that word is used. I hope he will drop it from his vocabulary.

It should be very clear that people are entitled to arrange their affairs and, within legal limits, avoid paying more tax than is necessary. Further, in the case of the director of a company who is the custodian of shareholders’ funds or, for that matter, a salary earner who is the custodian of the financial welfare of his or her family, not only does it make good financial sense, but it is the duty of such a custodian to arrange the affairs of the organization or family in the best way possible, in legal terms, to pay as little tax as possible. It would be irresponsible and a dereliction of duty for such a person to disregard the tax implications in the way he arranges his affairs, and so possibly impoverish his family or the business, as the case may be.

Tax evasion is, of course, to be stopped at every turn. It is illegal and immoral, and nobody is entitled to make use of that. To mix the two words is very dangerous because it suggests that there is something in between, which is not the case. People can avoid paying tax legally, or they evade paying tax illegally. Sometimes the courts have to interpret the law where there is an unclear area. However, there is no such thing as “avoision”, and I hope that in future the hon the Minister will not use that term.

I should like to refer to clause 37(b), and say that I welcome this clause. One of the things this clause does is that it enables the employee who is transferred or who changes his employment and in consequence has to redeem his old loan and obtain a new loan, to qualify for the phasing-in period. It is important because it provides for greater labour mobility. It enables people to be transferred in their jobs or to take new jobs altogether.

We need to recognize that there have been some very adverse effects as a result of housing subsidies on the scale on which they have been provided. I refer to housing subsidies other than those provided to the very poor people in our community. They have had the effect of pushing up the prices of houses. They have had the effect of reducing labour mobility within the economy, and they have aided the concentration of power, because in the nature of things it has tended to be the bigger organizations who have been able to provide these benefits to large numbers of employees. Very often a man would end up being tied to a particular company, even though there is a smaller company where he could use his skills better, but which is not financially strong enough to aid him with a generous housing loan. However, I welcome this measure in clause 37(b) that will enable people to change jobs without sacrificing some of the benefits.

I wish to refer to specific aspects related to this Income Tax Bill which, amongst other things, provides for a surcharge of 7% on all individual income tax in excess of R750. We need to see this whole question of income tax in perspective. Individual income tax has risen from R2 091 billion in 1980-81 to an expected R8 950 billion in this coming financial year, 1985-86; that is an increase of 328% in just five years. This amounts to an average increase in individual income tax of 33,75% per year over each of the past five years. By any standards, these tax increases are exorbitant and must have a demoralising effect on many income earners. The hon member for Yeoville has very correctly pointed to the psychological barrier of 50%. However, we have now moved beyond that. When one asks people to work harder and be more productive and people in the top echelon know that more than half of anything extra they earn will go to the Government, I do not believe that that is an incentive for either harder work or entrepreneurship.

One accepts that no one enjoys paying tax. One also accepts that far more people talk of working less, investing less or leaving the country than ever do. We would, however, be foolish to ignore the warning signals. South Africans have become very highly taxed. For the first time that I know of, one hears of people seriously considering working shorter hours because they do not consider the after-tax benefits of extra work worth the effort. They would rather have more time with their families and pursue hobbies or other recreational pursuits. One hears of people considering emigrating for economic as much as political reasons.

These people often come from the groups that constitute the resource that is in shortest supply in our country, the resource that we need most to ensure a prosperous economy, viz the highly skilled, managerial and entrepreneurial people that make up a small but critical element in our labour force. We can ill afford to lose the talents of these people.

The disillusionment of these people is partly a result of high taxation, but it is also the result of what the Government does with their money. On the one hand they are being taxed to the hilt; on the other hand they see the way that their money is spent or misspent, as the case may be. When they see billions of rands of taxpayers’ money squandered on ridiculous industrial decentralization policies, homeland extravagances, economically meaningless homeland consolidation and an expensive tricameral parliament, to name just a few examples, is it surprising that they become disenchanted?

Government mismanagement of the economic and political affairs of South Africa, as well as its inability to perform its own basic responsibilities efficiently, remains a major bone of contention. Let us look at just one aspect of the Government’s performance which is directly related and relevant to this Bill, namely the question of income tax collection. The following is recorded on page 6, paragraph 5(3) of Part I of the Report of the Auditor-General for the Financial Year 1983-84:

That is in the latest report from the Auditor-General.

The Standing Committee on Public Accounts was told that the test audit covered only 0,2% of income tax assessments and that the testing was done on a purely random-sample basis. The implications of this are staggering. It means that the probability is that in 1983-84 the State lost about R450 million as a result of incorrect income tax assessments. This R450 million represents a loss in income tax revenue alone, and does no include the millions—and perhaps hundreds of millions—of sales tax that goes astray each year. It is not acceptable that staff shortages be offered as an excuse. It is shocking that such enormous amounts of tax are not collected while taxpayers are being bled dry by the Government. This Bill makes provision for a moratorium for people to come forward, pay taxes and declare income which they have not declared before without suffering penalties. I hope that people will do so as this will help to bring in some of these revenues that have gone astray. However, it is quite unacceptable that this position has been allowed to develop over the years, and there is no indication that it has improved to any substantial degree.

We need to realize that this country does not have resources—financial or human—to waste. We need effective political and economic policies and we need efficient public administration. We do not have them. We will be opposing this Bill.

Mr Chairman, before I reply to hon members’ remarks, I should like to make a brief statement. It concerns bankers’ acceptances and Treasury and other bills.

A large and increasing trade in the above-mentioned types of paper is going on in South Africa and, with rare exceptions, the profits being made out of this type of trade are not being returned for income tax purposes. My information is that some institutions are in fact advising clients to deal in this sort of instrument because the profits are not disclosed to the Receiver of Revenue.

These transactions have many permutations but what usually happens is something like this: A gives his bank R90 and is given in exchange a bankers’ acceptance with a face value of R100 and a term of, for example, 180 days. Depending on the number of days left before maturity date, under current rates of interest, A sells the bankers’ acceptance to person B, for example, for R95, thus making a profit of R5. B may then sell the bankers’ acceptance to person C for R97, and C may still sell to D for R99, leaving D to collect the full R100 on maturity date.

As will be seen, A, B, C and D have all made a profit on the money laid out by them. Since a bankers’ acceptance may be held by any one person for as little as a few hours, or even a few minutes, the total gains to be had can be large. It has always been the view of Inland Revenue that gains of this nature are, in terms of the normal rules contained in the Income Tax Act, subject to tax.

I am not aware that anyone has sought to challenge that stand. The problem is one of disclosure by the banks, taxpayers and others. Taxpayers have been asked to disclose particulars of their dealings in bankers’ acceptances in their annual returns, but have been most reluctant to comply with this requirement because they feel that the likelihood of their being caught out is remote. We are taking active steps to bring the offenders to book but the task is not easy as bankers’ acceptances are not identifiable by name.

This merely indicates that as we approach the final stages of our existing tax system, there are many loopholes, and certain practices which are undesirable. Therefore, the accusation levelled at us particularly by hon members in the Official Opposition that we are acting on an ad hoc basis, is correct in a certain sense. However, there is no time, at this stage particularly, to refer something to the Margo Commission and then wait for their recommendation before we can implement it. If a practice is wrong, we have to do something right away to close the existing gap.

When a taxation measure has been under consideration for some time and the right thing to do is to levy that tax, then again we do so. The whole affair is to be reviewed by the Margo Commission in any case. I will go so far as to say that if a levy to be imposed by a regional services council is viewed completely differently by the Margo Commission, then the Government will surely look at it very seriously. If the Margo Commission recommends that it should be done in a different way and we can see that it is the right way to do it, then I can certainly see no reason whatsoever why the Government would say that there is an existing system and that it will not accept a different approach.

With respect, I told the hon member for Yeoville before that there is no question of a collection bureaucracy being created in this regard. [Interjections.] Existing municipalities will do the collection and the monitoring will be done by the Receiver of Revenue. [Interjections.] A person may be appointed here and there, but the whole point of regional services council levies is after all to enable us to have a differentiated system pertaining to the particular needs and circumstances prevailing in a particular area. That is why there is no way in which that can be done on a centralized basis. Therefore, in order to complement our decentralization policy which is applied on a regional basis—and we make no bones about this—regional services councils, which is the stick part of the carrot and stick policy, must also be able to levy tax on a regional basis. So I do not think it will serve much purpose to continue discussing the ad hoc part of our actions. We admit it but at the same time we say that the Margo Commission is free to look at the entire affair and to come to us with fresh recommendations.

The hon member for Yeoville said that the taxation of fringe benefits was a new form of taxation. Those were the words that I took down.

It is a new concept but there has always been taxation of those things.

Sure. There are many people who are of the opinion that this is a new tax. It is not a new tax but a refinement of an existing system which was subject to gross malpractice prior to our clamping down on it.

It is also important to note that the regional services councils were under consideration for years and we had the benefit of the best possible tax advice. We ended up with the proposals that we have before us. However, despite the fact that so much work has already been put into it, if the Margo Commission which embodies the best possible expertise in this regard come up with something beter we shall certainly look at it.

Let us turn to the surcharge. My hon colleagues on this side of the House dealt with it extensively in their comments and Opposition speakers also referred to it. I said explicitly in my Budget Speech that we are dealing with exceptional circumstances. That is why whatever we do in this year’s taxation proposals should not be regarded as a firm and final standpoint of the Government. There is no such thing. We are dealing with absolutely exceptional circumstances which have been brought about by various factors many of which were beyond our control. The fact is that we have had exceptional amounts demanded from us which have been channelled that way and are still being channelled in the direction of drought assistance. This year again, in our additional estimates, we had to include an amount of R150 million. So we are dealing with exceptional circumstances.

Furthermore we have not been receiving the revenues from our various sources of revenue to the tune that we would have liked over the past few years and we are therefore dealing with a situation here today which is absolutely exceptional.

Because you ruined the economy, that is why.

If the hon member wants to ask a question, he can get up according to the Rules of the House and ask a proper question.

Obviously in these times it is our object as a department to minimize the opportunities for evasion and avoidance.

Minimize evasion and avoidance?

Yes.

One must first minimize evasion.

Let us turn for a moment to the request by the hon member for Cape Town Gardens that we should not use the word “avoision”. I have not been using that word but I want to tell the hon member that he is welcome to visit us in order to be informed within the restrictions of the Act as far as secrecy is concerned. I am sure that a few examples could be given to him. We are not dealing here with a completely black and white situation. What is regarded by some people as merely avoidance of tax sometimes comes pretty close to evasion. It is a grey area which is causing problems. This is exactly the content of my repeated discussions with the accountancy profession and I can only say—I do not want to divulge the content of our discussions because we have made a great deal of progress—that I am receiving tremendous and encouraging support from the profession as such in my efforts to provide them with all the possible means which will enable them to place the collection of taxes in general on a much better basis and also to improve the general tax morality which prevails in South Africa right now.

Because I think this is an important issue in the eyes of the public and particularly of the professions, will the hon the Minister please clarify the following situation: Firstly, evasion is something which needs to be stamped out. Therefore there must be action by the Commissioner’s office to deal with evasion. Secondly, when there is avoidance, it is legitimate but the Fiscus is entitled, if it wants to deal with it, to legislate in order to change this situation. To try to confuse the two is really to create an unfortunate situation in the minds of the public.

Order! I cannot allow the hon member to make a speech now.

No, I am not. I am simply asking the hon the Minister whether he will accept that what I have outlined is the function and also the difference.

The hon the Minister may continue.

Mr Chairman, the hon member is obviously right. That is why I am having these discussions with the profession. The only way to counter avoidance is through the best possible legislation.

That is right.

To that extent, we not only have the expertise of our own officials but we also now have the commission looking into it and we have regular contact—the officials particularly and myself—with the profession in order to improve our legislation as far as possible as far as the minimizing of avoidance is concerned.

The only way we can minimize evasion—if I may come back to my own terminology which the hon member objected to by way of an interjection—is to step up our actions as far as the department’s duties are concerned as far as possible. I do not think anybody can ever say that it is possible to catch every person who evades. All we can do on our part is to increase our numbers of properly qualified people in order to carry out the follow-up, and I hope we can do so.

You must accept the distinction between avoidance and evasion.

Oh yes, there is no question about that. If the hon member wants me to accept the distinction, then I do. Obviously there is a distinction and obviously we all accept that, including me. I think that distinction is absolutely clear in the analysis which I have just given the hon member and which is the basis of my consultations with the profession. [Interjections.]

As far as Mr Justice Margo’s position is concerned—and this was quoted by the hon member for Yeoville—I now have the benefit of his personal response. The hon member referred to the Sunday Star of 9 June. In the first place, the report quotes Mr Justice Margo as having said:

In this connection Mr Justice Margo says:

[Interjections.]

Another quotation from this newspaper report reads as follows:

and to this the judge replied:

According to another section of that newspaper report he—

His comment on this is:

Those are the replies of Mr Justice Margo with regard to that particular newspaper report.

Mr Chairman, may I ask the hon the Minister if he would like to comment as to whether he agrees or disagrees that tax evasion is running at some 10% of the gross national product? Could he give us his estimate of the situation?

According to that hon member’s own definitions which he gave earlier, tax evasion is a criminal offence.

I am talking about evasion.

Yes. According to this newspaper report the judge said that as a result of evasion R10 billion is lost. I do not think anybody can make an accurate estimate of what is criminally perpetrated. I am not in any position and neither is the department—they are certainly specialists in knowing what is going on in income tax—to estimate how much we are losing.

I come now to the matter of GST. It is accepted world-wide even if one loses 20% of one’s collections, one is still not doing too badly. However, we are not satisfied with that. As far as we are concerned there is one overriding precondition for a general lowering of the tax structure and that is that we should increase our efficiency in the collecting of taxes. Once we have increased that efficiency we can start thinking seriously about lowering our income tax structure.

I have already committed this Government and this ministry in this regard on a number of occasions. If we can increase our collections and in particular close the loopholes as far as fringe benefits are concerned—a large amount of money went that way—and we can increase our revenues as a result of that, we shall not use that additional money for the funding of fancy projects. Tax benefits will be returned directly to the taxpayer in the form of lower tax scales.

*The hon member for Sunnyside mentioned how heavily we were being taxed. I just want to remind hon members of the fact that when we finally announced last year that the fringe benefit tax was going to be introduced on the basis we proposed—however, it was subject to certain changes and we did in fact change it—we had already announced lower tax scales at that stage.

†The majority of income tax payers are paying less in spite of the fact that we have levied a 7% surcharge. This 7% only comes from the fact that we had to balance our books and finance our expenditure properly, otherwise the 7% would not have been there. If we can have our way we will abolish that as soon as possible.

It is so that the very top brackets are unfortunately paying more. If we can relieve their tax burden we shall do that as soon as possible. However, in spite of the 7% surcharge most income tax payers are paying less.

Mr Chairman, may I ask the hon the Minister how he expects to get 20% more in individual income tax this year than last year if most taxpayers are paying less?

I was still going to refer to that issue. It was also a part of that hon member’s speech. The hon member forgot two things. He quoted an increase of more than 300% …

Over five years.

…over a number of years. There are two variables in his formula which he must keep in mind., In the first place the increases in salaries and wages did not only keep pace with inflation but exceeded it. There was therefore literally an explosion in the incomes of individuals. Secondly we have had a dramatic increase in the number of taxpayers; we have a vast number of people qualifying for the payment of income tax every year. That redounds to the credit of this country.

It is mainly because of inflation!

No, I am referring to the volume we have to handle by way of new entrants because of the fact that Black and Coloured persons in particular are graduating—if I may put it that way—into paying income tax. [Interjections.] I have never denied that our income tax is too heavy a burden on our taxpayers. In fact, on the occasion of the NP Congress in September last year, soon after I took over this portfolio, having looked at the figures, I made the statement that I believed that it was unfair to collect in excess of 30% of total State revenue from individuals. That is one of the main reasons why we appointed the Margo Commission. We believe that the individual is contributing too large a portion.

*I just want to tell hon members a story about tax morality. It has a bearing on the points I have made. One of the senior people in my office joined the queue in the Revenue hall the other day to see what was going on there. A Black man came in and went up to the counter. The people asked him what they could do for him. He replied that he had come to pay his taxes. So they said: “All right, pay your taxes. Where are your papers?” He said that he did not have any papers. Then they said to him: “But why do you not have any papers? Do you have a job?” Yes, he said, he had a job. Then they said: “But where are your papers showing your income, so that we can work out how much tax you have to pay?” He replied that he did not have any papers and that his boss had not told him to come and pay his taxes, but that he had come to do so because he had heard that when one was working, one had to pay tax, and that was why he had come to pay his tax. So they took him over to a table, made the necessary enquiries and filled in a form for him. He took out his money and paid the small amount that was due by him, and then left. I really want to say that if we can have that kind of tax morality in South Africa, we shall have come a long way.

†There is another point I must make, and it relates to what the hon member for Cape Town Gardens said. That is that it is also possible that, without knowing it, an individual can pay more tax than he really should. So, there is always a function for an expert to look at another person’s tax and help him so that he does not pay more than he should pay. However, the converse should also be true, namely that we should minimize the possibility of such an expert, such an adviser, helping people to find loopholes which in terms of morality are rather shady.

I trust that the hon member for Yeoville will, after having heard this from this esteemed judge, no longer hesitate to submit his evidence to the commission. That applies to anybody else too.

I am very happy to hear that correction.

I have asked urgently for the information, but I have not yet received the exact figures. However, that can also be made available if necessary.

Referring to what the hon member for Yeoville said with regard to the number of police required for purposes of protection and so on in South Africa, let me say to him that last year in the process of drawing up the Budget one of the overriding considerations when it came to the Police was the fact that they had embarked on a recruitment programme over a number of years in order to end up with a number of policemen per thousand of the population which will be comparable to the figure for any other civilized state. The figure in this country is way below what it should be. We are, in other words, under-policed. The hon member for Amanzimtoti, by way of interjection, said: “You thought we were a police state.” We are anything but a police state if one looks at the figures involved. From that point of view I can give the hon member for Yeoville the assurance, because it is true, that, in deciding on the Budget figures for last year, the fact that the Police had seen the need for such a programme themselves and had obtained permission from the Cabinet to embark on a long-term recruitment programme was taken into account. As far as we possibly could, we accommodated them as a matter of priority in the budget, and, certainly, that will happen again this year.

I come to the question of the official rate of interest. I am very relectant to commit myself today to lowering that interest rate. However, we have a committee which looks at monetary strategy and fiscal policy and that committee meets regularly.

*By the way, Dr Jacobs is a member of the staff of the SA Reserve Bank and does not work for the department, as an hon member said.

†At these committee meetings we have the benefit of the input of the Reserve Bank and I shall certainly review the official interest rate in the light of the behaviour of the interest pattern in the near future. I am very reluctant today to allow a reduction from 18% to 16% or to any other level.

May I ask the hon the Minister a question? If one accepts that the Reserve Bank has now reduced the discount rate three times—I think the latest was announced only this morning—surely the discount rate has a bearing on this rate, because it obviously affects the rates which are being charged in the community?

There is a substantial difference between the official interest rate and the rates prevailing at the moment. We will watch the situation very carefully. We are now back to 22% where we were in August last year. If one sees with the next lowering of the rate or the one thereafter, that there is a big “explosion” or an increase in demand, one will have to counteract it as far as possible. If that should happen, which is something one cannot forecast accurately at the moment, we would have made a mistake if we had lowered it today. Therefore, while having full sympathy with the results of an unduly high interest rate on various calculations, I do not see my way clear today to lower the rate. I will watch the situation very closely and will consult with the people who work with it every day.

I have already accepted the amendment in respect of long service of 15 years and I will leave the situation at that. As far as the R30 per month is concerned, I am certainly not an expert on that and I certainly do not intend opening a service station and charging that kind of rate. I will look at that figure again. Let me assure hon members that when the officials calculate rates in this respect, they take into account, inter alia, figures released by the Automobile Association. However, the amount seems to be very low and we will certainly go into it.

As far as industrial building allowances are concerned, let me say that in this case we prefer to maintain the status quo in view of the fact that the Margo Commission is investigating this aspect and we do not want to juggle with the existing situation now.

The question of the diamond industry was also raised and I am glad that my colleague the hon the Minister of Mineral and Energy Affairs is present. All I can say is that we are both very concerned about the whole position relating to this industry. As far as I am concerned I shall do my best to help him to get this industry back on its feet as quickly as possible. As far as the tax is concerned, it is not a large revenue-generating industry anyway.

How do you help him by increasing the tax?

