presented a petition from the Administrator of the Province of Natal, praying for the introduction of legislation to incorporate East Griqualand into the Province of Natal.

presented a petition from the Administrator of the Province of the Cape of Good Hope, praying for the introduction of legislation to incorporate East Griqualand into the Province of Natal.

, as Chairman, presented the Report of the Select Committee on State-owned Land.

Report to be printed and considered in Committee of the Whole House.

Mr. Chairman, in my Budget Speech I announced that it was the Government’s intention to issue a new series of National Defence Savings Bonds, but I explained that a considerable amount of preparatory work would still be necessary.

The Treasury has subsequently investigated the matter in depth and as a result of this investigation—which also included a study of the system used in Britain—it appears that the conditions of the bonds will have to differ somewhat from those I tentatively announced earlier.

Our basic approach is that the bonds should be available in small denominations to enable as many people as possible to purchase them. The bonds will consequently be sold in denominations of R5, although larger denominations, viz. R10, R20, R50, R100, R200 and R500 will also be available for the convenience of bigger investors.

Should a large number of relatively small bonds be sold, it will, however, be an impossible task to register the investors. The registration of millions of bond certificates will be an enormous task and require a very large organization which, especially in the present circumstances, simply cannot be considered. The bonds will therefore be bearer documents and the State will not be able to accept any responsibility for the safeguarding of certificates although investors will, as a safety measure, be able to enter their names and identify numbers on the certificates. This system will facilitate the purchase of certificates since no application forms or other formalities will be necessary. The bonds will simply be available over the counter at any post office.

If the bonds are not registered, it will of course not be possible to forward the interest payable to investors half-yearly or annually. It would in any event be an impossible task to post the interest on thousands of small investments to bondholders. Interest will therefore accumulate and will only be paid when certificates are redeemed. The currency of the bonds will be indefinite, but they will be redeemable at any stage after one year. In the case of estates, redemption will, however, be possible at any time.

The payment of interest upon redemption creates taxation problems, because it would be unfair to tax interest over the full period in the year of redemption. However, as the investors will not be registered and therefore not be subject to control, it will in any event be difficult to tax effectively the interest received. It has consequently been decided to make the interest tax-free.

If the interest is exempt from tax the rate must necessarily be lower, otherwise the cost to the State would be too great. The interest rate which will be applied will therefore be 8% simple interest per year, of which 5% will be paid tax-free at redemption. The remaining 3% will be credited to the prize fund, from which prizes will be allocated from time to time. For the sake of simplicity the original idea of a bonus payable at redemption after a number of years, has had to be shelved.

The proceeds of the bonds and the prizes may not be transferred to an area outside the Rand Monetary Area; non-residents are therefore excluded as investors.

Since the bond certificates will be bearer documents, they will in fact be transferable and negotiable, except if the investor enters his name and identity number on the certificates.

The negotiability of these bonds makes them ideal presentations and prizes for business firms and clubs as well as ideal gifts for private individuals. It also facilitates the provision by employers of stop-order facilities to salary and wage earners who wish to invest a fixed monthly amount in the bonds; the employer simply purchases the required number of bonds from the Post Office and gives them to his employees with their salary cheques.

The use of bearer bonds, however, requires strict control over reserve stocks as well as stocks issued. For this reason it has provisionally been decided to use only the Post Office as agent for the sale of the bonds. The Post Office is, by the nature of its business, geared to the control of valuable documents, and the nearly 1 800 post offices throughout the country will provide a very convenient sales channel, especially as no formalities will be required when bonds are purchased.

Bearer bonds must of course be printed on special paper to minimize the risk of forgery. This presented us with a difficult problem, but I am glad to say we have found a solution.

We gave very careful attention to the prizes to be allotted. The prizes will be paid from the 3% portion of the interest, which as I have indicated earlier, will be credited to the prize fund by the State. The prizes will, however, not be paid in cash. Initially it was the intention that prizes should be allocated in a form of further bonus bonds, but I feel that it may perhaps be regarded as unfair if a prize-winner were to be given so many additional opportunities to win a further prize. Prizes will therefore be allocated in the form of special prize bonds yielding a tax-free interest rate of 8% per annum for a maximum period of five years. The prize bonds will be redeemable after one year. Prizes will provisionally be allocated monthly.