The only reason we did that was because we have exceptional circumstances this year. I would have liked to avoid many other taxes we had to impose but this was not possible. Even reducing a budget of R31 billion by R1 million makes a difference in the end.

As far as unit trusts are concerned, the hon member will know that a unit trust also shares in capital growth. Again, the last word has not been spoken as far as this particular incentive is concerned. It really affects only the small saver who normally is more prone to spend his money than to save it. I am not talking about people with higher incomes who of necessity have more disposable income. I also want to thank the hon member for his support with regard to the insurance business. The only reason the provision was made retrospective is that we had to make the announcement with regard to these policies at an early stage. We knew that there were millions and millions of rand worth of policies being written at that stage and we had to make the announcement quickly. I did not want to announce it to anybody else but to the people who were involved in the industry. I made the announcement on the Friday evening and the provision became effective the next morning. The promulgation of the Act will therefore only be made retrospective to that morning.

*I thank the hon member for Gezina for his usual solid contribution.

I think I have replied to the hon member for Sunnyside as far as his 7% is concerned. We on this side of the House are certainly not happy about the fact that a surcharge of 7% was necessary, but the fact is—I think it is important that we should all bear this in mind—that in spite of the 7%, and as a result of the lower scales, most taxpayers are paying less income tax today than a year ago, except for those who had excessive fringe benefits.

I should like to say something about my appearance before the standing committee. I want to tell the hon member quite frankly that he should stop harping on that. The hon member says that I should have been there that morning so that he could have asked me certain political questions. But he had the opportunity of asking those questions in the Second Reading debate today. What did he ask me today? In any event, I had an appointment with the State President for 08h30 that morning because I had to discuss an urgent matter with him which was to be raised directly afterwards during the Cabinet meeting between 08h30 and 09h00. In fact, I left the State President’s-office at 08h59. Should I have gone tot the State president, for the sake of the questions which the hon member did put to me today, to ask him to excuse me because I had to appear before the standing committee to listen to such questions?

After all, the hon member told us on a previous occasion that it had taken him a whole night to think of difficult questions to ask.

That is untrue.

Why did he not ask me the questions this morning which he wanted to ask on the committee? What questions did he put to me? He is simply taking this line because he wants to suggest that I do not respect the committee. I want to tell him that he must give me sufficient notice, because my program is fully booked for months in advance. If I am given sufficient notice, I shall appear with the greatest of pleasure, but I am not going to absent myself from a Cabinet meeting, where the Minister of Finance is involved in every item because virtually every item on the agenda has financial implications, just to come and listen to a lot of silly questions such as those which the hon member asked here today. If reasonable questions are to be asked, I shall be delighted to attend. I make myself available in principle, but then I also ask for reasonable notice, because I cannot put off deputations that have travelled hundreds of miles to come and see me, just to go and sit there waiting for the kind of questions which the hon member asked this morning.

The hon member also referred to bankruptcies. I heard on the news this morning that there had been 85% more bankruptcies last month than the month before. This caused me to say to my wife that it was a pity that there had not been a report every month during the boom times to tell us that 150 more companies had been formed the previous month than the month before.

I should like to repeat this point. While one knows that there are also deserving cases where people have suffered and gone under as a result of the interest rate, there is one thing we must also bear in mind. It is like a bird that has grown temporary feathers which it is now losing. In spite of this, its permanent feathers remain. When we had a situation in South Africa where people were not only failing to save any money, but were withdrawing their savings in order to spend it, every other guy could be a dealer. Unfortunately, those guys are now falling of the bird. This is the unfortunate fact. There is no way of preventing bankruptcies when there is a downturn in the economy. It is regrettable that 85% should have gone bankrupt, and I do not think there is anyone who derives any pleasure from this. It will also affect our figures to a certain extent, but I can assure the hon member that as far as our revenue figures are concerned, it has been thoroughly taken into consideration. It has already been discounted, therefore.

I also wish to convey my sincere thanks to the hon member for Overvaal for his contribution, which was a very useful one, as we have come to expect of him.

†I thank the hon member for Umbilo for his contribution. To some of the points raised by him I have already replied. He made the statement that people were leaving this country on account of our taxation system. I shall come to fight in a little while with the final report which we have just received. I can tell the hon member that the IMF report which we in the department received only a few days ago has one very interesting comment. I do not want to quote it out of context and therefore I want to set the qualification that I shall make this information known properly at a later stage. They say that despite all its shortcomings they are impressed with our collection of tax. However, they also make the point that in their view, compared with comparable countries South Africa is not overtaxing its people. I am not saying that I myself, or the Government, or the department, are in agreement with that standpoint; in fact, we believe quite the opposite. If we did not believe quite the opposite, we would not have done everything in our power to cut Government expenditure, because the only way to lower taxes is by cutting Government expenditure first.

I want to thank the hon member for Amanzimtoti for his well-motivated support of this Bill. I have already responded to virtually everything the hon member for Cape Town Gardens said.

I thank hon members for their support of this Bill.

Mr Chairman, it is customary that on one clause we state what our policy attitude is. Therefore, particularly in relation to clause 1, we want to make it quite clear that we believe that the imposition of the surcharge is wrong in the circumstances. We made that clear during the Second Reading and during the Budget debate. We regard the principle as unacceptable.

According to the hon the Minister’s reply, everything is due to extraordinary circumstances. Well, there is a very important question that he has to answer: Who is responsible for these extraordinary circumstances? I do not blame him for the gold price, the drought or the high dollar, but I blame him for the mismanagement of the economy and for the over-expenditure in the years gone by because, with the Government, he is collectively responsible for what has taken place; he is a part of it. Therefore, you cannot claim some credit for correcting the mistakes which you yourself have made. When I say “you yourself”, I am talking about your Government. I say this because this is what you are really trying to do. You are making the public of South Africa pay for the mistakes which this Government has made. That is the reality of the situation.

Let met touch on one other thing. I want to deal with the attack which was made in respect of attendance of committees, and the excuse which the hon the Minister offers that he needs to get long notice to attend committee meetings because he has appointments well in advance. Let me deal with a couple of points in this regard. Firstly, he knows that, in terms of the Standing Orders of this House, this committee has to sit within two days after a money Bill has been introduced. However, the date on which the Bill is introduced is a date he decides upon. Therefore, he decided when the Income Tax Bill, the Revenue Laws Amendment Bill and the Sales Tax Bill should be introduced. He fixed the dates; not we in the committee. He determined the dates, but then he says that it does not suit him to come. How can he argue that we have to give him notice to attend a sitting of a committee when he has fixed that date? It is unbelievable, Sir, that that kind of argument can be put forward.

With great respect, when we asked for a suspension of the Standing Orders in respect of the Customs and Excise Amendment Bill so that he could come on another day, his party opposed it. Therefore, with great respect, he must not use the argument that he is the busy man and that he has to be given months or ages of notice because he has appointments. He is the only man in Parliament who is busy! He is the only one who has appointments! However, he fixed the dates—and not at our convenience. However, when we asked for them to be changed, then his Government refused to change them. So, with great respect, that argument has no validity and can actually not even be put forward.

I did not want to raise the matter of answering questions relating to policy, but that has now become an issue. The Minister tried to explain it away again the other day, but when we try to deal with policy issues and the Minister is not there, we do not want to get officials involved in politics. However, when one explains policy, Government policy, which has political implications how can one avoid touching upon the philosophy which is behind it? We are now being put in a situation where the Minister continuously let officials make statements which has political implications. We cannot reply to those statements because, if we were to do that, it would be said that we were dragging the officials into politics.

I want to commend to the Minister in all seriousness that, when there are statements to be made on policy which have political implications, he or the Deputy Minister should make them. He should not have the officials make them, so that we have to drag them into the political arena. I believe that that is the way in which it should be done. Unless we actually get these lines of approach straight, and get them straight soon, then I do not believe we are going to sort this problem out.

If the Minister wants notice in respect of the meetings of the Standing Committee on Finance, let him consult with his own party member who is the chairman of this committee, the hon member for Smithfield. When the meetings are not fixed by law but determined by the Minister according to the Standing Orders, let the Minister be on speaking terms with the hon member for Smithfield to arrange times which will suit him as well.

Let me give him notice now that since, as I understand it, we are going to be meeting probably towards the end of September and the beginning of October and November, he should just keep some space in his diary. We are giving him notice now that he must come to that committee and explain the policy of the Government.

Mr Chairman, on a point of order: Throughout his speech the hon member for Yeoville continuously referred to the hon the Minister as “he” and “you”. Surely there should be some order in this House.

Business suspended at 12h45 and resumed at 14h15.

Afternoon Sitting

Mr Chairman, may I just finish off what I was saying and draw the attention of the hon the Minister to the fact that I raised the issue of tax-free investments and he has not responded to it. It is specifically dealt with on page six of the Bill, the question of the exemption from tax of Post Office savings certificates. I asked him a number of questions with regard to what his policy is and I think that, in the excitement of the moment, he omitted to deal with that. I hope he will do so now.

Mr Chairman, I cannot recall having experienced such terrific excitement that I should have forgotten something, but the hon member did ask quite a number of questions to which I had to respond and this one was merely an oversight.

The whole question of tax expenditure is one of the important topics being considered by the Margo Commission. There seems to be the firm conviction—and I think there are good grounds for it—that we as a Government are able to spend the money obtained from the taxes we levy much better than if we left it to the private sector and the taxpayers to spend it themselves. What I mean by that is, firstly, that, if a tax-free investment is granted, then we have great difficulty in quantifying the amount of tax that we are actually giving away. Secondly, we are not so sure that, in giving away that amount of tax, we are in fact achieving the objective which the Government had in mind when we made that particular investment tax-free in the first place. Let me be very specific by taking building societies as an example. The whole idea of a tax-free investment with a building society is to enable the building society to grant housing loans at a reduced interest rate. I have mentioned this before in the House, but I want to say again that our provisional figure as to the cost to the taxpayer of this particular facility is in excess of R500 million per year. What has in fact happened? Every single bondholder across the board then gets the benefit of that R500 million. That also applies to the person who has a very large bond, in other words the person who really should not share in the benefit of that limited amount—which in some respects is a large amount—of R500 million.

There are differential rates.

Yes, sure; the differential rates which are applicable of late do, in a sense, address that very issue. The hon member is right. However, it would seem to be a much better approach—this is not a firm Government standpoint because the whole issue is in the process of being looked at and we are also awaiting the Margo Commission’s viewpoint on this—if one has to spend R500 million, rather to spend it on those home-owners who really need it on account of their being in the lower income group, than to help people in the higher income groups as well. If we have a little piece of butter to spread on the bread, let us rather spread it where it can be tasted than spreading it so thinly across the slice that the people who are really in need of it do not taste it at all.

The same goes for incentives in respect of decentralization etc. Rather than a tax incentive, we are developing more and more the whole idea of providing a person with a cash incentive. A tax incentive only comes into operation once a business moves into a profit situation, whereas in the initial stages during the development of a new business, it is not necessary to help it to the same extent.

As far as the Post Office, building societies and all the others are concerned, we do not, at this moment, have a firm statement to make on this. In other words, the status quo will remain until such time as this debate, which is going on freely in all circles, has been finalized and the Government is in a position to say either that it is going to stick to the present principle of allowing tax-free investments across the board in the building societies, the Post Office and in certain other Treasury papers, or otherwise that we are going to abolish it, in which case we will have to put something in its place. However, such a firm policy statement can only come in some months’ time. At this moment everybody is taking part in a free debate on the whole issue.

Mr Chairman, when the hon the Minister replied to my second reading speech, he rebuked me because I had objected to the hon the Minister’s not having appeared before the standing committee. I never said the hon the Minister could have been there because he sits idle. I did not say that. [Interjections.] I rather want to associate myself with what the hon member for Yeoville said when he spelt out to the Minister why he was expected to have been there.

Now I want to draw another matter to the hon the Minister’s attention. It is true that we, the smaller parties, have little time. Certain times are allocated and it has happened repeatedly in a second reading debate that we have put questions in our speeches, not only to this hon Minister, but also to the other hon Ministers. When they then reply, if they do not ignore us, they try to belittle us, discredit us or insult us. [Interjections.] This hon Minister has made himself guilty of that too. [Interjections.] After making a speech of 15 minutes here during the second reading, we do not get the opportunity to come back and put questions. In addition there is normally only one man who speaks. We then expect our Cabinet—and the hon the Minister is one of the Cabinet members—to reply properly to such questions. [Interjections.] It s not a case of the hon the Minister’s never replying, but it has almost become practice in this House that when we ask questions here during the second reading—we cannot return to a committee stage after that—the hon the Ministers become insulting or ignore us. [Interjections.] I can only speak with the greatest praise, however, of the information we receive from the officials.

There are a few more matters that I could broach, but I raised them in the committee the other day. I shall not put questions on them now. I shall rather clear up matters with the department later.

Mr Chairman, today I really want to make a final and friendly request to the hon member for Sunnyside to forget about this topic, viz the attendance of meetings. He knows very well what I am talking about. If we take out the minutes of the Standing Committee on Public Accounts and start dragging them across the floor of this House, that hon member is going to be very embarrassed. I want to ask him now to forget about these things. [Interjections.]

I now want to put a few points about the Standing Committee on Finance. What happened there as far as the Customs and Excise Amendment Bill is concerned is absolutely ridiculous. That committee thought well to consult for an hour and a half on whether they should discuss the Bill or not. When they eventually came to the actual discussion of the Bill, the total discussion took up an hour and a quarter.

It was not an hour and a half.

It took up an hour and a half. That is my information and if the hon member wants to prove it to be wrong, he may do so. Let us not fight about the minutes taken up by the discussion, however.

Are you criticizing the standing committee?

The hon member for Rissik should stay out of a debate on a high level or a debate on detail for it is not his sphere. [Interjections.] I wasted two years of my life trying to make him understand that one needs figures in a country and that one has to understand what budgets are about. Therefore I am not going to pay any attention to him if we speak about figures.

You were a bad teacher. Now you are a bad Minister too. [Interjections.]

I want to tell the hon member for Sunnyside there are also things in the standing committee that should be placed in order. For two weeks four of the top officials of Customs and Excise had to sit and wait here in a hotel.

Whose fault is that? It is the fault of the Chief Whip of Parliament.

As it is the first session after the implementation of the committee system, I think it inevitable for growing pains to have been experienced. There is much room for improvement, therefore. I think, however, we should stop this kind of thing, and I therefore want to ask the hon member for Sunnyside finally to have done with these things. I shall tackle him if this thing is slung across the floor of the House again—and he will come off second best! [Interjections.] Let us rather leave it at that.

I want to ask the hon member—he is speaking to me, for after all, it is my debate, and I am dealing with my Bill—when I ignored him when he was asking a proper question about a Bill or a policy matter. I ask him to rise some time and prove to me that I ignored a proper question he put to me. I reject that insinuation.

[Inaudible.]

The hon member for Rissik should rather keep quiet. [Interjections.]

Any one who replies to a debate, can forget a small matter. The hon member for Yeoville has just risen very decently and told me I had forgotten to reply to him on something, and I replied to him with the greatest of pleasure. It was not done purposely. The hon member for Sunnyside is making an issue of it this afternoon. If he does not want to do so in public, he can write me a letter in which he tells me in respect of which question I ignored him in this House. I shall then reply to him properly on it. If he cannot do that, he owes me an apology. [Interjections.] I now want to ask him to stop harping on this attendance story.

I merely want to add a last idea and the hon member for Yeoville must understand it in a good spirit. The moment a Bill leaves my Ministry, I lose all control over it. The Standing Committee on Finance is not a part of the department or the Ministry; it is part of this side of the street. I have no control over it. If matters are delayed for a long time before being discussed, as has happened, there is no way in which I can control matters from my side. Once a Bill is outside my field of vision, I have no idea when the standing committee will discuss it.

But according to the existing rules you have the opportunity to…

There are certain times, but on a previous occasion I referred specifically to the following: On more than one occasion I got less than 24 hours’ notice and it was simply not possible for me to attend the meeting. I shall do my utmost to appear before a standing committee if the arrangements go according to programme, but I should not be expected to leave a Cabinet meeting to attend a meeting of the standing committee.

If the hon member for Sunnyside had truly had a valid point and had confronted me here today with a very important political question which he would have liked to ask me in the standing committee, but only got the opportunity to do so during the second reading debate, I could understand why he was scolding me for not having attended that meeting of the standing committee. That hon member has had all the time in the world today, however, to put the question he wanted to ask me that day, but now he is sitting. He has simply asked a lot of nonsense and said a lot of nonsense. What frustration exists therefore? What was the question the hon member wanted to ask me that day that made him so angry that he came to fight with me? Today he is here and he has no question to put.

I do not understand the hon member, that is why I now want to ask him finally and in a friendly way—I recommend he consider it seriously—to forget about this affair now. If we were to scratch in the history of the Standing Committee on Public Finance, there would be embarrassment. Let us leave the matter there and let us agree to differ.

Order! Before I introduce the following hon member, I want to point out that we are dealing with clause 1 of the Income Tax Bill. I shall allow no further discussion that does not concern clause 1.

Mr Chairman, on a point of order: Are we not entitled to discuss policy and so forth in clause 1?

Order! In the case of a Bill in which serious policy questions were concerned, one speaker from each opposition party was allowed in exceptional cases in the past to get the opportunity to speak on the principle of the legislation under clause 1. That is not applicable to this Bill, however.

Mr Chairman, would you permit me to put a point to the hon the Minister concerning the reply he has just given?

Order! I have indicated that the debate on that issue does not relate to clause 1 of this Bill.

Clause agreed to (Official Opposition dissenting).

Clause 6:

Mr Chairman, in the answers given by the hon the Minister to clause 1, he referred to the possible phasing out of the tax-free incentives on savings. I am now particularly worried about what might happen to Post Office savings. The tax-free incentive is a tremendous incentive to members of the public and the Post Office is in fact dependent to a large extent for its income on investments by the public. If there is no tax-free incentive to saving with the Post Office, I am sure the hon the Minister will agree that that will have an adverse effect and will in fact be inflationary, because the Post Office will then be forced to raise tariffs on postage, telephone services, etc, services on which the Post Office is already losing quite a lot. In that connection we have argued at length about the formula put forward by the Franzsen Commission and about whether the telecommunication services should carry the postal services. I am afraid the Post Office will not be able to balance its budget and will be forced to raise tariffs. Has the hon the Minister given that consideration?

Mr Chairman, let me reiterate that, as far as I know, the Post Office’s scheme of tax-free investments has never come into the debate centering around the whole question of tax expenditure and incentives. I presume that that is because, from the point of view of financing the Post Office, that scheme is of greater general advantage to the entire population and the country as a whole. On the other hand, in the case of home owners one can, by referring to the records, identify those who benefit by tax-free investments in, for instance, building societies. If tax-free investment in building societies is abolished, one can at least replace that benefit by providing some other assistance by identifying the particular individuals who are in need of assistance as a result of the fact that they are salary earners whose salaries are below a certain limit, or whatever. One can then assist those people in some other fashion. I do not think that that parallel exists as far as the Post Office is concerned. Therefore, I want to give the hon member the assurance that the question of withdrawing this facility in the case of the Post Office is not under consideration at all. It does not even feature in the debate as far as I am aware.

Clause agreed to.

Clause 16:

Mr Chairman, the question of the merger of mines where the tax losses of one mine are offset against the profits of another mine is the subject on which I should like to address you. One understands the motives of the hon the Minister in the case where, by merging, two existing mines, one of which has shown a loss and the other a profit, do not pay taxes. As has been pointed out, mines can continue to merge long enough for them never to pay taxes at all if they go on merging in that way. Let me indicate what it is that troubles me. A company which has a mining operation that is unsuccessful can then become involved in another mining operation in order to recoup its losses. In such a case one should be allowed initially to offset the losses on the mine against the profits of the new venture. It is like a business. If a company starts with a business undertaking which is not successful and shows an assessed loss, and that company has another business undertaking which is more successful, then the assessed loss can be carried over from the one to the other. That, unfortunately, is also covered by this clause and I believe it could never have been the intention. Quite obviously, not every mining venture is a success and such a venture cannot be taken on its own, the company never being allowed to start another mining venture to try to recoup its losses. I think that would be a very unsatisfactory position. This is the situation in terms of clause 16. I doubt whether it can be amended now, but I would ask that this matter be investigated so that an individual mine which incurs a loss and wants to enter into a merger where there is no question of tax evasion is not prejudiced. I think the hon the Minister of Mineral and Energy Affairs will support me in this.

Mr Chairman, I will go into the matter. It is a capital loss and the Minister of Finance has a discretion as far as that is concerned. If there is a deserving case, the Minister can use his discretion.

Clause agreed to.

Clause 17:

Mr Chairman, the issue raised here and in the standing committee and which I raise once again, is that there appears to be no reason why the benefits that are given here in respect of the distribution of accumulated profits should not be given without the company being liquidated. What can happen at present is that a company with accumulated profits can be converted into a close corporation, the 10% can be paid, the money withdrawn, and it can then convert back to a private company and carry on doing business. If one can do that, there seems to be no reason why one should not be able to do it without having to go through that procedure in order to take advantage of the 10% benefit on the distribution of accumulated profits. At present, if one does it with a private company without liquidation and without conversion to a close corporation, the effect is that one has to pay tax at a higher rate. This seems to me to be inequitable, while one of the principles of taxation is that there should be equity.

Mr Chairman, I move the amendments standing in my name on the Order Paper, as follows:

1. 1. On page 24, from line 23, to omit “in anticipation” and to substitute:
   not earlier than three months prior to or in the course
2. 2. On page 24, from line 25, to omit “during the year of assessment in which such dividend is declared,”.
3. 3. On page 26, from line 11, to omit “during the year of assessment during which such dividend was declared” and to substitute:
   within 12 months after the date of commencement of the winding-up or deregistration

What the hon member has said, is exactly what the clause endeavours to prevent from happening.

Mr Chairman, I am afraid that the hon the Minister must look at the clause again. The purpose of this clause is to provide that one only gets the 10% benefit if one is going to liquidate the company. One does not get the 10% if the private company is going to continue doing business. I wish that the Minister was right, but unfortunately he is not.

Mr Chairman, the Commissioner has just pointed out to me that a company like that should be able to qualify as a close corporation.

Yes, but this clause does not cover it.

Amendments agreed to.

Clause, as amended, agreed to.

Clause 21:

Mr Chairman, the issue I want to raise with the hon the Minister is the same issue raised in the standing committee. I want to put a certain situation to the hon the Minister. There may be companies who took out policies which were major abuses and which involved large sums of money. In terms of the amendment those policies can continue to run even if they were taken out before the date of his announcement. In other words, what is going to happen is that after the date of the announcement or after the enactment of this legislatiion, those companies will still benefit unless they borrow money on that policy. Let us take the position where one does not borrow money on that policy. An example was given in regard to having a scheme in terms of which one puts one’s property in as being the equivalent to the premium. At the end of the period one gets one’s property back and one ends up still getting the profits on the policy. This will be allowed to continue. The issue that was raised in the standing committee was whether a date should not be fixed in the future or which that policy can be ended as at so that the whole scheme will come to an end as at that particular date and so that they will not be allowed for the next seven, eight or nine years to get the benefit of this scheme.

This will not mean retrospective legislation in the sense that one does not take profits away form them which will have ac-cured up to that fixed date. We could, for example, even take 31 December this year so that they will have an opportunity to arrange their affairs, so that there will be no prejudice in thar regard.

The standing committee as a whole felt fairly strongly that where this type of thing has happened we do not want to affect anybody retrospectively, but we cannot allow them to continue to pluck the fruits off what we think was never their tree in the first place, because this tree really did not belong to the company. This is a tree which belongs to the individual. It is not a tree which really is a company tree. It has been abused and whereas we accept in some circumstances that it may be company policy, this type of abuse should not be allowed to be perpetuated in some cases over another nine years.

Business interrupted in accordance with Rule 44.

Clause negatived.

New Clause to follow Clause 20:

Mr Chairman, I move:

1. 1. That the following be a New Clause to follow Clause 20:

1. (a) by the substitution for subparagraph (1) of the following subparagraph:
   “(1) For the purposes of this Schedule, but subject to the provisions of this Part, an insurance policy is a standard policy if it is a life policy as defined in section 1 of the Insurance Act, 1943 (Act No. 27 of 1943), and if—
   1. (a) in the case of a policy the proposal for which was made to the insurer in writing on or before 24 May 1985 and accepted by him not later than 14 June 1985, it secures the payment of an insurance benefit which is payable—
      1. (i) Upon or by reason of the death or the death or earlier disablement (occurring after the commencement date of the policy), of a person whose life is insured under the policy; or
   2. [(b)] (ii) [it secures the payment of an insurance benefit which is payable] either upon or by reason of the survival for a specified term of not less than 10 years, commencing not earlier than three months before the commencement date of the policy, of a person whose life is insured under the policy, or upon or by reason of the earlier death or disablement (occurring after the commencment date of the policy) of that person; or
2. (b) in the case of any other policy—
   1. (i) it is and has at all times been owned by a natural person; and
   2. (ii) it secures the payment of an insurance benefit which is payable at any time while the policy is in force upon or by reason of the death or earlier disablement (occurring after the commencement date of the policy) of the person whose fife is insured under the policy, or, where the lives of more than one person are insured under the policy, of the first of such persons who so dies or becomes disabled, and which benefit is not less than an amount equal to eight times the total net premiums payable in respect of the first full year reckoned from the commencement date of the policy, or if the premiums payable during any period of 12 months ending within a period of 10 years reckoned from the said commencement date may under the conditions of the policy be increased to an amount exceeding 115 per cent of the premiums payable during the period of 12 months immediately preceding such first-mentioned period of 12 months, eight times the highest total net premiums which will be or may become payable during any period of 12 months ending within the said period of 10 years: Provided that a policy which does not comply with the preceding provisions of this subitem shall be deemed to so comply if—
      1. (a) it provides for the payment of an insurance benefit as contemplated therein, but the payment of such insurance benefit is excluded for a period of not more than three years from the commencement date of the policy in the event of death by suicide, or as a result of the state of health of the person whose life is insured under the policy being such that he could not be granted life assurance in accordance with the normal practice of the insurer concerned; or
      2. (b) it secures the payment of an insurance benefit which is payable either upon or by reason of the survival for a specified term of not less than 10 years, commencing not earlier than three months before the commencement date of the policy, of a person whose life is insured under the policy, or upon or by reason of the earlier death or disablement (occurring after the commencement date of the policy) of that person and the total premiums payable under the policy during any year of assessment of the owner will not exceed an amount equal to R1 500 less the sum of the premiums payable during that year of assessment under all other policies contemplated in this paragraph which are owned by such owner, his spouse or minor child, or, if the owner is a minor child, by such minor child, his parents and any other minor child of his parents,
         and in either case if it satisfies the conditions appropriate to it under paragraphs 11 and 12.”; and
   3. (b) by the insertion after subparagraph (1) of the following subparagraph:
      “(1A) For the purposes of subparagraph (1), “net premium” means so much of any premium payable under an insurance policy as remains after deducting therefrom such portion thereof as was paid in respect of benefits on disablement or in respect of additional benefits on accidental death, or which was so paid as an additional premium the payment of which was, in conformity with standards applied to all life insurance business of the insurer in question, considered warranted by the insurer’s valuator as a result of the state of health or the nature of the occupation of the person whose life is insured under the policy or as a result of his participation in particular activities or as a result of any other circumstances affecting his insurability.”.

New Clause agreed to.

Clause 22:

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

1. 1. On page 30, from line 11, to omit paragraphs (b), (c) and (d).

Amendment agreed to.

Clause, as amended, agreed to.

Clause 24:

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

1. 1. On page 32, from line 5, to omit paragraph (c).
2. 2. On page 32, from line 50, to omit paragraph (g) and to substitute:
   1. (g) by the addition to subparagraph (1) of the following items:
   2. “(h) in the case of a policy owned by a person other than a natural person, any loan or advance (other than an advance contemplated in paragraph ll(2A)(ii)) is on or after 25 May 1985 and within a period of 10 years reckoned from the commencement date of the policy, made by the insurer or any other person under or on the security or strength of the policy, regardless of whether interest on such loan or advance is payable or not; or
   3. (i) in the case of a policy referred to in paragraph (b) of the proviso to paragraph 10(1)(b), the policy is varied so as to provide for an increase in the premiums payable, and in consequence of such increase the total premiums payable under the policy during any year of assessment of the owner exceed or will exceed an amount equal to R1 500 less the sum of the premiums payable during that year of assessment under all other such policies which are standard policies under the provisions of paragraphs 10, 11 and 12 and which are owned by such owner, his spouse or minor child, or, where such owner is a minor child, by such minor child, his parents and any other minor child of his parents; or
   4. (j) during the period of 10 years reckoned from the commencement date of the policy, a policy referred to in paragraph (10)(1)(b) is varied so as to provide for the payment of increased premiums, in such manner that the premiums payable during any period of 12 months exceed an amount equal to 115 per cent of the premiums payable during the period of 12 months immediately preceding such first-mentioned period of 12 months, and the policy would not have qualified as a standard policy had such increased premiums been payable in terms of the policy as originally in force.”.

Amendments agreed to.

Clause, as amended, agreed to.

Clause 25:

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

1. 1. On page 34, from line 19, to omit paragraph (ii) and to substitute:
   (ii) the policy is owned by a natural person.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 28:

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

1. 1. On page 36, in fine 39, to omit “20” and to substitute “15”.

Amendment agreed to.

Clause, as amended, agreed to.

House Resumed:

Bill, as amended, reported.

Bill read a third time.

Fair copy of Bill certified and transmitted to the State President for his assent.

Mr Speaker, I move:

As is usual with almost any fiscal measure, this particular Bill contains both good news and bad news. Since the bad news is not really news at all but merely the confirmation of what the hon the Minister of Finance announced in his Budget Speech on 18 March, I shall reverse the usual order and begin with the bad news.

Hon members will recall that the hon the Minister, in referring to our fiscal requirements for the coming year and the need to spread the burden as widely as possible, proposed the introduction of certain special levies. Clause 12 of the Bill proposes the legal machinery necessary for the charging and collection of the levy on long-term insurers while clause 13 does the same in respect of the levy on banking institutions.

The provisions relating to long-term insurers are very straightforward since the levy represents nothing more than a charge of 7,5% on the gross amount as determined for income tax purposes. Hon members will note that in accordance with an undertaking given earlier, amounts derived from the carrying on of home service business will not be subject to the levy. Various subsections deal with certain technical matters which it is unfortunately necessary to incorporate in any taxation measure.

Being based on an entirely different concept, the levy on banking institutions requires rules that are a little more complex than those relating to the levy on long-term insurers. Those rules are found in clause 13, and an attempt has been made to define certain terms as precisely as possible so that there can be no misundertanding as to what the tax base is intended to be, and so that the levy may yield the amount of R100 million mentioned by the hon the Minister in his Budget Speech.

In response to a plea made by the banks the term “deposit” has been defined in such a way as to exclude cross deposits in any one banking group. As a result of this concession the burden of the levy will be spread more fairly among the various banks but the total yield will not be reduced below the amount mentioned by the hon the Minister.

It has recently been represented to the Government that it is unfair to charge the levy in all cases and that the circumstances of some banks are such that they should be granted total exemption. This plea has been sympathetically considered but cannot be accepted. In the light of the available information this very low-rated levy should not cause hardship to any banking institution.

Hon members will recall that a third levy was proposed by the hon the Minister, namely on producers of liquid fuel from coal. For a variety of reasons it has been decided not to proceed with that levy.

I come now to the good news.

The first small item relates to the board which was established in terms of the Local Authorities Loans fund Act of 1984. The function of the board is to provide funds for the financing of various local authorities and it is, in effect, akin to a local authority. We have therefore provided appropriate exemptions from marketable securities tax, transfer duty and stamp duty.

*The really good news, however, is in connection with estate duty. Hon members will recall that the Minister of Finance mentioned in his Budget Speech that the Margo Commission had not yet had time to give attention to the question of estate duty but that, as an interim measure, the Act would be amended during the present session of Parliament in consequence of the provisions contained in the Matrimonial Property Act, 1984. Since then my department has given the matter careful consideration and has recommended that certain drastic amendments be effected to the Act. It was decided to accept the recommendations of the Commissioner of Inland Revenue.

As hon members know it is a basic principle of the Estate Duty Act that donations made by a person during his lifetime form part of the property which is deemed to be property in his estate. Of course there are exceptions to the rule, inter alia any donations made by the deceased to his spouse under a duly registered ante-nuptial or postnuptial contract. In terms of the amendment which is being introduced by clause 4, other donations which the deceased made to his spouse during his lifetime will not be taken into account for the purposes of estate duty either, nor will any donations which he may have made under a notarial contract entered into in terms of section 21 of the Matrimonial Property Act.

Another amendment which is a direct consequence of the coming into operation of the Matrimonial Property Act provides that any accrual acquired by the estate of the deceased in terms of section 3 of that Act shall form part of the property in his estate. Similarly any amount which the surviving spouse may claim in terms of the same provision shall be a deduction from the net value of the estate.

The last and perhaps the most important amendment in this connection is being introduced by clause 5(1)(b). The new section 4(q) of the Act provides that any other amount which accrues to the surviving spouse shall also be deductible in determining the net value of the estate of the deceased.

The effect of these amendments is that it will now be possible for spouses to transfer assets freely from the one to the other during the course of the marriage without the fear that this will have estate duty implications for them or their heirs.

All these amendments are applicable to the estates of persons who died or die on or after 1 November 1984.

There is also good news for our farming community in the amendments which are being proposed. For a considerable time now the executor of the estate of a deceased farmer had the choice of taking into account the value of any farm property in the estate either at the fair market value of such property or at the so-called Land Bank value of the property. However, when the farmer held the farm in the name of a company, the executor had no choice and the value of the shares had to be determined according to the fair market value of the underlying property.

The amendment of section 5 of the Estate Duty Act, which is being introduced by clause 7, removes this anomaly, and does so in respect of persons who died or die on or after 1 April 1982. Executors now have the option of requesting, in the case of shares in an unlisted company which owns farm property on which bona fide farming operations are being carried on, that the Land Bank value of the farm instead of the fair market value of such farms shall be taken into account in determining its value.

Mr Speaker, a comprehensive memorandum on the Bill is already in the hands of hon members, but I have nevertheless seen fit to take up a few minutes of the time of this House to draw attention to the very important matters which we are dealing with here.

Second Reading resumed

Mr Chairman, this Bill again covers a multitude of subjects, and I want to deal in the first instance with two particular matters which we are not happy about as far as this legislation is concerned, and those are the levies which are placed on long-term insurers, and the levies on banking institutions. We tried to indicate, both in the Budget debate and in the previous debate on the Income Tax Bill, that we do not believe in ad hoc forms of taxation. The principle of taxation whereby one imposes taxation on some accrual or benefit, or on consumption or expenditure, is a principle which is generally accepted. However, in the case of an activity involving no accrual or benefit, consumption, or expenditure, to tax that particular activity would be a serious departure from principle. The only departure from that principle of which I am aware in South Africa is really the rates which are imposed on immovable property by local authorities, but those local authorities provide a service. The moment that one taxes an asset, or that one taxes a particular concept, as is done here, one is almost opening the door to the concept of, for example, a wealth tax, where one taxes people merely because they own something. That is a principle of taxation with which, I must say to the hon the Minister, we cannot agree. I think he would be the first one to say that he is not in favour of a wealth tax. [Interjection.] The hon the Minister says that that is correct. Therefore, that principle that we restrict our taxation to cases where there is either an accrual of a benefit, or where there is some form of consumption, is important. Those are the two things on which tax has been levied.

The principle where one actually taxes a bank not on its profits, but upon the level of its deposits, is to our mind a serious departure from a generally accepted principle. There is approximately R100 million to be raised, and I may, if I want to draw a comparison, draw the hon the Minister’s attention to the fact that R100 million is less than the amount that he is writing off every year, and therefore losing in respect of interest, on the Saldanha/Sishen railway line—that was dealt with only a short while ago when the Second Finance Bill was before this House. In other words, if we had not made a mess of that undertaking, he would have had more from that amount in interest than he is budgeting to accrue here. Therefore, if we were unkind, we could say this is one instance where one pays for the mismanagement which takes place, because on the one hand we lose more than R100 million, and on the other hand we have to raise more than R100 million here, and one actually has to ignore a principle in order to do so.

The other factor which shows how bad this tax is, is the fact that there are some banks who, by the very nature of their business, will be differently affected, because there are some banks who have different form of business activity. The hon the Minister himself this morning was speaking of trading in bankers’ acceptances and other negotiable instruments, as opposed to actual receiving of deposits, though his example, by the way, is a very bad one because one cannot actually get an NCD for R100. There is no such thing. One has great difficulty in even getting them for R10 000. The hon the Minister is talking about the big league when he talks about these tax evaders. These people who are in fact avoiding taxation in respect of these negotiable instruments are not little guys who deal with amounts of R100. They are big fellows and most of them are dealing with R100 000 or R200 000 or R250 000 or more at a time. These are not the little guys of the R100 example, by the way, that he gave. [Interjections.]

The reason why it is relevant here, is because banks have different forms of business activities from which they make their money. So, here he is particularly taking those banks whose major form of business activities relates to deposits to a greater extent than it would be in respect of other banks. What is also important, is that there are banks which have different levels of profitability. I have looked at a particular bank’s results in a recent issue of a financial magazine and these results were completely different in relation to another bank’s results from a profitability point of view. However, they had to make provision for this levy. They did this in the accounts which they published only a matter of a week ago. I am merely using that as an example to show that this has no relation to profitability; in other words, one can actually have a bank which is running at a loss but still has to pay the tax. That is not a logical way of taxing banks—it is not a logical way of taxing anybody—because in this case it is provided in the Bill that one can deduct the amount of the levy from one’s taxable income, but if one does not have a taxable income, what does one then deduct it from? So, one will have to pay it this year, even though one has a loss. To my mind this is not a sound principle of taxation and therefore we cannot agree to it.

Another thing which I think it is fair to say, is that the whole question of the taxation of insurance companies, particularly long-term insurers, is one about which there is a great feeling of unease. This morning I found to my horror that there was an editorial in a newspaper which said that in so far as insurance was concerned, the hon the Minister and I thought alike. [Interjections.] Now that is something which I find horrifying. [Interjections.] I want to quote the following from today’s Business Day:

Which is an unutterable untruth, by the way. I have never been in the insurance business at all, let alone as an executive. So much for the accuracy of this:

I find this to be the most horrifying statement that I have ever read! [Interjections.] It is absolutely unbelievable that anybody should make such a suggestion that this archcapitalist sitting across the way here should have something in common which a social democrat. I mean, where are we going? Really, it is an unbelievable state of affairs that there can be such inaccuracy in newspapers.

However, what is important and worries me about the hon the Minister—besides the fact that I do not want people to think I have anything in common with him about insurance either—is that there is a degree of uncertainty in the insurance industry about the hon the Minister’s intentions in regard to taxation concerning their industry. I think that is unfortunate.

My intention?

His intentions in regard to taxation concerning the insurance industry. [Interjections.]

Beyond this?

Yes, beyond this, and the principle in this. That is why I should like the hon the Minister to get up now, or after I have finished speaking, and give us some assurances in regard to his intentions, honourable or otherwise, concerning the insurance industry. We should like to hear from him what he intends to do.

Another thing which is quite fascinating, is that in the budget there was a levy announced on the producers of liquid fuel from coal. Now that is not in the Bill. It has gone and nobody has actually really told us why. I am not suggesting that it should or should not be there. I just find it fascinating that it has been announced in the Budget with a great flourish, just to disappear from the scene and in fact not be imposed. There must have been a good reason for this. In my own view—and I think I expressed it at the time—this was a mistake. I gave reasons as to why I regarded it as a mistake. I am pleased, therefore, that it is not contained in this Bill. However, I think the hon the Minister should now tell us why he abandoned it. So much for the bad news in this Bill.

Now we come to the good news in the Bill, and that relates to the question of estate duty. In this regard I believe the Bill contains provisions which are of importance. I believe they are to be welcomed generally. Some of them arise out of the Matrimonial Affairs Act and deal with the effects of that Act. They were, therefore, to be anticipated.

There are other aspects which I believe are noteworthy and with which we find ourselves in agreement. Donations between spouses are not going to have to be added back on the donor’s death for estate duty purposes. This, of course, follows logically on the further amendment that the inheritance of spouses is deducted for estate duty purposes. This in particular is a welcome provision because it means that the concept is accepted that as far as a transfer of an asset from, say, a husband who dies to his widow is concerned, should not be subject to money being taken away by the Exchequer. That money should remain as an entity while the wife is alive without the Exchequer taking away money which the deceased intended to leave for his wife. The hon the Minister of Transport Affairs must listen to this very carefully because it affects him. In this way the family asset is being kept intact during the lifetime of the surviving spouse.