Time is needed to ensure that the number of any particular bond sold is included in the prize allocation. A period of three months will probably have to elapse between the purchase of a bond and the inclusion of that bond in the allotment. The exact period will be announced later. When a bond is redeemed it will, with effect from the ensuing month, not participate in the allotment.

The bond numbers of prize winners will be published in the Gazette, be displayed at post offices and be made available to the news media. As the State will have no record of the names and addresses if bond-holders, prize winners will have to apply personally at a post office for their prizes.

There are still a number of details of the scheme which require attention, for example the method of allotting prizes, which should of course afford every participant a strictly equal opportunity.

It will be clear to this House that the planning and introduction of the new bonds is a major and complex task and presents many problems. We have tried, in close co-operation with the Department of Defence, to keep the system as simple as possible, but some problems inevitably require time to solve. The main constraint at the moment is the manufacture of the special paper required for the bonds. Good progress is, however, being made in this regard, although unfortunately I cannot as yet furnish a definite date for the commencement of the sales of the bonds. I trust that it will not be later than a date in September—at the latest by the end of September.

I hope that these bonds, to be named Defence Bonus Bonds, will make a great contribution to the financing of our defence effort in particular.

In conclusion I wish to emphasize that the existing National Defence Savings Bonds will still be available for those who prefer this type of investment. The rate of interest on these bonds is 9V2% per year, plus a bonus of 3% if they are held to maturity after five years. They are, however, redeemable after one year. They are a good investment for companies as well as individuals and I trust that they will continue to remain popular.

As far as the prizes are concerned, the position is still tentative. We are still giving this matter our close attention. We envisage a system of one big prize, a few secondary prizes, and a large number of smaller prizes.

†This aspect is still tentative. But we are thinking along the lines of a first prize of something like R20 000 or R25 000, another prize of possibly R10 000 or R12 500, another prize of R5 000 and perhaps 100 prizes of R500 each, 100 of R100 each and perhaps 100 of R50 each. This is still under consideration, but I just wanted to give the House some idea of how our mind is working in this respect, because quite a number of members of the public have told me that they are not so much interested in the interest, but that it is the prizes that would attract them more.

While I am talking about these bonds, may I also announce, on behalf of the Treasury, an entirely different issue, the new Treasury Bonds issue.

I wish to announce that the existing second series of premium bonds will be closed on 30 July 1977 and that a new series entitled “8% Treasury bonds” will be made available from 15 August 1977. The new issue will have a currency of five years and an interest rate of 8% per annum, tax free. The bonds can be cashed at any time after 18 months. The maximum holding will be R40 000 per taxpayer. These bonds offer an ideal investment particularly for persons in the higher income groups, and I trust that they, too, will be very popular. They will be obtainable from 15 August onward at post offices, banks, stockbrokers, etc., in multiples of R100, with a minimum of R500. If I may, I wish to make a further announcement, because hon. members may wish to refer to it during the discussions.

*I also want to refer to the rivalry between agricultural co-operatives and the non-cooperative sector. A few years ago—I think it was as long ago as 1968—the report of the Steenkamp Commission on this matter was published. The Government has given much thought to this matter, particularly during the past year or two. I want to refer briefly to aspects of the rivalry between the agricultural co-operative sector and the non-co-operative sector.

As hon. members know, I announced in August last year that agricultural co-operatives would be subject to tax with effect from the tax year beginning on or after 1 April 1977. The particulars in this regard will be mooted soon, during the discussion of the Income Tax Bill, when there will in my opinion be sufficient time available for any discussion of this matter.

On this occasion I want to confine myself to certain other aspects of the rivalry between the co-operative and the non-co-operative sectors, aspects to which I referred in my statement last year.

A senior committee of departmental heads under the chairmanship of the Secretary for Finance, went into these aspects very thoroughly and made certain recommendations to the Cabinet Committee on agricultural co-operatives. I want to refer to the principal recommendations. I want to do so because I want to give hon. members an idea of the lines along which I have been thinking about this matter.

Before doing so, however, I must also mention that the committee sees these recommendations as part of a package deal accompanying the tax liability of agricultural cooperatives. We were actually asked by the interested parties in industry, commerce, agriculture and other sectors to do so. It will therefore be possible for these recommendations, if they are finally accepted by the Cabinet, to be implemented as rapidly as possible. I want to refer only to the principal recommendations made by the committee.

Apart from tax liability the most important matter is the financing involved. We gave much thought to this. The principal recommendations are—

1. 1. The Land Bank should confine itself to the financing of the farmer, agricultural co-operatives and control boards, a function which it has traditionally performed.
2. 2. Certain activities of agricultural cooperatives, viz. the short-term financing of crop harvesting, short-term production services, the supply of short-term production means and short-term farming requirements, as well as the short-term financing of the cultivation and processing of perishable agricultural products which are not marketable to the ultimate consumer without processing, will be financed by the Land Bank at a preferential interest rate.

Hon. members will see that we differentiate here between preferential interest rates and non-preferential interest rates.

1. 3. Certain long-term financing of cooperatives by the Land Bank will also take place at a preferential interest rate, viz. financing of facilities required for the storage of crops, processing of perishable products not otherwise marketable to the ultimate consumer and the storage of short-term production means.
2. 4. All other short-and long-term financing of co-operatives by the Land Bank will be financed at a so-called competitive interest rate, i.e. non-preferential interest rate, which is related to commercial bank rates. This includes financing of primary and secondary processing of agricultural produce, other than the perishable products already mentioned, and the manufacturing activities of agricultural co-operatives.

This system of differentiated interest rates should, as we see it, be implemented gradually over a period of three years. In addition the committee also recommended that agricultural co-operatives, as is the case at present, should only on a limited scale and in special cases be allowed, with the approval of the hon. the Minister of Agriculture, to undertake non-members’ business. The committee was of the opinion that co-operatives should confine themselves to the activities which the farmer practises as agriculturist. For this purpose, however, agricultural co-operatives should be allowed to undertake and carry out activities in connection with (a) the production collection, processing and manufacture of the farmer’s produce; (b) the provision and manufacture of equipment required by the farmer for agricultural purposes; (c) the introduction and provision of all services required by the farmer as agriculturist and (d) the introduction of services which will be necessary to enable cooperatives to carry out the above-mentioned activities. I am pleased to be able to state today that these very important recommendations in regard to the activities of agricultural cooperatives meet with the general approval of the S.A. Agricultural Union and the cooperatives council. Recently this was confirmed to me again.

The preferential financing of agricultural co-operatives, the activities which they may engage in, alleged non-member’s business and the non-taxability of co-operatives, were in the past those aspects which caused the most ill-will. In my opinion the committee’s recommendations offer a foundation for the solution of this problem, and I trust that if a solution on this foundation is finally accepted and implemented, it will, with a little give and take on the part of all parties, to be the satisfaction of everyone. I do not want to go into this in too much detail now.

I want to refer briefly to licensing. The committee also recommended that agricultural co-operatives should be subject to licensing as far as their commercial activities are concerned. As far as decentralization aid is concerned, they recommended that decentralization aid and benefits be made available to agricultural co-operatives, subject to the requirements, the discretion and the approval of the Decentralization Board and the development corporation concerned. They also recommended that the bonus system should remain the sole right of the co-operatives as a method of profit distribution. Problems which were experienced in this regard in the dairy industry were brought to our specific attention, and have to be ironed out by the Marketing Council and the Dairy Board. The committee is also in favour of the automatic hypothecating activities of agricultural co-operatives being retained to their advantage.

I could elaborate on this further, but I do not wish to do so now. However, I do want to express my thanks and appreciation to all the organizations which co-operated so wonderfully in this regard. Hon. members must realize that this is a contentious matter, for we are dealing with industry, commerce, agriculture, the co-operatives and others. Time and again we consulted the principal organizations and held talks with them in a most cordial spirit. I think I can say today, without any fear of contradiction, that this is perhaps the first time in many years—perhaps the first time in our history—that all the organizations are now beginning to co-operate in order to find, in a constructive way and together with the Government, solutions to what have over the years been virtually insoluble problems.

A final solution has not yet been found. This matter will come before the Cabinet again and we shall conduct many more discussions with agriculture, the co-operative council and others concerned in commerce and industry. I am convinced that we shall make progress, for we are now on the right road. I should like to thank the senior officials and departmental heads for their long and arduous task in bringing about this situation which I have briefly explained now. Finally, I also want to thank my colleagues on the Cabinet Committee very sincerely for their fine co-operation of many years’ standing.