One of the things that is going to result from this—if I may say so to the hon the Minister—is that a number of the devices which have been created in order to avoid estate duty through the creation of trusts and various other mechanisms are now either going to become superfluous or else they are going to have to be altered drastically because in my opinion this changes the whole position in regard to inheritance between husband and wife. It is certainly an amendment which we regard as being welcome. [Interjections.]

There is a question which I want to direct to the hon the Minister. It is provided for in the Estate Duty Act that a donation which is made by a company at the instance of a person is deemed to be a donation by that person. May I ask the hon the Minister whether he intends that a donation which is made at the instance of a husband through a company to his wife, should in fact fall into this category or not? Depending on the answer to this question, a number of implications will flow from that and will have to be considered.

The accrual which a deceased spouse will obtain under the new Act is to be part of the estate of that deceased spouse but there is, of course, no duty which is payable if the deceased leaves the accrual which he has received from his spouse to his surviving spouse in turn in terms of his will. That aspect has been covered and I think it has been done adequately.

The one matter which causes a little concern is the question of the R50 000 rebate for the spouse. The Bill provides that that is to be reduced by the amounts of the wife’s inheritance. However, if one does some calculations—and I do not want to burden the House with some of the calculations which I have done—one finds that other heirs who are not the spouse are prejudiced. Those heirs would have been better off with the rebate in full if one did not have this new provision. I wonder whether one should not give consideration to leaving the rebate in for purposes other than inheritance by the spouse because there it is academic. However, one should consider leaving it in for the purpose where people other than the spouse inherit or receive legacies in terms of the will. I believe that is a matter which needs to be looked at.

In addition to that I think that the rebates in regard to children have been lost in the fight against inflation. In my opinion those need reviewing because the R40 000 per child at this stage seems a little out of date bearing in mind the rate of inflation that has occurred. I would ask the hon the Minister to give that his attention. I would also ask him to give his attention to the deductions in respect of insurance and Government stock which I believe should be increased because they too are out of date as far as inflation is concerned. To talk about R50 000 in respect of insurance and R50 000 in respect of Government stock or R100 000 where there is no insurance is out of date in relation to the current rate of inflation.

I would also suggest to the hon the Minister that the provision regarding stock which is subject to exemption, which at present is only Government stock and certain Land Bank stock, should be extended. It should not only be Government stock. There is no logical reason, for instance, why Escom stock or Iscor stock should not be included because those two are State institutions. Even SATS stock should be included. There is no reason why it should not be done. This really goes back to the days when these institutions, with the exception of Escom, did not issue so much of their own stock because they were almost totally financed by the Government. I think we should have a look at that again to see whether there is not a case for an alteration here.

The amendment in clause 8 in regard to the release of the shares prior to the payment of duty is obviously welcomed by anybody, I think, who has administered an estate because it will make the winding up of an estate much easier and simpler.

We regard this Bill as a curate’s egg. There are parts in it which we find very good and which we welcome but there are some parts of it which would have been better left out by the hon the Minister because they really go against principle and are unacceptable.

Mr Chairman, if there was a surprise for me in this debate, it was to hear that there was something in which the hon member had not yet been involved. I mean that in a very good sense and I hope that is how he will take it.

The hon member objects to clauses 12 and 13 which deal with the levy on long-term insurers and the levy on banking institutions. The hon the Minister dealt with this fully in the second reading debate and we also reacted to it. In his reply the hon the Minister reacted to it again. I therefore do not want to speak to the hon member about it any further.

As far as the tax laws are concerned, it was also a pleasant surprise to hear from the hon member that good news can also be contained in a tax bill such as this one. I want to add that on 27 August 1981 I made a plea in this House that a commission of inquiry be appointed to conduct an urgent investigation on the advantages, but also the disadvantages of estate duty, with special reference to succession. I merely want to refer briefly to a few of the most important aspects I mentioned at the time. I quoted two examples which I should like to point out briefly once again. The first was that in 1979 no estate duty would be paid on an estate which consisted of a certain area of land and a certain number of cattle whereas the estate duty on an estate of the same size would have amounted to R32 800 in 1981. A second example to which I referred, was that in 1979 the estate duty would have been R22 500 whereas in 1981 it would already have amounted to R168 000 on an estate of the same size. The only reason for this is the tremendous increase in the land and cattle values in that period whereas the rebates did not keep up with the inflation rate in those few years.

I am afraid that if these two examples are calculated in 1985, one will find an even greater increase in estate duty as a result of further increases in the value of land and livestock. At the time I made the statement that if this escalation in estate duty was not checked, no son would be capable of taking over his father’s farm later. That is why all of us in this House are delighted, together with the hon member for Yeoville, that the hon the Minister of Finance—and therefore the Government—indicated in his Budget address that although the Margo Commission has not yet had time to give the necessary attention to the question of estate duty, great relief will be contained in this Bill. That is why we have this Bill before us this afternoon.

In terms of the amendment introduced by clause 4, all donations from the deceased to his spouse during his lifetime, as well as any donations he may have made in terms of a notarial contract, will not be taken into account for the purposes of estate duty.

Another amendment which is a direct consequence of the commencement of the Matrimonial Property Act, determines that any accrual to the estate of the deceased forms part of the property of his estate.

The last and perhaps most important amendment in this connection determines that any other amount that accrues to the surviving spouse will also be deductible in the determination of the net value of the deceased’s estate. I think it is a very great concession.

The effect of these amendments is that it will now be possible for spouses to transfer assets freely from the one to the other during the existence of the marriage without fear that estate duty will have implications for them or their heirs. All these amendments—this is also important—are applicable to the estates of people who died on or after 1 November 1984—in other words, only a few months ago.

There is even better news for our farming community which results from a further amendment. For a considerable period the executor of the estate of a deceased farmer has had the choice of calculating the value of any farming property either at its fair market value or at its so-called Land Bank value. If a farmer had built the farm in the name of the company, however, the executor had no choice. He had to assess the value of the shares in accordance with a fair market value of the property. The executors now also have the option to ask, in the case of shares in an unlisted company in possession of farming property on which bona fide farming was in progress, that the value thereof be determined taking the Land Bank value of the farm instead of its fair market value into account.

We want to thank the hon the Minister and the Government particularly for this concession. I call it an interim concession, but I do want to express the confidence that after the announcement of the Margo Commission’s report, something positive will be done to solve the problems in connection with estate duty for once and for all. That is why we on this side of the House should like to support the legislation.

Mr Chairman, the hon the Minister threatened me a little while ago with listing certain things about the Standing Committee on Public Accounts. [Interjections.] Now I am challenging that hon Minister. He wants to make the world believe things he cannot prove. I am challenging him. Let him have a commission of inquiry. [Interjections.]

Order!

Sir, I come to this Bill. When I look across the House, it looks like the drab Karoo in front of me. [Interjections.] At five minutes past three only 29 members of the NP were in the House. A few more have come now. They have to have a quroum, but do not have one. We Opposition parties have to make up the quorum.

Order! The hon member must please return to the Bill.

I want to tell the hon the Minister that as far as I am concerned, there is only one important clause in this Bill, viz the clause on estate duty, and I want to say something about it. [Interjections.] I do not know whether I should tackle the hon the Minister or thank him. I shall thank him. I think that is only right. [Interjections.]

I think the public is very grateful for this relief as far as estate duty is concerned. It is a very reasonable measure. I want to ask the hon the Minister, however, not to hesitate or delay any further. The matter is being investigate by the Margo Commission, but I think it high time that estate duty was abolished.

Hear, hear!

One should not be forced to pay tax twice. In fact, one pays it much more often than twice. [Interjections.]

If the hon the Minister’s income tax returns concerning the tax one pays during a lifetime are in order—the department does have records which are kept—and if one has paid tax properly during one’s lifetime, there is no reason for one still to pay estate duty after one’s death. Provision can be made for people who have evaded tax during their lifetimes and whose returns are not correct when they die. These people can be assessed for estate duty, for actually it is their outstanding income tax. I think all of us—I include myself—will be grateful if estate duty is abolished.

Mr Chairman, the hon member for Sunnyside has eventually said something one can agree with this afternoon.

You must say something one can agree with too! [Interjections.]

I shall tell the hon member for Rissik this: In the NP the concern is not quantity, but quality. [Interjections.]

I agree with the hon member for Sunnyside that as far as estate duty is concerned, we are now moving in a direction which will probably give everyone in this House great pleasure. I think, however, that the arrangement which is being effected in this legislation is not valued nearly highly enough. I think the public of South Africa really owes the hon the Minister a great deal of thanks for this ruling now contained in this legislation, as far as gifts to spouses and the effects these will have on estate duty are concerned. I want to use this opportunity to convey my sincere thanks for this.

The hon member for Yeoville is very worried about the R100 million that the banks have to pay. He compares it with the R103 million which will be lost if interest is not collected as a result of the special legislation in respect of the Sishen/Saldanha railway line. I truly thought we had dealt with that problem yesterday. The question was put to the hon member as to whether he wanted to close the railway line with all the detrimental effects this would have, and whether he was prepared to keep the railway line open. Today that hon member has come with the same arguments on how one could apply that R100 million.

The hon the Minister put it very clearly in his Budget Speech, however, that he had no choice other than to look at certain sectors which have to make a greater contribution to the Treasury—he said this too—on an ad hoc basis. For that reason he simply had to look at the long-term insurers and at the banking institutions. He stated very clearly that this would take place for only one year.

I should like to return to certain questions I asked the hon the Minister. Actually I want to respond to this myself by referring to the Act. In the discussion of the Finance Vote I put four questions to the hon the Minister. I asked him—the banks asked him this too—for this levy which can be regarded as an ad hoc tax, to be regarded as an expense. Secondly we asked for this levy to be deducted in two instalments in the course of two years. In the third place we asked for inter-group deposits to be taken into account in the calculation of the deposits upon which the levies are placed. In the fourth place we asked for the levy of R100 million to be taken into account in the determination of future capital requirements There was the rumour that banks’ capital requirements would have to rise considerably.

If one considers the provisions of the legislation before us, it is very clear to me—it is also stated in the legislation—that this levy will be deducted as an expense. We thank the hon the Minister for that. It is also very clear in the legislation that the payment of the levy will be able to take place in two instalments. On behalf of the banks I should like to thank him for that too.

There was no response to the third aspect, that of inter-group deposits, and it is very clear to me why not. It is because in reality one does not want to move to further conglomerates of banks, but rather wants to support the independent banking institutions. The hon the Minister did not comply with my request and I want to tell him I can understand very well now why he did not do so in this connection.

As far as the last point is concerned, the question that the levy will be taken into account in future capital requirements, it is clear to me, after speaking to some of our senior officials, that it will be taken into account in the phasing in of new capital requirements, but that it will not be placed against capital requirements as a credit. This aspect in connection with banking institutions is a very important arrangement made in this legislation. I should like to thank the hon the Minister for the clarity we now have.

Mr Chairman, the hon member for Yeoville has done his usual competent job of dissecting this Bill into all its component parts and then promptly chewing them all up and swallowing them, leaving very little for anybody else to talk about. However, there are a couple of points he raised I should like to enlarge upon.

One in particular is in respect of the special levy for banks. As the hon member for Yeoville clearly indicated, this involves a principle. I would like to take further what in my view is being done here. A charge is being levied on money which does not even belong to the bank, because it is the depositors’ money. That is really what it is. The money is the stock of the bank, which it uses to earn its income. If this is going to be accepted as the principle—and I hate giving the Minister any new ideas—it is almost like levying a charge on consignment stock of any other business. This is virtually what it is. It is not their money. It is money which is deposited with them by the public and they are being debited on their money. In my opinion it is totally wrong and it certainly seems quite against any principles we have involved ourselves in before. If there were a huge sum involved, maybe there could be some excuse for it if we were in a somewhat difficult situation. However, for such a relatively small sum it does seem quite wrong.

The hon member for Yeoville was most upset at the idea of it being suggested in a newspaper that he and the hon the Minister of Finance had something in common. I really cannot understand why he should be so upset, because I think in a way those two gentlemen are both social democrats: One is a National social democrat, and the other is a Progressive social democrat. As far as I can see, the object of both gentlemen is to play a little Robin Hood game in taking away from the more affluent to give to the poor. So, I really cannot see why there should be this uptightness about being seen to have something in common.

Do you want to take from the poor and give to the rich?

Absolutely!

The hon member also indicated, with some vehemence, in fact, that he was not an insurance executive and had never been one. I should like to tell the hon member for Yeoville that some of the insurance executives are really rather nice people. [Interjections.] I want to point out to the hon member for Yeoville that some of these insurance executives are very nice people. Some of my very best friends are insurance executives. The vehemence with which he expressed his abhorrence at the idea of being considered one, is something I cannot really comprehend.

There is one other point I want to raise, which was also raised by the hon member for Yeoville. It is very difficult to make an impact when somebody is forever stealing your thunder. However, I want to point out that the allowances made in respect of estate duty are totally inadequate when inflation is borne in mind. Whilst I appreciate that the State needs funds and that there is a certain amount of social justice in ensuring that there is a redistribution of some people’s wealth from time to time, I do feel that with inflation this particular type of tax is damaging the estates of people whom it was never originally intended to hurt. I cannot help but feel that in spite of the inclusion of aspects relating to matrimonial law in this Bill, the amounts concerned should be reviewed and in my view substantially increased.

Mr Chairman, I think the hon member for Yeoville’s exposition relating to the reliability of certain newspaper reports is quite adequate and that I need not add to it. I fully agree with his comments with regard to the particular newspaper report he mentioned.

They referred to a debate in Parliament which never took place.

Most unreliable. I do not even want to try to justify today the levy on banks and insurance companies on the grounds of any principle because this kind of taxation is not desirable. We did not resort to instituting these levies because we thought that it would be an appropriate source of revenue. However, there was nowhere else to obtain the revenue from. We could not increase any of our other sources of revenue and we were still short of certain amounts. The only question which remained was to find a formula on which to base the two levies. I therefore think it should be quite clear to the hon member for Yeoville …I wonder if I can have his attention for a moment?

I am listening carefully to every word you are saying.

I am inclined not to believe that the hon member can read attentively and listen attentively at the same time.

I want to repeat what I have just said because I want the hon member to understand the situation properly so that he can tell the people who raised these doubts with him what the position is. I have no other intentions whatsoever as far as insurance companies are concerned. I am waiting to see what the Margo Commission has to say on the issue, but as far as taxation for this year is concerned exceptional circumstances pertain. I know the action is undesirable and ad hoc and I am not even going to spend time arguing the merits of it. We believe the formulae we are applying are the fairest we could devise under these very difficult circumstances.

The hon member commented on the example I gave, but what is the use of adding extra zero’s when one wants to explain something in a simple way? I think the hon member must interpret it in that way. As far as the fuel levy is concerned I received representations and agreed with my colleague the hon the Minister of Mineral and Energy Affairs that he will make good that amount from the network of companies and fuel funds which are controlled by his department. From that source we shall be getting the equivalent amount. I do not think it is necessary to pursue it any further as far as Sasol is concerned.

Will it be a loan?

No, we are not getting it as a loan. It is a transfer of funds. If the hon member would like to have the details he should approach my hon colleague because I think he is the only person in South Africa who understands that matter.

As far as estate duty is concerned I think it should be abundantly clear that that patient is terminally ill. If anybody reads the comments contained in the Budget Speech with any imagination and he is a person who makes his living out of planning estates for the purpose of minimizing estate duty, he would be well advised to find himself another skill and very quickly too. It should be abundantly clear that the patient being terminally ill, we did not mess around with adjustment at this stage. We did, however, refrain from certain actions with a view to preventing estate duty from being increased at this stage, and that was the best we could do under present circumstances.

As far as donations to spouses via a company are concerned, we shall look into that one. The main purpose of this measure was to be anti-avoidance. The other implications of the measure have not as yet been analysed, and we shall do that.

*I thank the hon member for Smithfield for his contribution and for his appreciation for the concession in respect of estate duty. He too, is one of those people who has been pleading for many years for the abolition of or changes to the present system.

The hon member for Sunnyside, too, spoke about estate duty and said that the people outside would be pleased with this measure. I think the hon member should look around him a little because there are people in this House, too, who will be pleased with this measure. It does not apply only to the people outside.

I thank the hon member for Paarl for his contribution. We take note of his pleas.

†For the sake of the hon member for Umbilo and on account of the fact that he also referred to the banking levy, let me reiterate that I can give him the assurance that it is not our intention to introduce a new principle into South African banking or to tax South African insurance companies. The fact is that we had to exploit these resources too in order to address the fundamental requirement which we set ourselves in the design of the Budget, and that was to fund the Budget properly. In this way we will be making a contribution towards getting the South African economy back on its proper rail again. That is also in the long term interests of the savers who invest their money with the insurance companies, for example. We can perhaps argue about the details of the various formulae which we used in order to levy these amounts but basically we too find this practice undesirable, and hopefully it will be a one-time levy only. This is definitely not the establishment of a precedent or a new principle.

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

1. 1. On page 2, in line 9, to omit “2” and to substitute “4”.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 3:

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

1. 1. On page 4, in line 13, to omit “2” and to substitute “4”.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 5:

Mr Chairman, I should like to ask the hon the Minister if he will be so kind as to deal with the new paragraph (q), inserted by clause 5(b). The wording of that paragraph reads as follows:

That is fine, but it goes on to say:

In other words, this paragraph refers to the amount of the property which accrues to the deceased. This is intended to include property as defined in the Estate Duty Act, as it obviously must, but does it also include property which is deemed to be property of the deceased? This becomes material in the sense that there are provisions in respect of the deeming clauses where for example the wife is a beneficiary in respect of a benefit which is deemed to be property but which is not property in the definition sense. I am concerned that the word “property” here does not only include property in the ordinary sense of the word but also the “deemed property” of the deceased. I would merely like the hon the Minister’s assurance on this.

Mr Chairman, the hon member’s interpretation is correct in that it includes deemed property.

Mr Chairman, arising further out of clause 5, obviously we welcome the fact that now, under the Matrimonial Property Act, an accrual to a spouse will not be subject to estate duty. However, with that principle I think one is accepting that the husband and wife are really one team, one family and that nothing is really going out of the family. On that basis there may be the transfer of, say, immovable property. Assuming that in terms of the accrual the husband donates to his wife immovable property which requires registration in the deeds registry, this will in turn entail paying transfer duty and stamp duty and the registration of a transfer in her name in the deeds registry. Is that the situation or can we dispense with all those duties so that the registrar of deeds need only note the transfer on the title deed?

Another point in connection with the specifications in terms of section 3 of the Matrimonial Property Act concerns a donatio mortis causa. What about a donation during the lifetime of the spouses, which is now permitted by law but was not allowed some time ago? Would such a donation also be free of estate duty should it accrue or would estate duty eventually have to be paid?

Lastly, as far as estate duty itself is concerned, I think it is high time that the hon the Minister reviewed the R50 000 limit to begin with, as well as the allowances per child as deductible amounts for the purpose of estate duty. I think this amount has stood at R50 000 for a number of years now. I am not quite sure and I have not been able to calculate how long that has been the amount but it is a good five or seven years, as far as I can remember offhand, having worked with estates, that this amount has stood at R50 000. In view of inflation and the value of currency, I think it is high time that we revised that limit with a view to making a larger amount deductible from estate duty.

Mr Chairman, could the hon member just repeat his second point? It was very difficult to hear exactly what he was asking.

The second point is: Is it not time that we reviewed the amounts which are deductible for estate duty purposes?

That was your third point.

I asked whether a donation would also be free of estate duty if it is not made in terms of section 3 of the Matrimonial Property Act but as a donation during the lifetime of the spouses.

Mr Chairman, the reply to the first point of the hon member is that the duties he mentioned are in fact payable, but consideration thereof will have to stand over and a reply cannot be given right now. As far as the duties are concerned, therefore, it means the status quo is maintained. The reply to the second question about the donation, is “yes”. As regards the third question, I have already referred to the rebates. We did not deem it necessary at this stage to adjust the rebates for the reasons I mentioned earlier. Secondly, with the position as it is now, estate duty has not been increased, and we reckon that that is to the benefit of the beneficiaries anyway.

Mr Chairman, I have a problem with the answer which the hon the Minister has given because I do not think any transfer duty is payable by a surviving spouse in respect of an inheritance from the estate, and I should like to refer the hon the Minister to section 9(1)(f) of Act 40 of 1949.I quote:

1. (i) no duty shall be payable in respect of the acquisition of property by—
   1. (f) a surviving spouse in respect of property acquired in any manner from the estate of the deceased spouse;…

So, I should venture to suggest—unless I have the wrong Butterworths—that I am right that there is no transfer duty payable when there is an inheritance or legacy of immovable property by or to a surviving spouse.

The hon member has the correct Butterworths but the wrong time of transfer. The hon member referred to a transfer taking place during the lifetime of both spouses.

A donation, in other words?

Yes, a donation and the transfer duty connected to that.

Clause agreed to.

Clause 6:

Mr Chairman, I was fascinated to hear that the hon the Minister regards estate duty as a terminally ill patient. If a patient is terminally ill, it is merely a question of time as to when he will die. That is as I understand it.

Except if he comes to me.

Except if he goes to my colleague the hon member for Parktown. [Interjections.] Now, I am not going to send estate duty to my hon colleague from Parktown. However, the point that I want to make to the hon the Minister is, having said that—I do not think we can ignore what he said because I do not think he would say it lightly—we now have a situation where in fact, if one is unfortunate enough to die while the estate duty patient is terminally ill, one’s spouse is going to pay estate duty, but if one can hold out long enough until the machinery of Government gets to work in order to repeal estate duty, or rather have the death of it—if one could use that unfortunate phrase—then one will not pay duty. I think that is a very undesirable state of affairs. If this patient is in fact terminally ill, the hon the Minister should apply the principle of euthanasia and actually kill him right now today. [Interjections.] Deal with him now! I think it is wrong to say if one can manage to survive for another year one will not have to pay estate duty, but if one is unlucky and is going to die this year, it will have to be paid. [Interjections.] I think that is a bad principle.

Order! Is there a doctor in the House?

Yes, there is a doctor in the House. I should like to appeal to the hon the Minister that he should actually now say to the public: “This patient is terminally ill and I am killing it now; I am going to legislate in order to deal with it retrospectively. You can now rest assured that estate duty is at an end.”

However, I want to issue a word of warning. If the State is going to do away with estate duty, we have to look at what is possibly going through the hon the Minister’s mind as to what is going to replace it. [Interjections.] That is the issue. Therefore, let him stand up now and tell us what is in his mind. With what is he going to replace this terminally ill patient? He must tell us what is coming, what he has up his sleeve, what he has in mind.

There are two things which one has to bear in mind—and I believe it is fair to mention this. If one has a situation where somebody manages by means of the manipulation of the tax system and the use of allowances to pay no tax at all during his lifetime, then I want to know if that person will now forever not have to pay any tax. That is very important. [Interjections.] the hon the Deputy Minister raises the question of capital gains tax: I think the hon the Minister must tell us whether that is not what he really has in mind. Does he not intend saying that he is doing away with estate duty but coming with a new kind of tax which is going to be much worse than estate duty? We may all well be lulled into a false sense of security by this statement that this patient is terminally ill. It may well be that this fairly good-looking patient who is ill but with whom we have all learnt to live over many years, will be prelaced by a new patient who is going to be a Frankenstein and who is going to live for a very long time. So, I believe that the hon the Minister, having gone this far, now has to go a little further.

Mr Chairman, I will tell the hon member for Yeoville what I have in mind. I have in mind to listen to the Margo Commission. That is what I have in mind. [Interjections.] I clearly said in the Budget Speech that estate duty as it is now is undesirable and that the Margo Commission is looking into that at the moment.

I do not want to go into all the aspects which we all know are not good, but I must say that I was very interested to hear the hon member encouraging me to introduce legislation with retrospective effect. It is incredible! It is thus clear that the hon member also has a good degree of pragmatism in his mind, but when I choose to be pragmatic in legislation, then it is wrong. When I choose not to send something to the Margo Commission before I announce it, it is wrong. However, when the hon member feels that it is time to announce something without waiting for the Margo Commission’s recommendations, then it is right.

I believe that the legislation on this particular issue of estate duty is intricate and has a long and also sad history. In my opinion it would be very unfair to abolish it unilaterally without knowing exactly what kind of tax system we shall have in the future, because obviously we shall be forfeiting a source of revenue. In our view, as a Government, this system is at the moment not functioning as it should and is antiquated. I do believe, however, that that with which it will be replaced will certainly be much fairer. We will have to wait until the Margo Commission feels itself qualified to make a recommendation on this particular issue.

Mr Chairman, I should just like to deal with this question of retrospectivity, if I may, because the hon the Minister could not resist the temptation to endeavour to score a debating point which is rather invalid. Let me put a very simple point to him. We have accepted the practice repeatedly that where the hon the Minister makes an anouncement that he is going to do something from a certain date in the future, we then ratify it from the date of the announcement. The hon the Minister can never say that we have not accepted that practice.

You accused me of retrospective action.

In regad to what?

Legislation.

I think the hon the Minister has it wrong. The principle of making an announcement and saying that this is what one is going to do and then having the legislation later is something completely different to legislation retrospectively to ratify something which one did not announce one was going to do. Saying that one is going to grant relief by abolishing estate duty with effect from today but the legislation will come next year is a completely different thing to saying the following year that one is taxing people retrospectively for something one did not tell them about the previous year. It is a completely different concept and I think the hon the Minister knows full well that that was a rather invalid and cheap debating point.

The problem that arises is actually a serious one and has to be dealt with seriously. We have a situation where the rebates are inadequate because of inflation and the deductions are inadequate because of inflation. In respect of those who die before it is changed, it will be to the disadvantage of their heirs and their children. It does not apply to spouses, but it certainly is to the disadvantage of their children and their other heirs. It seems unfair that they should be in such a disadvantageous position if it is the intention to do away with this form of tax altogether. That is why in all seriousness I say to the hon the Minister that, since the Margo Commission is due to report by June next year, if we are going to have legislation next year which is going to abolish estate duty, I think the relief from that should be given as from today where the Minister made it clear in this debate that estate duty is terminally ill. That the plea I make. It is not a question of asking for retrospectivity in any way.

Mr Chairman, I just want to respond to the hon member’s remarks. It has been clear since the Budget Speech that estate duty is going to be abolished at some stage, but not from today. I did not deem it necessary to elaborate on the other leg of the argument, namely why we did not deem it fit to adjust the rebates. That is purely a revenue consideration. It is a fact that we cannot make that kind of adjustment as it will lead to a decreased revenue for us at this stage.

The fact is that it happens every day that, when a form of tax is instituted or some kind of levy is imposed, people are at a disadvantage on account of the fact that they were either dead or not available or not in employment any more. That is a fact of life. If one buys something today and GST is abolished tomorrow, then one is at a disadvantage. This is simply a fact of life and the Government cannot accept that, as a matter of principle, it should, in all those cases, compensate all those individuals who are adversely affected.

If the hon member wants advantages to accrue to people who die in the interim period, I shall have great difficulty in fixing a proper date, but next year we shall have the opportunity to take this matter up again. Let him argue his case then, when we have before us the exact legislation as it will be formulated eventually.

Clause agreed to.

Clause 10:

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

1. 1. On page 8, in line 12, to omit “2” and to substitute “4”.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 11:

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

1. 1. On page 8, in line 21, to omit “2” and to substitute “4”.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 12:

Mr Chairman, I shall be very brief. When we debated this, we voiced an objection to it. It is actually the first time I can remember that a Minister of Finance has conceded that what he is doing is against principle, is actually ad hoc and is actually wrong. That is a welcome admission on his part, although it does not make it right. Unfortunately, we shall have to vote against this provision. The reality is, however that he should not have done it and he knows it. So we shall vote against this clause.

Clause agreed to (Official Opposition dissenting).

Clause 13:

Mr Chairman, we are against this clause for the same reasons I advanced during the Second Reading. The same admissions were made by the hon the Minister, and we will vote against this clause.

Clause agreed to (Official Opposition dissenting).

House Resumed:

Bill, as amended, reported.

Bill read a third time.

Fair copy of Bill certified and transmitted to the State President for his assent.

Mr Speaker, I move:

This Bill simply gives effect to the recommendations contained in the First Report of the Standing Select Committee on Pensions which have already been accepted by all three Houses of Parliament.

Second Reading resumed

Mr Chairman, I rise to say that we will be supporting this Bill.

Mr Chairman, I also rise to say that we on this side of the House will be supporting the Bill.

Mr Chairman, this party also supports the Bill.

Mr Chairman, I thank all hon members of the Opposition parties for supporting this Bill.

Mr Speaker, I move:

Mr Speaker, the Bible Society of South Africa Act, 1970 (Act 15 of 1970), was originally introduced in the House of Assembly by the then Prime Minister. Since the State President, who now also performs the duties of the then Prime Minister, is no longer directly concerned with the introduction of Bills or amending Bills, it has been decided that I, as Minister of National Education, should introduce this amending Bill.

*The initiative for this statutory amendment originated with the Bible Society of South Africa. The statutory amendment seeks to sever the Bible Society juridically from South West Africa. The Administrator General of South West Africa is in agreement with this measure. It can be done by deleting the definition of “Republic” in section 1 of the Act and section 23A in its entirety the Act will then read as it originally did, that is before it was amended in 1975 by the General Law Amendment Act, 1975.

Second Reading resumed

Mr Chairman, we have no objection to the Bill.

Mr Chairman, I rise simply to say that the CP supports this legislation. We are grateful for the work being done by the Bible Society and trust that the good work they are doing will be continued. In fact, one is grateful that in the world in which we live today we still have people to do this particular work, and that this message is still being directed at the modern ear.

Mr Chairman, we in these benches, being fully appreciative of the excellent work that is done by the Bible Societies, will support this legislation.

Mr Chairman, we have pleasure in supporting this Bill. I should also like on this occasion to thank everyone who participated in the work of the standing committee, particularly the Director-General of National Education and his staff in the light of the fact that with the start of the next session, they will have a standing committee of their own.

We on this side of the House would also like to thank the Bible Society of South Africa and the Bible Society of South West Africa very much indeed for the great job of work they are doing in promoting the Bible in South Africa. We have pleasure in supporting this measure.

Mr Chairman, I thank hon members for their support. I have pleasure in associating myself with the tributes they paid to those involved in the promotion of the Bible as well as with their expressions of thanks to the department and everyone involved in this matter.

I just want to give the assurance that there is no danger as a result of this amending Bill that the promotion of the Bible in South West Africa will be adversely affected. A proper indigenous organization and infrastructure has been established in that part of Southern Africa, and there is also sound Southern African co-operation. This legislation is actually purely a formal measure. With these few words my grateful thanks to everyone for their support.

Mr Speaker, I move:

The Bill before us deals mainly with special pensions payable to members of the pension scheme who previously held offices. Members will recall that special pensions were introduced lasty year to serve as an incentive to experienced office-bearers to stay on as ordinary members when they resign their offices.

Furthermore, special pensions had to ensure that former office-bearers would not be prejudiced financially when they eventually cease to be members. Experience has shown, however, that in certain cases special pensions miss these objects and that a member may financially prejudice himself by accepting a special pension. For instance, a member who has less than 15 years’ pensionable service to his credit, but held an office for 12 years or more, will always be better off by resigning his seat and by taking the full pension to which he is entitled. If such a member stays on as an ordinary member, instead of resigning altogether, he will not be entitled to the full pension if he retires before reaching 15 years’ pensionable service. In order to remedy this situation, provision is now being made in clause 2 to pay to such member the better benefit, as set out in that clause, at the end of his membership.

Another purpose of a special pension is to compensate a member for any loss in income when he resigns his office but stays on as an ordinary member. While such member remains an ordinary member, the payment of a special pension is, to my mind, fair, equitable and fully justified. It is, however, not so if such member again assumes an office. Provision is now being made in clause 3 for the suspension of a special pension if the beneficiary again assumes an office of equal or higher standing.

The purpose of clause 4 is to confirm the limits which ordinary and special pensions may not exceed. It will be noted that if a member is only entitled to ordinary pensions the limit is determined subjectively; that is to say, the total amount payable is based upon the highest salary actually received by him during his membership.

In the case of special pensions on the other hand the limit is determined objectively. A member’s salary plus special pension, or in the case of a pensioner, his ordinary pension plus special pensions, may not exceed the salary attached to the highest office held by him during the period of his membership.

I need not say much about clause 1. The definition of “highest office” is necessitated by the amendments contained in clauses 3 and 4. The reasons for further defining “special pension” are set out in detail in the third paragraph of the memorandum. Suffice it to say that if the pension concerned is not regarded as a special pension but stopped altogether, it will seriously prejudice the member concerned and will be a negation of his vested rights.

Second Reading resumed

Mr Chairman, I do not wish to devote a lot of time to this measure.

I think there are three principles in this Bill. The first is that a person should not be penalized because he wants to continue working and, as I have indicated in the past, I think this is a very sound principle which I think should also be applied to persons who do not hold office. The second principle is that one should not eventually end up with a pension which is higher than the salary attached to the highest position one held. We have no problems with that principle. The third principle is that if a person receives a special pension because he has retired from a position, he should not get both the pension and the additional salary if he should resume that position. We have no difficulty with that and we support the Bill.

Mr Chairman, this Bill makes provision for pension arrangements for persons who are for example promoted from one of the Houses of Parliament to the President’s Council, and vice versa. It also governs the pensions of persons who change office in the three Houses of Parliament. I should like to ask the hon the Minister whether a person is receiving promotion if he goes from here to the President’s Council, or whether it is the other way around.

As the hon member for Edenvale said, the most important principles of this legislation are firstly that no person will eventually be worse off as far as his pension is concerned if, after he has retired from a higher office, he continues to occupy a lower office.

In the second place, the legislation provides that when a person becomes entitled to a special pension as a result of his occupying a high office, and then retires later after further service, the pension paid to such person shall not be higher than the remuneration received by the present incumbent of that office.

The intention of the pension scheme established in terms of the Members of Parliament and Political Office-bearers Pension Scheme Act, 1984 was that a member’s special pension plus the salary attached to the highest office occupied by him in respect of which the pension is payable, shall not exceed the salary. On the other hand, this Act also provides that the payment of a special pension may in some cases even be suspended.

In our opinion these provisions of the Bill will result in a de facto saving for the Exchequer. For this reason alone we support this Bill. We shall oppose the present constitutional dispensation in every respect in which provision is made for power-sharing and integration.

Mr Chairman, without commenting at all upon the hon member for Pietersburg’s last sentence, I rise simply to say that this side of the House supports this corrective legislation.

Mr Chairman, in reply to the hon member for Pietersburg, I think I can tell him that he need not worry about his seniority. The latest protocol rankings show that members of the President’s Council and MP’s are in the same category and that each is judged individually on his own seniority. So, the hon member need not worry: It is not promotion; it is sideways promotion.

That is all I stood up to say. We support the measure because it makes it possible for more sideways promotion to take place. I can think of a few hon Ministers who could be promoted sideways. They would not lose any money and we might get more efficient Ministers in their place.

We are not looking at you, Lapa!

No, I am not looking at any hon Minister in particualr. As I say, this does enable an hon Minister to resign and continue to sit in the House as an ordinary member and draw a pension on the difference between the applicable salaries.

There are other minor changes, which we support, and we support the Bill.

Mr Chairman, I rise merely to thank the hon members for Edenvale, Pietersburg, Wellington and Durban-Point for their support. I want to tell the hon member for Pietersburg that I have no objection to the fact that he makes use of every opportunity to oppose the new dispensation, as long as he keeps his speeches as brief as this one today.

Hon members identified the problems. I think that all this Bill seeks to do is to ensure that a person cannot draw double benefits. In regard to the question of promotion, I want to say that when I retire I shall write to the hon member personally and tell him how I feel about the matter, in the event of my finding myself in that position at some stage. I thank hon members.

Mr Speaker, I move:

Seventy-seven years ago, during October 1908, the National Convention consisting of 33 delegates from the four former colonies, met in Durban for the purpose of uniting the colonies and drafting a Constitution for the Union of South Africa. The convention was assembled for a long time and there were many issues which had to be resolved before an agreement on Union could be finalized. The question concerning the seat of Parliament was one of the thorniest problems which stood in the way of unification. It is now part of our country’s constitutional history that a compromise was reached in regard to this relatively subordinate matter, so that the greater objective of unification could be jointly attained.

One of the conditions for establishing the Union of South Africa on which the Parliaments of the four colonies agreed was that Cape Town would be the seat of the legislative authority, Pretoria the seat of the executive authority and Bloemfontein the seat of the judicial authority. This agreement on the division of the seats of State authority is still being honoured and perpetuated in the Republic of South Africa Constitution Act, 1983, in sections 29,36 and 68(3).

†Section 36 of the 1983 Constitution declares Cape Town to be the seat of Parliament. Because this section is not qualified and in this respect differs from section 29, in terms of which Pretoria is the seat of Government except insofar as the sessions of Parliament require the Government to be in Cape Town, it may mean that all parliamentary functions are to be performed in Cape Town. There are, therefore, reasons to doubt whether a parliamentary committee has the power or may be authorized by the Houses to meet and to work at any other place other than Cape Town, if it should be necessary or expedient for such a committee to do so. Furthermore, there are grounds for doubt as to the applicability of the Powers and Privileges of Parliament Act, 1963 (Act No 91 of 1963), in the case of a parliamentary committee which performs its functions beyond the precincts of Parliament or, as any standing committee is authorized to do, performs its functions while Parliament is prorogued.

The object of clauses 1 and 2 of the Bill is the removal of the doubt by the insertion in the Powers and Privileges of Parliament Act, 1963, of a provision which expressly makes that Act applicable to a committee in the circumstances referred to above, and by the insertion in section 64 of the Constitution of a provision under which a joint committee, which in the constitution includes a standing committee, may be authorized to meet and work at a place outside Cape Town.

*One of the most interesting and challenging posts in the new constitutional dispensation is that of Chief Whip of Parliament.

The Chief Whip is expected to have specific unique characteristics since it is his task to co-operate with the approximately 10 political parties in the three Houses of Parliament so that the parliamentary business can be synchronized among the three Houses. I think that all members of Parliament realize, at the end of this first full working session of the new dispensation, how important a role the first Chief Whip of the newly constituted Parliament, the hon member for Tygervallei, has played and continues to play in the successful implementation of the 1983 Constitution. On behalf of the Government and on behalf of all parties, particularly too on behalf of the Whips, and I am certain I am also speaking on your behalf, Mr Speaker, and on behalf of the staff of Parliament with whom the Chief Whip has to co-operate so closely, I should like to thank him for the excellent way in which he has fulfilled his task in a new and unexplored terrain, which is well-planted with potential political landmines. To be able to carry out the functions of the Chief Whip properly, it is necessary for him to be entitled to sit in any House of which he is not a member and to speak on the arrangement of business there. The amendment to section 65 of the Constitution, which is being proposed in clause 3 of the Bill, will confer such a right on the Chief Whip.

This measure is uncontentious and I am certain that all parties in Parliament will pledge their support for it.

Second Reading resumed

Mr Chairman, the Official Opposition will support the Bill. What is important about the Bill is that it is now accepted that being a member of Parliament is going to be a full-time occupation. What is more, Parliament will also carry on with its work away from Cape Town, the normal seat of Parliament.

There are three provisions in the Bill. The first relates to the powers and privileges of Parliament. It is clear from section 64 of the Constitution that the new committee system is part of the entire working of the parliamentary system as such. Therefore, the powers and privileges of Parliament will also apply when the standing committees are meeting, which could be in Pretoria, where we understand they will meet, or anywhere else in South Africa. As I say, the provisions of the Powers and Privileges of Parliament Act will also apply to those meetings. For instance, I do not think a summons could be served upon a member of Parliament while he is in a standing committee. A breach of privilege in respect of the ethics of Parliament would also apply in standing committees. Just as a breach of privilege in Parliament can lead to steps being taken against a member, so a breach of privilege in the standing committee could lead to steps being taken against him. Therefore, accepting the principle that the standing committees are merely an extension of the work of this Parliament, we approve of that provision.

The second clause makes it clear that the standing committees can operate away from Cape Town. I think it is common knowledge that provision will be made in Pretoria, particularly in the Union Buildings, for standing committees to meet there. I have not yet had a chance to see what the Government has done to the Union Buildings to provide committee rooms, refreshment facilities and other facilities for members. However, I shall inspect those facilities as soon as I get back to the Transvaal. Adequate facilities must be provided to enable standing committees to do their work there. This entails a lot of administrative work and organization. It means that members of Parliament have to obtain accommodation and transport. All the necessary facilities must be made available to enable the standing committees to operate successfully in Pretoria.

Lastly we have a new provision which will enable the Chief Whip of Parliament to speak in any House. The hon Chief Whip of Parliament is sitting opposite me at the moment and I just want to say that he has earned our respect with regard to his administration of the affairs of Parliament. He has tackled a new job which has never been done before and has had the unenviable task of correlating the work that has to be done by three separate Houses sitting simultaneously and with different sitting hours, with the same Ministers virtually having to play musical chairs to be able to attend debates in the various Houses relating to the matters they are responsible for. He has had problems which we can well understand but by and large he has coped with them very well.

What is interesting is that the clause we are being asked to approve now will allow the Chief Whip of Parliament to participate in debates in any of the three Houses. This is a welcome provision because I think it brings the members of the three Houses closer together by way of common debate. I sincerely hope that this is the forerunner of joint sittings where all members of the three Houses can participate in discussions. Since this privilege is going to be given to the Chief Whip of Parliament, perhaps we will also see our way to clear to having Mr Rajbansi or the Rev Hendrickse, as Cabinet Ministers, participating in debates in this House. We have been here for a whole session and we have hardly seen those Cabinet Ministers, except for one appearance, and we would like to hear them participating in debate in this House. [Interjections.] Of course they can. I am not saying they cannot, but only that we would like to see them taking their place in this House and taking part in debates. In these circumstances we will support the Bill before us.

Mr Chairman, in terms of section 36 of the Republic of South Africa Constitution Act, Cape Town is the legislative seat of the Republic. This means that Parliament, which is the highest legislative authority in the country, has its sittings here. With the new dispensation, and particularly with the implementation of the standing committee system, the possibility has however arisen that it may be necessary for parliamentary committees to meet elsewhere than in Cape Town during the recess. This has caused doubt to arise in regard to the validity of resolutions that may be taken at such committee meetings. In order to eliminate this doubt, clauses 1 and 2 of the Bill provide that parliamentary committees may meet lawfully elsewhere than at Parliament or in Cape Town.

As a Capetonian I have pleasure in supporting the two clauses on the distinct understanding that they will in no way detract from the provision in the Constitution that Cape Town will continue to remain the legislative seat of the Republic.

In the case of Pretoria which is the executive capital, specific provision is made in the Constitution that the Cabinet may meet and function elsewhere than in Pretoria, namely in Cape Town during sessions of Parliament. There is unfortunately no similar provision as far as Parliament is concerned, and it is in order to rectify this shortcoming that these clauses are being included. As little as the provision in respect of the executive authority will result in Pretoria’s no longer being the executive capital, as little do I believe that these clauses will result in the fact that doubt will arise in regard to the question of whether Cape Town is the legislative capital of the RSA or not.

As far as the third clause is concerned which provides that the Chief Whip of Parliament may participate in the discussion in all three Houses of Parliament, I wish to refer to the fact that I have already on occasion this year advocated that the Chief Whip of Parliament be a member of the Cabinet so that, inter alia, he may be vested with the powers of a Cabinet Minister with a view to liaison among the three Houses.

The hon the Chief Whip of Parliament has done an incredible job of work during this session. He has done pioneering work. [Interjections.] It is largely thanks to him that the new system was able to get under way so smoothly and that it has already proved to be a great success during this session. I do not know how the hon the Chief Whip has succeeded in arranging the business of the three Houses of Parliament as efficiently as in fact he has without the authority which is now being given to him in terms of this clause.

This power is absolutely necessary for the efficient implementation of the duties of the Chief Whip of Parliament. It is also a suitable tribute to the hon Chief Whip for the work he has done during this session.

From this side of the House I have pleasure in supporting the Bill.

Mr Chairman, unless my memory fails me, a book appeared a few years ago which I think was a compendium of works by Dawie, a well-known and, to some of us, notorious feature writer of Die Burger. In the book there is reference, inter alia, to the young Transvaal leader who speculated on the idea of moving Parliament from Cape Town to the North. This columnist then made a story out of that fact to show what the possible results of such a step could be. I did not fully agree with it because we as Transvalers think that Pretoria is quite capable of taking care of all of these matters.

When the hon member for Mossel bay was putting up something of a fight in telling the people outside that we must retain Parliament here in Cape Town, the thought crossed my mind that many of our Cape friends are concerned about the fact that the strength in politics, economics and sometimes too in football—I do not know what will happen tomorrow—is sometimes to be found in the North. [Interjections.] We in the North are fully aware of the historical fact that our Parliament is situated here and, as far as we can, we uphold that historical fact.

The speech made by the hon member for Hillbrow has very clearly illustrated that the new Constitution is not at all the alpha and the omega of everything. In giving our support to this measure I want to say that each day we become more and more strongly opposed in principle to the new Constitution. Nevertheless we understand that the Government is in power and that these consequential changes have to take place in order to enable the parliamentary system we have today to function. We support the legislation on those grounds.

As far as clause 3 is concerned I want to point out that we said at the outset that the new Constitution would head more and more in the direction as ultimately envisaged by the hon member for Hillbrow. We also want to point out that at the moment it is still very easy for the NP to tell the public that the Whites are still in control of the tricameral Parliament, but I want to tell my honourable not ex-friends but ex-colleagues on the other side of the House that what they are also voting for now is that in the near or distant future, if the NP remains in government for that long—which I hope will not be the case—a Brown man or an Indian will also be able to occupy this specific post. The hon members on the other side of the House must understand very clearly that we are moving more and more in the direction of a fully integrated Parliament, the walls of which can also be extended in respect of the system they now support. That is in line with PFP thinking. [Interjections.]

Having said that, I want to conclude by telling the hon the Chief Whip of Parliament who is affected by the provisions of this particular clause that I think he is a good Chief Whip, and that this was also so in the years when he was my Chief Whip. I think that to a very large extent the hon member has lent lustre to the particular position he occupies. In the very difficult new system that is now in operation, I know that the hon member for Tygervallei has also done a great deal to ensure that this dispensation will be successful. Chief Whips who come after him will really be able to tap his knowledge and experience and build upon the foundations that he has laid as Chief Whip. This holds good not only for Chief Whips on the Government side but also for the Chief Whips of the other parties. In this regard I want to give the hon member the credit that is his due.

Mr Chairman, as a member of this House from the province of Natal, and representing a constituency in Natal, I think it is time that I made an admission: And that is that, by birth and at heart, I am still, and always will be, a “Kapenaar”. [Interjections.] Only just! Only just, let me hasten to add, because really and truly I suppose one might say that I am a Xhosa, because I was born in Umtata, but in those days it was considered to be part and parcel of the Cape Province.

Oh! You are not even a South African!

Not even a South African!

We are going to fight to restore your citizenship! [Interjections.]

Being a “Kapenaar”, I have always been rather jealous that the fact that the seat of Parliament should stay in Cape Town. [Interjections.] I think that that is tremendously important. Rumours have been going around over the few years that I have been here—I think we have on three occasions had such rather strong rumours— that there is a possibility of this Parliament being moved. I do not think that that possibility can ever come around again.

There is nothing wrong with that!

Ah! There is something wrong about Parliament in Pretoria! Let me assure the hon member of that.

A possibility like that, however, cannot come around again for the reason that we are building a new complex here. So, obviously, Parliament is going to stay in the Mother City. Furthermore, we are passing this Bill which will enable the Parliamentary committees to sit outside of Cape Town during the recess. I have no argument about that happening in the beautiful city of Pretoria, because I think we are going to have the best of two worlds. By that time winter will be over—thank heavens! We will probably be sitting in select committees during the latter part of September, October and November, and we will be able to enjoy spring in the Jacaranda City.

We support the Bill in its entirety, but it would be remiss of me if I were not to say a few words about the functions of the Chief Whip of Parliament and the fact that we are now enabling him to go into other Houses and take part in debates there. The hon Chief Whip of Parliament—I mention the gentleman by name, Mr Van Breda, the hon member for Tygervallei—is a man whom I have had the pleasure of working with for a number of years. He has a unique distinction because history will always say he was the first Chief Whip of Parliament. He is the man who is putting his footprints on the path for the first time and will lead the way for many successors to come. He is a gentleman who has learned from an old school and he will know what I mean when I say that Oom Pottie from Brits and Pen Kotze would be proud of him. In this first session of this tricameral Parliament, I think he has taken on an enormous challenge and he has done a very, very good job of bringing us to the point where we are about to prorogue in a few days time with very few hiccups, relatively speaking. To collate all this effort through one office is quite an achievement because it takes organizational ability which is beyond the normal, and I compliment that hon Chief Whip of Parliament on an outstanding job.

I have often listened to discussions we have had in various committees of this House and we have had many discussions where we have spoken about the powers of the Chief Whip of Parliament. People have often asked: “Is that not giving too much power and responsibility to one person?” However, the present incumbent of that post has an answer that he always gives in the most disarming way. He always says, “Only a very foolish Chief Whip would try to do that”. That is something which always brings one down to earth. When one thinks that there is a possibility of anybody overstepping the mark, I think one should always remember that expression: “Only a very foolish person would try to do that sort of thing.” It is a little humbling, it brings one back to reality and inevitably one manages to see things in their correct perspective in the way that one should. We have much pleasure in supporting this measure and we look forward to many pleasant days in Pretoria working on standing committees during the recess.

Mr Chairman, I want to thank hon members and their various parties for the support given to this Bill. Actually, there are only two things at stake here. Firstly a small portion of Parliament is now going to Pretoria. There are really very few things on the other side of the Vaal River, even though the hon member for Rissik had so much to say about everything to be found there. [Interjections.] I am not concerned …

What is going to happen tomorrow?

I am not concerned about the fact that the standing committees will henceforward be able to sit in Pretoria, but I do want to state quite unequivocally and in very clear language today that the Currie Cup will not leave Cape Town. [Interjections.]

I want to thank the hon member for Hillbrow and assure him that Pretoria and the Union Buildings, to which he referred, will be able to offer the necessary facilities for successful standing committee sittings. I also want to extend every good wish to the various standing committees as far as their meetings in Pretoria are concerned.

The hon member also referred to the presence of Ministers Hendrickse and Rajbansi in this House. It is true that these two hon Ministers can attend the proceedings in this House. From the nature of things they did not have the opportunity during this session to act as Ministers without portfolios but I think that next year when we also have two Deputy Ministers holding portfolios, we will be able to see them in action here.

I want to tell the hon member for Rissik that this is not the integrated Parliament to which he referred. That only holds good for general affairs because we still have our own affairs that we discuss here and decide upon, as we very clearly experienced this year. [Interjections.]

Many nice things were said about the hon the Chief Whip of Parliament, and I want to say that he is like good wine—he does not need praise. We on this side of the House also want to thank him very much indeed for the good work that he has done under very difficult circumstances. It was pioneering work and I accept the fact that it was not always that easy, although I do believe that he will agree that he received every co-operation and that things were able to run smoothly because of that fact.

I think that we can look back over a session that has gone off well. The new dispensation had to get away from its starting blocks, and if we want to be honest, I think we must all admit that it has been a great success. It will prove to be an even greater success in the future. For this reason we are very grateful to the hon the Chief Whip of Parliament for what he has done. I believe that his functioning in the other Houses will contribute to the even smoother functioning of the new system.

I also want to express my gratitude to the hon member for Umhlanga. I have always thought that there was something good in the hon member for Umhlanga but I was never able to discover what it was. I discovered it today, however, when he said he was a Capetonian. [Interjections.] That is why he sometimes makes very good speeches. His speeches have sometimes not been all that good but then I think it is the “Natals” coming out in him again!

I am very grateful for the support of hon members for this Bill. I believe that it will contribute towards the even smoother functioning of our present parliamentary system.

Mr Chairman, I move:

It is my pleasure and privilege to introduce the St Andrew’s College, Grahamstown Private Amendment Bill. Before speaking about the Bill, I should like to take this opportunity to tell this House a little more about one of this country’s oldest and best known schools.

On a certain day in August 130 years ago, Archdeacon Tom Merriman set off on foot from Uitenhage. His destination was Grahamstown. History does not tell us how long it took him to walk the 200 km but we do know that he arrived in Grahamstown in time to attend the foundation stone-laying ceremony which marked the founding of St Andrew’s College. This remarkable man then heard his equally remarkable contemporary, Bishop John Armstrong of Grahamstown, dedicate this school to the noble purpose of providing “a sound Christian education for the youth of the Eastern Province”.

During the years following that memorable day St Andrew’s College achieved the purpose for which it was founded in a most admirable way; so much so that its fame soon spread far beyond the borders of the Eastern Cape. The college started drawing boys in from the four corners of South and Southern Africa. Thus it was that in September 1899 the headmaster received a telegram from a certain Mr W G Klerck, a citizen of the old Zuid-Afrikaansche Republiek. The telegram read:

Later someone was heard to remark that South Africa must be the only land in the world where in time of war one could send one’s son to school with the enemy—on tick!

The young Willem Klerck showed those qualities of loyalty, initiative and leadership that the school has always sought to promote. A few days after the arrival of his father’s telegram he ran away from the college to join his father at the front but only got as far as Alicedale before being caught. On being returned to school, young Willem was persuaded to channel his energy into sport and was soon elected captain of the first rugby team.

If Willem were to come back to the college today, he would find things greatly changed. Instead of a few makeshift structures housing a few dozen boys, he would walk through spacious grounds and graceful buildings where some 500 boys receive education of the highest order. He would, doubtless, pause for a few minutes in the beautiful stone chapel designed by Sir Herbert Baker which is the spiritual centre of the college. Here the names of over 280 old boys of the college who gave their lives for their country are recorded. The first names are from skirmishes in the turbulent frontier days and later from the two world wars on the great battlefields of Europe, North Africa and later also Korea.

Perhaps he would also pause for a moment or two at the college’s academic honours board where the names of some 90 Rhodes scholars are recorded. St Andrew’s is one of only four schools in South Africa to which a closed Rhodes scholarship was granted in terms of the will of Cecil John Rhodes since 1903. Many of these scholars have served this country with distinction in a variety of fields and have made an unparalleled contribution to its development.

The names of those who have taught at this college must be mentioned as they include those of many illustrious people such as Sir George Cory, the historian and Sir Basil Schonland, the physicist. Educationists, A S Kidd, G F Dingemans and R F Currey are but a few others who can be given honourable mention.

It was from the St Andrew’s College department that another great South African educational institution, Rhodes University, was born. Until Rhodes was founded as a separate entity in 1904, Saint Andrew’s College regulated the examination of all undergraduate students, and did so with distinction until it was decided to separate the college department into a separate institution of higher learning to be called Rhodes University College.

With these few words, I have tried to convey something of the rich heritage and proud traditions of the college. These are jealously guarded by means of the college’s own Act. This incorporating Act was first passed by the old Cape Parliament in 1887. Ever since, St Andrew’s has been controlled by a council composed of communicant members of the Anglican Church, who administer the school in terms of a trust deed, whilst its internal economy and discipline are left in the hands of the headmaster.

By becoming a persona in law, the college removed financial and other liabilities from the shoulders of the council, and the Act of incorporation controls the destiny of St Andrew’s and safeguards its freedom and independence against any lesser executive or legislative authority than that of this Parliament.

The amendment before us seeks to amend the requirements relative to the composition of the council of the college. At present, members of the council are restricted to nine members, all being communicants of the Church of England and resident within 15 miles of Grahamstown. In actual fact, however, only between 60% and 65% of the pupils at St Andrew’s at any given time are members of the Church of England, now known as the Church of the Province of Southern Africa. A direct result of this restriction is that exceptional old boys who take a keen interest in the welfare of the college are not to be appointed to the college council because of their religious denomination. The council wishes to overcome this problem by introducing the amendment to Act 15 of 1932 which provides for an increased number of councillors (15 as opposed to nine) and provides further for only two thirds of all members both elected and nominated to be communicants whilst the remaining members need only be Christians and members in good standing of their own respective churches.

The result of this amendment, it is hoped, will be to provide for the better administration of the college in the future whilst retaining the best traditions of the past.

Mr Chairman, it gives me great pleasure to associate myself with what the hon member for Albany has said in respect of the legislation he has introduced. His references to this remarkable school, St Andrew’s College, were very interesting. I should like to subscribe to what the hon member has said in this regard. The school has, no doubt, through the years attained prominence as a result of the notable services it has rendered, and we should like to congratulate them with their achievements over the years.

Regarding the legislation as such it is clear that this is a practical measure which will assist in enhancing further the administration of this particular school, and I therefore gladly support the Bill.

Mr Chairman, I support this Bill on behalf of the CP. I want to tell the hon member for Albany that he has acquitted himself very well of his task, that he has delivered a very deft speech and that he has furnished us with very interesting facts.

I also want to say that educational institutions in our country such as this particular one have now reached a stage in which they provide us with a special historic depth as a result of the contribution they have made over the years. These are institutions of which all of us are proud, and we should like to convey our best wishes to those people who are devoted to extending the traditions and activities of this particular institution.

Mr Chairman, we also wish to support this Bill and to convey our best wishes, to St Andrew’s which can truly be called one of the pioneer schools in the part of the country with a pioneering spirit which was so evident in the latter part of the last century.

We can only wish St Andrew’s well and we want to thank the hon member for Albany for the Second Reading speech he delivered this afternoon wherein he reminded us of so much of the tradition and history of the college.

Mr Chairman, I would like to thank the hon member for Virginia, the hon member for Rissik and the hon member for Umhlanga for their support.

Mr Chairman, I move:

The most important provision of this measure deals with the method of election of the chancellor of the University of Stellenbosch and his term of office. At present he is elected by the convocation and occupies the office for life or until he resigns.

This method of election dates from the time when the convocation consisted of only a few hundred. In 1918 the figure was still 580 whereas at present it is already in excess of 20 000. In the case of a vacancy nominations have to be called for from all the members of the convocation. If more than one nomination is received, voting papers have to be sent to all the members, and all the ballot papers that are returned have to be opened, scrutinized and counted on polling day.

As a result of this practical circumstance, the chancellors of most of our South African universities are already being appointed by their councils. It is moreover increasingly being found that people in public life are unwilling to stand for election if it means that they will be involved in large public elections.

After due notice the university has consulted its convocation in this connection. At a meeting held in February of this year those present at the meeting agreed that these amendments of the election procedures and other provisions now before this House should be effected to the principal Act. Briefly, what these amount to is that nominations will continue to be called for from the members of the convocation in terms of the statutes of the university. If more than one nomination is received, the chancellor will be appointed from a fist of nominees by an electoral college consisting of the 21 members of the university council—which is the highest authoritative body of the university—the deans of the respective faculties and the president and vice-president of the convocation.

Most South African universities elect their chancellors for a limited period. The present as well as previous chancellors of University of Stellenbosch have expressed themselves in favour of such an arrangement. For that reason the further aim of the Bill is to fix the normal terms of office at five years, with the proviso that the chancellor may serve for a maximum of two terms.

The other provisions of the Bill which refer to the vice-rectors and the chairman of the council are in essence domestic arrangements which are being clearly defined and brought within the purview of the university’s statutes. As far as clause 2 is concerned I shall be moving a minor admendment at the Committee Stage in order to make the position clearer. In saying this therefore I also want to give hon members notice that I should like the House to go into Committee after the acceptance of the Second Reading of this Bill.

Mr Chairman, I want to congratulate the hon member for Stellenbosch on his exposition of the Bill and its background. I want immediately to add that we on this side of the House will support the Bill.

It is interesting indeed—as the hon member for Stellenbosch pointed out—to note the difference that exists among the various universities in connection with the election of the chancellor.

At the University of Pretoria, the University of the Witwatersrand, the University of Cape Town and, up to the present, the University of Stellenbosch, the chancellor is elected by the convocation while at the other universities, for example Rhodes, the Orange Free State, Potchefstroom, Unisa, Natal and Port Elizabeth, they are elected by the council concerned. There is at this stage, therefore, as the hon member indicated, a large variety of systems—or at least two—according to which the chancellor is elected.

We have an interesting innovation in this Bill as far as the method of nomination of the chancellor of the University of Stellenbosch is concerned. There is a confluence of three elements connected with the academy for the election of chancellor, namely the university council itself, the executive committee of the senate—in other words, the teaching staff of the senate—and the president and vice-president of the convocation. This is an interesting new method for the nomination of chancellor and the first of its kind in the history of our country.

The same thing holds good for the term of office of the chancellor. At most universities the term of office is prescribed by the statutes of the university and is therefore a domestic arrangement. By law the chancellor at Unisa is nominated for five years and at the University of Cape Town he is nominated for life. This has also been the situation at the University of Stellenbosch up to the present. At the University of Port Elizabeth the chancellor is nominated for 10 years. In terms of this Bill the chancellor of the University of Stellenbosch is nominated for five years but is eligible for re-election for a second term of five years. In this connection too, therefore, we have this interesting innovation at the University of Stellenbosch.

If hon members who did not study at the University of Stellenbosch will forgive me, I should like to adapt a Latin expression to Stellenbosch. I think the expression ex Africa semper aliquid novi can with every justification be adapted to read ex Stellenbosche semper aliquid novi. I also want to say that as the hon member for that constituency indicated, Stellenbosch has made its mark indelibly upon the history of this country. How members of the House who did not study at the University of Stellenbosch will I am sure forgive me when I say as an ex-student of Stellenbosch that what Stellenbosch says today South Africa does tomorrow. [Interjections.] In this connection it is a pleasure for me to state that this side of the House will lend its support to the acceptance of this legislation.

Mr Chairman, I want to thank the hon member Prof Olivier very much indeed for his support. I must agree with him that this is a subject on which one can very easily become overenthusiastic. One could for example point out that there are more ex-students of the University of Stellenbosch in this House than there are of any other university in the country. [Interjections.] Two of the leaders of the opposition parties are ex-students of that university. One can point out that there are more ex-Maties in the Cabinet than ex-students or any other university. One could also say that they play better rugby than any other university. [Interjections.]

It is an open club.

That hon member who is an ex-Ikey is already starting to make excuses. However, this legislation does not deal with all these matters but with the office of chancellor. The University of Stellenbosch has the best chancellor of all the universities in the country. [Interjections.] I think the hon the Leader of the official Opposition and the hon member Prof Olivier will also agree that this is so.

Order! I assume the hon member is now discussing clause 5 of the Bill.

Yes, Mr Chairman. I also want just quickly to make the following point: Over the years Stellenbosch has stood for an idea, as the hon member Prof Olivier also said. One has to think of the influence the young ministers of religion and teachers of the University of Stellenbosch exercised during the depression. One has also to think of the influence which the ex-students of the university had as economists, after the depression at that time, in regard to the Reddingsdaad effort and the establishment of Afrikaner companies. One need only think of the role it has played particularly in the cultural sphere, for example in regard to the recognition of Afrikaans as an official language, its elevation to church language, and the work of ex-students of Stellenbosch, in particular a man like C J Langenhoven.

I have mentioned three matters. There is also a fourth, namely the role of sport. I do not think one need actually say anything further in this regard except that a healthy body is a prerequisite for a sound and balanced mind. Over the years I think that Stellenbosch has given its students every opportunity in this connection.

The last point I wish to raise—and in this regard I associate myself again with the hon member Prof Olivier—is the part played by the university in South Africa’s national life and particularly in respect of constitutional law. What is said at the university today, South Africa does tomorrow, as the hon member also said. A long list of ex-students played a very important part in leading South Africa along the road to sovereign independence, and are doing so now again in leading South Africa along the road of a just dispensation for all its people. Those people were given their inspiration at Stellenbosch which has lead to a readiness to serve and a patriotism the value of which to South Africa is incalculable.

Mr Chairman, I feel almost like a Tukkie who has to run onto the Newlands field tomorrow. [Interjections.] I have just listened to three good speakers all of whom received their higher education at the University of Stellenbosch.

I want to tell the hon member for Stellenbosch that he put the case of the University of Stellenbosch very well indeed. We have great pleasure in supporting the Bill.

The hon member Prof Olivier who was connected with the University of Stellenbosch for many years firstly as a student and later as professor, and who was also for many years a member of the council, also said his piece as did the hon member for Paarl.

Even I who come from the North have to say that I do not think South Africa would have been what she is without the University of Stellenbosch. In a certain sense I think it was to a large extent virtually the cradle of the other universities and particularly the Afrikaans universities. I think that there is great appreciation throughout the country for the work that has been done at the University of Stellenbosch over many decades.

You will forgive me, Sir, when I say that the difference between a Tukkie and a Matie is that when a Matie walks down the street he walks along as though the street belongs to him, while when a Tukkie walks down the street he walks along as though he does not care who owns the street.

As the hon member for Paarl made a few political comments, I want to say that I think that our immediate political future will in all probability be very closely associated with the points of view of one of two well-known ex-Maties, namely either the hon the Leader of the Official Opposition or the hon the leader of the CP. I want to say that the CP is in any event growing notwithstanding the two Maties we have in this party.

With those few words I wish the University of Stellenbosch much success in many spheres except, I must say, in the sphere of rugby.

Mr Chairman, suffice it to say that it is a great pleasure for us to support any measure that assists in the smooth administration of an outstanding educational institution such as the University of Stellenbosch.

I do not think we should involve ourselves in the ongoing argument between the Maties and the Ikeys and the Maties and the Tukkies, but I think we should place on record the fact that the University of Stellenbosch has a unique history. It started out in life as Victoria College and has become the home of Afrikaans-speaking South African students in this fair country of ours. This is something that nobody can take away from the University of Stellenbosch, but it is strange that it started out in life as an English-language institution and actually bore the name of Queen Victoria.

We wish Stellenbosch well and we thank the hon member for introducing this measure here this afternoon.

Mr Chairman, I want to thank the hon members specifically for Paarl, Rissik and Umhlanga very much indeed for their eloquent support of the Bill. I want to make use of this opportunity to express a particular word of thanks for the support of my esteemed ex-professor, the hon member Prof Olivier. I have never hesitated to say that I think he was the best teacher any student could have hoped to have at university. He taught us particularly well and, as far as I personally am concerned, a very important thing, namely that when I left the university I could do no better than be a Nationalist. I want to express the hope that another long list of eminent chancellors will be elected for the University of Stellenbosch in terms of this measure.

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

1. 1. On page 2, in line 25, after “may” to insert:

The vice-rectors are elected by the council, and the effect of the amendment is that there will have to be prior consultation with the senate.

Mr Chairman, I rise simply to lend our support to the amendment. It is clear that what is envisaged is that it should not simply be determined in the statutes but that it be prescribed by law that the senate be recognized in this matter. The senate is now by law being given the right to recognition.

Amendment agreed to.

Clause, as amended, agreed to.

House Resumed:

Bill, as amended, reported.

Bill read a third time.

Fair copy of Bill certified and transmitted to the State President for his assent.

Mr Speaker, I move:

The Bill contains amendments to three of the Acts administered by the Office for Financial Institutions, ie the Insurance Act, 1943, the Banks Act, 1965, and the Building Societies Act, 1965.

As regards the Insurance Act, the proposed amendments serve to rectify certain deficiencies in the Act, eliminate unnecessary or unserviceable requirements, to increase the amounts that shall be held in this country in respect of business done in the Republic by underwriters of Lloyds, and to adapt the provisions in regard to offences.

According to the definitions in the Act the extent of life business is determined by the definition of “fife policy”. However, uncertainty exists as to whether certain contracts which insurers have entered into with pension funds and other similar institutions in recent years and which are still being marketed as life policies, are in fact covered by the present definition of “fife policy” and may therefore lawfully be regarded as the carrying on of life business. The Commission of Enquiry into the Long-term Insurance Industry, the Louw Commission, recommended that insurers be allowed to continue to market such contracts as life policies and that the definition of “life policy” be amended to eliminate any doubts which may exist in regard to the legal position. The amendment contained in clause I will implement this recommendation. I must point out that the regulation of this matter in its entirety requires further consequential amendment of this and other Acts, and I intend approaching Parliament again in this connection on a subsequent occasion. In the meantime I therefore wish to utter a warning that formal recognition of these contracts in this Act should not be abused in order to apply the funds in question in a way which is not permissible in terms of other relevant Acts.

At present the Act requires the Minister to appoint an advisory committee on matters pertaining to long-term and short-term insurance, respectively. It is felt that it is not necessary to have such committees functioning on a permanent basis, but rather that the Minister should have the power to appoint such committees when circumstances necessitate their existence. The proposed amendments make provision for such a change.

The appointment of an auditor or a valuator by an insurer is subject to the approval of the Registrar. The Registrar may confirm or reject such an appointment and may also withdraw his approval of a prior appointment. Such disapproval or withdrawal shall, in terms of the provisions of the Act, be reported to the Minister together with the reasons for such decision and the Minister shall then confirm or reject the decision of the Registrar. This requirement of submission to the Minister of the particular decision is unnecessary since the Act grants a right of appeal to the Minister in respect of any decision or action on the part of the Registrar. It is therefore being proposed that this requirement be deleted.

The knowledge which an auditor or valuator has of irregularities which take place in the administration of an insurer’s business is sometimes the reason for the auditor’s dismissal or resignation. When such a person vacates his office he is not required to furnish the Registrar with the information in respect of such irregularities and the Registrar is not empowered by statute to obtain it. It is important that the Registrar be informed of such malpractices. The proposed amendments make provision for the Registrar to be furnished with more information before he approves the appointment of a new auditor or valuator.

The Act provides at present that underwriters at Lloyds shall, in respect of the business they carry on the Republic, maintain assets here to an amount at least equal to 70% of the net premiums collected during the preceding 12 months. This 70% reserve is considered to be inadequate and it has been decided to increase this requirement to 130% of the net premiums. I wish to mention that the latter ratio which is now being proposed in the amendment has already been maintained voluntarily during the past few months. The Standing Committee on Finance proposed an amendment in terms of which the Minister of Finance is empowered to adjust this percentage by way of regulation so as to be able to act quickly when changing circumstances require such an adjustment. I welcome this amendment.

It appears that the issuing of pension policies by insurers are in some cases being excessivly delayed.

Order! Hon members are listening too loudly to the hon the Minister.

Thank you, Sir.

It is necessary for the orderly transaction of business that provision be made for the timeous issue of policies. The proposed amendment will empower the Minister to determine the period within which policies are to be issued by way of regulation.

Most of the proposed amendments in respect of long-term insurance ensue from the recommendations of the Louw Commission on Long-term Insurance. The Life Officers Association of South Africa, the South African Insurance Association and Lloyds were all consulted in regard to the particular aspects affecting them.

I come now to the amendments to the Banks Act. The main reason for the amendment of the Banks Act is to afford greater protection to the public depositing their savings at banks, to exercise more effective bank supervision, to enhance the credit-standing of South African banks internationally and to promote the implementation of a more effective monetary policy.

Like any other responsible government, this Government is aware of its responsibilities in protecting the solvency and liquidity of our financial system, and in particular that of the banks. Some countries use measures such as deposit insurance, and prescribe further limitations to the extent to which the banks may grant credit to individual persons and their associates or to sectors of the economy for the purposes of precautionary control. The technical committee investigated the possible introduction of these and other measures in South Africa, but after proper consultation with the banks, decided against such a step, except that some of the banks are required to report any large-scale credit exposure on their part to the Registrar. Each country’s financial system has its own particular features and in the South African system liquid asset requirements, for example, seek to ensure liquidity and precautionary control.

The finding of the technical committee was that a system of deposit insurance would increase the cost of banking services to the public and that most of that burden would fall on the larger banks, which would mean in effect that they were subsidizing the smaller banks. In addition it could cause the banks to be less strict in the assessment of credit risks which could ultimately endanger the solvency of the banks and, consequently, the security of the depositors’ savings.

Not only South Africa, but several other countries have, or are in the process of, amending their banking laws to enable them to exercise precautionary control and maintain supervision over the foreign activities and outside balance sheet activities of the parent banks. In the case of South Africa the requirements which are going to be introduced in respect of these activities have to be phased in over a period so as not to disrupt unnecessarily the smooth functioning of the banking system, which is important to South Africa’s economic development and international relations. I want to emphasize the point that the decision to introduce this new method of calculation of the capital requirements for South African banks, and to subject their outside balance sheet activities to precautionary control, was taken of their own accord, because it is in our own interests to promote the development of a sound and strong banking system.

I indicated on a previous occasion during a joint sitting that the present provisions of the Banks Act were not applicable to the foreign activities of our banks and that amendments would be proposed which would, inter alia, contain provisions to extend the control of the Banks Act to cover that banking business as well. As was explained at the time, the countries of the European Economic Community drafted guidelines in 1975 for the control of, and official supervision over the foreign undertakings of banks. These principles are contained in the so-called Concordat of 1975. As a result of the international banking crisis in 1982, the Concordat was revised in 1983 and serious attempts were subsequently made to obtain the co-operation of all countries in order to ensure that no bank, and in particular its foreign activities, would escape proper supervision. The approach is that the authorities of each host country can exercise control and supervision in respect of the liquidity of the businéss carried on in its country by foreign banks, while the authorities in the country of the parent institution shall accept responsibility for control and supervision with a view to the solvency and liquidity of local banks’ overall business, that is to say including their foreign activities. It goes without saying that there must be liaison between the relevant authorities in order to reach and maintain the desired level of supervision.

Although the Republic is not a signatory to the Concordat, it endorses the principles of the agreement and wishes to apply them as far as possible, firstly because they are sound and secondly to protect the reputation and credit-standing of our banks in the international financial community. Primarily, the amendments being proposed in this connection entail that firstly, the requirements of the Banks Act in regard to minimum capital and reserve funds which are to be maintained, are also being applied to the bank business which a banking institution carries on abroad by way of agency, branch office, joint undertaking or subsidiary.

Secondly, the prescribed financial particulars which have to be furnished by banks are also to be furnished in respect of the banking business carried on abroad.

Thirdly, the Minister is being empowered, if necessary, to provide by notice in the Gazette that liquid assets shall be maintained in respect of the banking business which a banking institution is carrying on abroad.

Fourthly, the Registrar may make regulations in regard to the pairing off of the dates of maturity of the liabilities and investments, expressed in foreign currencies, of the banking business carried on by our banking institutions abroad. The intention is that the said powers conferred upon the Minister and the Registrar will only be used if the foreign business is carried on in such a way that that business could cause liquidity problems.

In addition to the amendments which I have just dealt with in regard to capital requirements for banking institutions, it is also necessary to effect a change in respect of the basis of calculation of the minimum capital and reserve funds that have to be maintained.

†The Act at present provides for calculation of the minimum amount of share capital and reserve funds on the basis of the amount of the bank’s total liabilities to the public and the amount of some of its contingent liabilities, namely, promissory notes, bills and other similar instruments endorsed by the bank. There are, however, other contingent liabilities of banks which also carry risks and which should also be included in the calculation of the minimum capital required, for example repurchase agreements, that is transactions whereby the banks sells securities subject to an agreement to repurchase the securities on a future date at a fixed price. Such an undertaking clearly carries risks, for example, a liquidity risk and an interest rate risk. The Bill accordingly provides that such agreements and also other risk exposures which may be specified by regulation, in order to deal with new developments, shall also be taken into account in calculating the minimum amount of capital and reserve funds to be maintained.

A further shortcoming of the present statutory provisions relating to the calculation of the required minimum capital and reserve funds is that the calculation is based on the amount of the bank’s liabilities without considering the riskiness of the assets in which the funds are invested. The risk of banking do not lie in the quantum of the funds accepted but rather in the manner that the funds are employed. It is therefore proposed that, in accordance with current international developments, the capital requirements for banks be calculated in relation to the riskiness of their assets and of their contingent liabilities instead of on the total amount of their liabilities and contingent liabilities.

This new basis for calculating the minimum amount of capital and reserve funds to be maintained by a bank requires that the assets and contingent liabilities of banks be classified under different groups on the basis of the risks attached to each type and that a factor be determined for each such group and also for repurchase agreements. It is not practicable to set out this classification of the bank’s assets and contingent liabilities and relative risk factors in the Act, as it would entail extensive tabulations and because it may in the future be necessary, in the light of changed circumstances, to effect adjustments to the risk factors at short notice. The proposed amendments accordingly provide that the classification of assets and contingent liabilities and also the determination of the risk factors be done by regulation.

In the case of discount houses it is proposed, on account of the special nature of their business, that the minimum capital and reserve funds which they have to maintain continue to be calculated on the basis of the amount of their total liabilities plus repurchase agreements at the present level of 2% of the total of those amounts. The minimum capital and reserve funds which a banking institution must maintain and have at its disposal at registration, that is before it commences business, is being increased from R200 000 to R1 000 000 for both banks and discount houses. Provision is also made, in line with internationally accepted practice, for allowing loan stock to rank as capital— only up to an amount not exceeding one fifth of the minimum capital and reserve funds the banking institution is required to maintain—and subject to prescribed conditions as regards repayments, inter alia that in the case of liquidation, repayment of the loan stock is subordinate to the claims of depositors and other creditors.

It is no longer the intention to use liquid asset requirements as a monetary control instrument, inter alia, because banks themselves can create liquid assets, but instead to place the emphasis on cash or reserve balance requirements for monetary control purposes. It is therefore necessary to amend the statutory provisions relating to these two requirements.

Although liquid asset requirements will no longer be used as a monetary control instrument, it is nevertheless necessary that a reasonable proportion of a bank’s assets be liquid, because such assets perform an important liquidity and solvency function. It is, therefore, proposed that the present required level of liquid asset holding be reduced from 30% to 20% in respect of short-term liabilities and from 20% to 15% in respect of medium-term liabilities, that the present requirements of 5% in respect of long-term liabilities be retained and that the present requirement of 5% in respect of liabilities under acceptances and in respect of certain other contingent liabilities be deleted. It is further proposed that the power of the Reserve Bank to prescribe supplementary liquid assets be withdrawn and that in consonance with the changed role of liquid assets the definition thereof be amended by deleting from the definition those credit instruments that do not comply with certain criteria.

The proposed amendments provide for a basic cash balance requirement of 8% of short-term liabilities and 4% of medium-term liabilities, in both cases excluding liabilities under acceptances. Furthermore, the Reserve Bank is being authorized to increase or decrease the said percentages of 8 and 4. On the other hand, while vault cash does not at present qualify as a cash reserve, it will, in terms of the proposed amendments, form part of that reserve in order to eliminate the practice of commercial banks in particular which deposit their cash with the Reserve Bank every afternoon and withdraw it the following morning. In other words, this concession is in fact intended to avoid the unnecessary daily deposit and withdrawal of cash at the Reserve Bank.

In the interests of a freer and more efficient money and capital market it is proposed to repeal the requirement that banks maintain prescribed investments. The Act now provides for the registration of banking institutions under four classes, namely as a merchant bank, general bank, commercial bank or a discount house. The distinction in the Banks Act between the various classes of banks is a heritage of the Banks Act of 1942 and 1965. In view of the functional instead of institutional approach to regulating banks and banking activities, and in accordance with international practice, this differentiation no longer serves any particular purpose.

Fears have been expressed that the scrapping of the various classes of banks would encourage and give impetus to group formation in the banking sector and furthermore also adversely affect competition among banks. A bank has the option of providing a wide variety of services and credit facilities to its customers under one registration or, alternatively, to establish separate subsidiaries, each specializing in providing certain services to its customers. The Bill requires banks to maintain capital ratios against interbank as well as intra-bank deposits. It can, therefore, not be contended that the amendments to the Banks Act would be favouring group formation in banking or discriminate against smaller independent banks. Neither can it be said that it would adversely affect competition in banking or prevent new banks from being established.

The process of deregulation by, inter alia, forcing banks to abolish their cartel arrangements, has created a more competitive banking system, of which the public are reaping the benefits. Not all of South Africa’s banks are big or belong to banking groups. The smaller banks are nonetheless standing up to the competition of the bigger banks.

The Banks Act at present does not allow a bank to deduct from its liabilities for purposes of the liquidity requirements the amount which it has on deposit or loan with another bank. This means that in respect of the same funds both banks have to maintain reserve balance and liquid assets. This dual application of the financial requirements is not conducive to the development of a market for inter-bank deposits and gives rise to distortion of interest rates on such deposits. It is accordingly proposed that for purposes of calculating cash reserve and liquid asset requirements, a bank be allowed to deduct from its liabilities the amounts of its deposits with or loans to other banks.

The Registrar may, in terms of the Banks Act, approve a “Financial Company” in respect of a bank or bank controlling company, and such a financial company may, together with its associates, acquire up to 30% if the issued shares of the bank or bank controlling company. The original intention of this provision was that not more than one financial company be approved in respect of a particular bank or bank controlling company. Recently doubt has arisen as to whether this intention is clear from the present formulation of the provision in the Act. In order to remove any doubts which may exist, an amendment is proposed by which the original intention is made explicit and no new principle is involved.

Only the few amendments to the Building Societies Act remain to be dealt with. The amendment of a few definitions, the repeal of the requirement to maintain “prescribed investments”, together with the deletion of the definition of “prescribed investments” and a reduction in the percentage of transmission deposits to be held in liquid assets are proposed in order to bring the Building Societies Act into line with the proposed amendments to the Banks Act.

As the provisions relating to prescribed investments are being deleted, it is necessary to insert a provision into the Act which will enable building societies to continue investing in assets which now rank as prescribed investments.

In terms of the present provisions of the Building Societies Act, advances against security of reducible mortgage on a dwelling house are to be repaid within 30 years if the loan amounts to not more than R20 000, within 25 years if the amount of the loan exceeds R20 000 but does not exceed R30 000, and within 20 years if the loan exceeds R30 000. As a result of the sharp rise in the prices of houses during past years and the present abnormally high interest rates, many prospective house-owners are not able to meet the monthly instalments calculated on the shorter repayment periods for loans in excess of R20 000, and it is accordingly proposed that the repayment period for all loans against reducible mortgage be fixed at 30 years.

In conclusion I wish to mention that the amendments to the Banks Act were recommended by the Technical Committee on Banking and Building Society Legislation, some of these in consequence of recommenddations by the Commission of Inquiry into the Monetary System and Monetary Policy in South Africa, the De Kock Commission, and were submitted for comment to all the representative associations of the different classes of banks.

Discussions were subsequently held with each of these groups and material objections have been smoothed out. As regards the amendments to the Building Societies Act, the extension of the repayment period of certain loans is proposed at the request of the Association of Building Societies of South Africa and the other amendments in consequence of recommendations by the De Kock Commission. The building societies had the opportunity to study these amendments and have raised no objections.

I thank hon members for bearing with me but these financial arrangements are important for every man in the street.

Second Reading resumed

Mr Chairman, this Bill is actually an extremely important measure and I am sorry that it has to be dealt with in such a hurry. In fact, this has been characteristic of the whole manner in which this Bill has been dealt with. The Second Reading of the Bill was only moved this morning at the joint sitting and we are now immediately proceeding with it. The standing committee had to deal with it under considerable pressure.

One of the things which we regretted was that it has come at the end of the session while it could very easily have been put before us in draft form in the earlier part of the session when we could have devoted more time to it. The standing committee nevertheless took the opportunity of hearing evidence. We heard not only the evidence of the Registrar of Financial Institutions and the Deputy Governor of the Reserve Bank, to both of whom I should like to pay tribute for the very considerable assistance that I believe they rendered to the committee, but we also managed to afford an opportunity, at very short notice I may say, to representatives of the banking community to give evidence. They went to some considerable inconvenience to themselves in order to be available. I think we are indebted to them for the trouble they have taken to put their case to us.

The bill deals with three issues. The issue of the building societies I can dispose of very quickly because I do not think there is any question of dispute in relation to it. There is no point in saying at great length that one agrees with the provisions. I think it is enough to say that they meet with our approval and we support them.

The second issue relates to the provisions of the Insurance Act. Here I should like to dwell upon a couple of matters. Firstly there is the question of the underwriting of contracts in respect of pension, retirement and annuity funds. I think it is clear that this is beyond question a form of insurance business. I think it is also apparent that this can lend itself to a degree of abuse if not properly controlled. I am pleased that the hon the Minister has said that this is not the last word that has been spoken in relation to this matter because I think there need to be some other amendments to the Act in order to control this type of business activity. I do not think there is anything untoward about it. It is a legitimate form of business, but I think that it could possibly be abused.

The second point in so far as this aspect is concerned is the question of the auditors. Perhaps I should touch upon some of the complaints of the past which the hon the Minister has made about auditors in general. My approach is that I believe that an auditor of a company and particularly an auditor of a financial institution has a very high degree of responsibility. To my mind, if the signature of an auditor appears upon a set of accounts, then the public should be able to rely upon those accounts. To the extent that it is subject to human error, there has to be absolute confidence in respect of those accounts once they bear the signature of the auditor. If that principle is accepted, it will make the task of the Registrar and his staff very much easier. This is an aspect to which I think we need to draw attention.

Auditors in South Africa are a very reputable community as a whole. I think the profession is held in high esteem not only by the public in South Africa but internationally too. I think, however, that we must to a greater extent get across to them the fact that they have this high responsibility towards the public. The law has changed over the past few years so that people who rely on accounts signed by individuals are to some extent able to sue people more easily when those accounts on which they rely for financial transactions turn out to be incorrect. I should not like to see a multiplicity of court actions in South Africa against auditors; instead I should like to see the profession itself, recognizing the high esteem in which it is held, ensure by self-discipline that its members adhere to this very high standard.

The third point in relation to this aspect is the question of the retention of premiums in respect of business of Lloyds in South Africa. Here the premium has been increased from 70% to 130% of the net premiums per year, and the committee recommended that the Minister should have the power to vary that particular provision because circumstances may change.

It becomes important to state that the only evidence which we had before us in relation to this matter was the evidence of the Registrar of Insurance. I want to come back to this leading article in Business Day, from which I quote this morning. With your permission, Sir, I shall quote some other passages from it in order to demonstrate what is happening in this case. The heading of the article is: “From taps to local insurance.” The article reads as follows:

This is how the article on Lloyds Underwriters starts: About bathroom taps. It says:

However, Sir, “this week” in Parliament, that is last week, it did not arise; it is happening today.

And then comes the passage that I quoted earlier today about the hon the Minister and myself having so much in common, and which I shall not repeat. But then comes this passage:

However, anybody who says that there have not been troubles at Lloyds recently, is living in Cloud-cuckoo-land and does not know what is going on. The reality is that, whereas previously, in years gone by, the whole atmosphere at Lloyds was different, in recent years there have been a series of scandals at Lloyds, and there have been very heavy losses in regard to certain things. If the editor of this newspaper has not heard about them, he should not be writing this paper. It is a reality—everybody knows about it. As a matter of fact, there are people sitting in this House who know about it and who are involved as underwriters. However, he goes further and says:

Then he goes on and says:

Now, Sir, nobody “specially pleaded” for the short-term insurers in front of the Standing Committee on Finance, and the chairman and every other member will confirm it. The Registrar was there. He was the only person who gave evidence on this, and he certainly did not plead for them; on the contrary, if anything, he had a view which was more sympathetic towards Lloyds than members of the committee had. So, that this kind of thing can be written, is to my mind absolute nonsense.

Then the writer of the article says that this was introduced because the Wilson Government suspended payment of claims to Rhodesia, and that this was not a wise move. He says that the political situation—and I am paraphrasing now—has changed radically, because “the Thatcher Government is firmly in power”. Well, I wonder whether he is prepared to underwrite for us that the Thatcher Government is going to be in power for ever, and that mr Kinnock will not be there, and that mr Kinnock will not carry out some of his threatened disinvestment policies.

So, Sir, with great respect, to actually suggest that we have been subjected to lobbying by the short-term insurers in order to protect their interests is absolutely devoid of any truth whatsoever, and every member of the committee can testify to that fact. I think it needs to be said. I think it is actually unfair to the members of the standing committee to suggest that they are being used as tools for this kind of thing; it is also unfair to the short-term insurers who did not even come there to give evidence. So, how this can be suggested, is quite beyond me; and where this comes from, I just do not understand. I just do not understand how this can arise.

However, let me now turn to other matters which are perhaps more important than that which I have just dealt with. The issue in respect of the security of financial institutions has arisen worldwide. Here, the financial institutions of South Africa—even though, as I will point out in a moment, we have had our failures—have a fairly good record. I think one of the reasons why we have a good record is that we have good legislation which deals with this and good methods of keeping control of it. I thing both the Reserve Bank and the Registrar of Banks are in fact institutions which have excercised a high degree of control in terms of what I believe is relatively effective legislation, and the public of South Africa can be very satisfied with those institutions. I think that needs to be said in the context of the fact that we are now going to introduce change because there are changed circumstances, to which I shall refer in a moment.

We have seen bank failures in all parts of the world. It was reported in respect of Hong Kong only the day before yesterday that a major bank failed and the government had to rescue it. We have seen it in respect of the USA in a whole series of savings and loans associations which got into financial difficulty and we saw that a big USA bank had to be rescued by the Government there. The Bank of Ambrosiona, which is registered in Luxemburg but in fact had connections with the Vatican city in Italy, got itself into financial trouble. There have also been banks in Germany who got themselves into financial trouble. Previously people talked about something being as safe as a bank, but one cannot actualy say that anymore with a view to the situation of banks all over the world, although I think it does still apply to South Africa at the moment.

However, the reality is that one of the safeguards that the individual has had—in the USA, certainly—has been deposit insurance. That deposit insurance has existed for the small man, because in the USA the federal deposit insurance scheme exists only in respect of deposits up to $100 000. The reason for that is very simply that the richer, more sophisticated person should be able to look after his own interests and ensure that he knows where to invest. However, the ordinary, simple investor who comes into a bank is not sophisticated enough to work out the safeness, or otherwise, of a particular institution.

We had a classic example in South Africa, there was a bank in South Africa called “Die Boerebank”, which went into liquidation. The story is told—and it is not apocryphal; it is true—that two days before that a foreigner, an Australian to be exact, walked into a branch of this bank and, seeing the sign outside saying “Die Boerebank”, said to himself: “Well, the country is run by the ‘boere’, therefore this must be safe.” Then he went inside and deposited his money. However, 48 hours later his money was down the drain because the bank was in liquidation. [Interjections.] So, we have had that experience and the reason why I say this, is that the image of a bank is such that the ordinary unsophisticated person thinks that, by putting his money in there, it is like giving it to the Government to look after; there is nothing safer than that. [Interjections.]

There is something very simple involved and perhaps hon members will permit me to comment on the story. If one asks why the Government or the Reserve Bank cannot go broke, one is told that it is because they own the printing press and, if one owns the printing press, one cannot go broke! However, in a more serious vein, whether one goes into a bank or a building society in South Africa, that degree of faith exists. It exists in the ranks of unsophisticated people. Now, I think that, in these times, where there is this talk about banks being in this kind of difficulty elsewhere in the world—one reads about it and hears about it on television— without in any way derogating the status and standing of the banks, the question of deposit insurance should in fact be further investigated in South Africa.

It was dealt by with the hon the Minister in his speech, but it is wrong to say that only the big banks would have to carry the burden, because one could have the situation where a bank could choose whether it offers that insurance or not; in other words, if a bank does not want to say that its deposits are insured, it need not take out the insurance. Secondly, insofar as the giving of that insurance is concerned, authorities could also decide which banks or building societies, by reason of their financial standing, their assets, their liquidity and their management, should receive that insurance. I want to make an appeal that that should be done in South Africa and that we should have deposit insurance up to R100 000 so that the small investor, the one who is not that sophisticated, will have that protection.

The other point I want to raise is that there are unfortuntely far too many people today who hold themselves out as representing so-called registered financial institutions which are in fact not banks or building societies. In some cases they are just investment brokers who have registered in terms of the Act but who project themselves as registered financial institutions and thereby try to instil confidence in the public. I should like to appeal to the hon the Minister to take steps to put an end to this kind of simulation and the kind of advertising which misleads people. These people offer high interest rates as a result of which actually only the unsophisticated people are led into trouble. Those people need to be protected. I appeal to the hon the Minister to take some action in this regard.

I turn now to the provisions relating to the Banks Act. I believe it is stated and accepted that we are going to have a new Banks Act in toto in the near future. I believe it is important that we should have a new Banks Act but I accept that in the meantime we need to have changes in the Banks Act. That is why I am prepared to be pressurized to see that the amendments to the Banks Act get through during this session still. I regard these amendments to the Banks Act as necessary because of the changed circumstances in South Africa to which I have referred. On the part of the banks there is a far greater exposure to foreign exchange; there are the foreign subsidiaries which are not adequately controlled at present; and there is also the new philosophy on the part of the Government which is a more market-oriented approach but which has certain inherent risks if it is not looked after adequately. One cannot say of a bank that it is solvent or insolvent, because if one has a run on a bank and there is insufficient liquidity, then one can find that the most solvent bank can actually go under—if I may use that colloquialism—if it cannot meet its obligations. Certainly the Reserve Bank is there as a lender of last resort to help out when there is a problem arising from that situation. However, I believe we need to look—as we are doing here—at the solvency situation of banks, the capital situation and the liquidity of banks in order to be able to meet whatever demands there are then.

Lastly we need to look at banks as part of a process in regard to the formulation of monetary policy so that we cannot have the degree of abuse which has existed and where the hon the Minister could come along and tell us that it is not really the fault of the Reserve Bank but that the commercial banks are doing A, B, C and D, that they are thus creating a problem in regard to the money supply as a result we are in difficulties and that we have insufficient measures to deal with monetary policy in South Africa.

In the light of all of this, as long ago as in 1975 we had the Basle Concordat. One of the crucial provisions of the Concordat was the following:

We have a situation where we have a number of subsidiaries of foreign banks operating in South Africa which are controlled by us. However, we also have the situation that our own banks have gone abroad and have created subsidiaries. It is clear that if we are going to fulfil the premises of this Concordat then we have to exercise that degree of control in regard to the banks. This is what needs to be done. If anything demonstrated this, it was the Ambrosio scandal in 1982 where the bank was registered in Luxemburg but the real home of that bank was in Italy. The degree of control that could be exercised over it in Luxemburg was obviously inadequate. Hon members may remember that the bank ended up in a tremendous scandal. We do not want that to happen here and that is why I think it is absolutely vital that we have control over foreign subsidiaries in relation to this.

The other issue which arises from this legislation is that a principle is changed because the issue now is that the capital requirements are based on the risk which is involved and not merely on the liabilities of the bank, the risk which is involved in regard to the assets. That is where the legislation so far creates the machinery for it to be done but the final word on it cannot be spoken until we know what the coefficients are in regard to the various assets—or the co-ordinates, to use the other term—in regard to the assets to see what the capital requirements are going to be to give effect to this new situation.

One thing is clear. There is going to be a tremendous demand for capital by the banks. The estimates vary from a billion rand upwards. That is why the Act contains a provision not only to increase capital but also to deal with subordinated debentures which I shall deal with a little later. One of the things we have to realize, however, is that the increase of this capital by the banks comes at a time when the economy is not in that healthy a state; it comes at a time when there are capital demands for other activities which should perhaps be given equal priority, and we should bear in mind that the creation of this capital will not create one single new job in South Africa. So one will take a billion rand or more in order to put the capital of the banks into order without really creating a single new job with that capital. This is an important factor. It is not a factor which militates against the passing of this Bill but it is something which the hon the Minister has to bear in mind in the phasing-in period which at present is intended to be three years but which may well have to be a little longer and may have to be reviewed in a year or so. It also needs to be looked at in regard to the availability of capital for other purposes in South Africa.

One of the tragedies taking place at the moment is that instead of money being used by institutions to encourage the creation of new industrial enterprises in South Africa a great deal of that money is being used purely for take-overs and for strengthening their own financial situation. They do not create new jobs. One of the things that I would appeal for to those institutions in South Africa is to try to get their priorities on a national basis into order. The priority is to create jobs and not create concentrations of economic power in South Africa. One does not have to be bigger than everybody else; one just has to be better and more productive. I really make a sincere appeal to them to go that direction.

There are a number of problems that arise from this question of increasing the capital requirements of the banks. Some of them are worrying and in fairness I think one should state them.

Firstly I think there is going to be a widening of margins on lending. The effect of that, as I see it, is going to be that the depositor will get less and the borrower will pay more because in the final analysis the bank will try to preserve its profits. That will mean that the consumer, to some extent, is going to end up paying a price in relation to this situation. We should keep an eye on this and not allow it to go too far. I am not saying that we should interfere with the market mechanism; all I am saying is that we should watch it because it may mean that in the end the consumer will pay a price for this new structure.

The second factor is that there is going to be a greater accent on the fee income which banks are going to earn because they are going to compensate, if the margins are smaller, by charging fees for services which they render. Again the consumer will be at the receiving end. Again we must watch the fees that the banks are going to charge for their services. This will have to be watched by the authorities as well as by the public who will have to see to it that they go to the banks which offer them the best and the cheapest service so that there will really be competition in this sector as well.

The third factor we have to bear in mind—and I think the authorities need to keep an eye on this—is that the temptation of disintermediation becomes extremely great in this kind of situation. If that happens it actually frustrates the purpose of the law and in addition to that can have a very adverse effect on the endeavours to apply monetary policy in South Africa effectively. I think we need to watch that very, very carefully.

There are going to be other things which the banks are going to have to do in order to deal with the situation. I can list quite a lot of them but I think that these things are their business affairs and so I do not want to deal with them at the moment, certainly not in the time left to me.

There are a number of other things which one needs to touch on. Generally speaking, the banks raised relatively few objections to this measure and, as a whole, the principle was accepted. There were, I think, six points which they raised. One of these was the question of repurchase agreements with other banks. They wanted these to be exempt from capital requirements. We were convinced, however, that this exemption should not be granted in regard to repurchase agreements with other banks. Nevertheless, I have some doubts in regard to this, and I wonder whether we are not in fact being a little unfair in respect of matters which are, after all, inter-bank, in other words, matters which fall within a banking group. I think, therefore, that we are not being completely fair in that regard. The same applies in respect of capital requirements for interbank deposits. That should be looked at again because I do not think we have adopted a fair approach.

In regard to the question of whether the assets should be averaged over three or four quarters, we have gone for three quarters and I do not think there is any real problem in regard to it.

Insofar as the loan stock requirements are concerned, the banks wanted up to 50%. They were not given that, however, as we felt that 50% would be far too high. I do think that the banks are asking for a little too much there. However, it may well be that in the next year or so we are going to have to look at the percentage which is presently stipulated in the Bill in order to give a greater facility to the banks because they may find themselves in some difficulty in this regard.

Lastly, there was an objection raised by at least one of the members of the Merchant Banking Association—there may be another odd one or two—in regard to coins in banks being used as liquid assets. In this respect, however, the desirability of the change is such that it outweighs the disadvantage to the merchant banks from a competitive point of view.

On the whole, I think that while some of the objections of the banks have merit and cannot just be dismissed—they will perhaps need to be looked at in the future—the principle there is a sound one.

There are some final points that I want to make. Firstly I drew attention in the committee—and I want to do so again now—to the issue of divided control between the office of the Registrar of Banks and the SA Reserve Bank. I believe that the control of the banks could be more efficient if divided control were terminated. There is a staff shortage in both these institutions and there is a limited amount of talent available, and so I believe that that divided control should in fact be done away with.

Secondly I wanted just to draw attention to the fact that, since we are going to have legislation in respect of building societies, we are going to have to look at the relationship between the building societies once they take their new form under the proposed legislation and the banks under this legislation. There is going to have to be rationalization in respect of this because the building societies in their new form are going to be able to conduct certain banking activities. Thus there will be a degree of overlapping in respect of the activities of the two and we are going to have to keep these activities much the same. [Time expired.]

Mr Chairman, I think we are going to call today the day of the hon member for Yeoville, I actually felt sorry for him on hearing that this Bill would be introduced in the House this afternoon.

I agree with the hon member for Yeoville that we have not heard from short-term insurers. I do not think they attempted lobbying us and I am therefore of the opinion that this is a totally unjustified charge against our standing committee.

I wish to get to the problem mentioned by the hon member for Yeoville, namely that of the small depositor. I think the hon member also illustrated causes of the problem very well. I merely wondered whether it would not be best to ensure that the regulations of a bank were of such a nature that all depositors were protected. I am also concerned that the creation of another State institution will result in further costs which will ultimately devolve upon the smaller investor again.

It has also occurred to me that one really does not go to one’s commercial bank to invest money; a commercial bank is actually intended for one’s usual commercial transactions. One deposits one’s money there and borrows there but it is not actually the place for the small investor who wishes to save. I agree with the hon member for Yeoville that this matter be paid attention but I think one will have to consider both sides to see what is best for banking in South Africa.

As regards the new capital coefficients, the hon member for Yeoville asked whether we would not have the problem of money being removed from the capital market to the detriment of employment. I think that a very good point. I wondered, however, whether it were not more important to ensure that banks were liquid and solvent. The new capital coefficients are intended primarily to improve the solvency of banks. The hon member for Yeoville will agree with me that over the past few months there have been various articles pointing out the slight capital shortage experienced by some of our banks.

It is interesting that one finds the same trend in the United Kingdom. There banks have issued securities to supplement this shortage.

On examining this legislation, I have to thank Dr Jacobs and Mr Burton for the assistance we received from them. I do not think we all realize exactly how much these two gentlemen have contributed to our having this legislation before us today. South Africa is fortunate in having such people and I wish to thank them for the truly excellent work which they have already been doing for longer that the past year. Their hard work is clearly discernible in the outstanding Bill before us now.

When we heard evidence in the standing committee, it was clear that bankers were very serious about the passing of this Bill and that we should do so during this session. In spite of all the important changes recommended in this Bill, there was very little criticism from the banking sector against it.

The question arises: Why do we require such a Bill? Why are all the changes to the Banks Act, 1965, necessary?

Order! The hon member will probably be able to reply to that question on another occasion.