Mr. Chairman, may I claim the privilege of the half-hour. I would like to start by thanking the hon. the Minister for the information which he has conveyed to the House this afternoon in regard to the defence bonds and the new issue of the premium bonds. We have already expressed our opinion in principle about the defence bonds. We are in favour of them and we regard the element of a gamble that has been introduced into them as something that is likely to be popular with the public. We believe that this issue should bring a considerable sum of money into the Treasury for defence purposes. I only hope that the hon. the Minister has not made this issue too complicated to be comprehensible to the man in the street. I would further like to welcome the fact that a large part of the interest on the defence bonds is going to be tax-free. This is something that we on this side of the House have been pleading for. I have pleaded twice in this session already for something in the way of tax-free State bonds. I am, therefore, very pleased to hear that not only will the defence bonds fall into that category but that there is also to be a further issue of premium bonds that will be tax-free. I would like the hon. the Minister, when he reacts to this debate, to let us know, in view of the fact that there is a tax-free element in the defence bonds, whether there is going to be any limit on the amount of money that the individual may invest. It does seem to me that to the taxpayers in the higher tax brackets this is going to be a highly attractive investment. It may well attract an enormous amount of savings for the reason of its tax-free element.

I would now like to come to the hon. the Minister’s Vote. I find it paradoxical that while we are now going to discuss the largest Vote that we have in the budget, a Vote which accounts for over R3 billion, which is more than a third of our total budget, we are allowed, relatively speaking, the shortest period of time in which to debate the Vote. I realize that during this session we have other opportunities during which financial matters and financial policy can be discussed, but even so I find it difficult to do justice to five separate important departments of the State in the time that is allocated to this debate. In the time that is available to me, I want to touch upon a number of matters. I must say that even though there are other opportunities in which to discuss financial policy during the session, no discussion of the Vote of the Treasury would be complete without reference to what is probably the most important responsibility of the Treasury, namely advising and assisting the Government in implementing its economic, financial and monetary policy.

Therefore, Mr. Speaker, I want to start the discussion with an aspect of the economic situation which is probably the most important to our economic health at present, and one with which the Treasury is certainly vitally concerned, namely our balance of payments situation. I say that it is vitally important because while we are in the throes of a very serious economic depression—possibly the most serious depression that this country has gone through, certainly as far as its implications are concerned—there is no possibility of the Government taking economically sound steps to reflate or stimulate the economy until the balance of payments situation shows a substantial improvement. Therefore it is vitally important to us that we get the position right. It is proving a very protracted and intractable problem. You no sooner get one element of the balance of payments right—as appears to have been done very largely as far as the current account is concerned—than another goes wrong as has happened now to the capital account. Yet, despite the crucial importance of the subject, this House is kept pathetically short of information in regard to the progress of the balance of payments. The latest information in front of us is in respect of the fourth quarter of 1976, for which preliminary figures only are available. In other words, we are having to deal with information that is more than five months old. I asked the hon. the Minister, in a question which I tabled, whether he would not give us more up-to-date information than we have available to us. He said that he would look into the matter but unfortunately no more up-to-date information is available as at today’s date. What we do know is that there has been a continued improvement in the visible current account, mainly due to the decline in our imports as a result of our sluggish economy. In fact, there was a welcome visible surplus on current account in April.

We do know that the hon. the Minister has from time to time made optimistic statements in regard to the inflow of foreign capital without in any way quantifying those statements. On the other hand, we do also know that the chambers of commerce, the chambers of industries, the Handelsinstituut, his own colleague, the Minister of Economic Affairs, businessmen and bankers have made not optimistic but rather pessimistic statements on the same subject. We do know that in the last five months there has been a gold swop arrangement, but the Minister again has refused to quantify the amount involved or to give any details in regard to the terms of repayment. But, most important, we do know that the foreign exchange reserves at the Reserve Bank in the last five months have risen only from R734 million in December to the latest available figure of R753 million. That is a rise of only R19 million. That is over a period when obviously the gold swop added a substantial amount to our foreign exchange reserves. We on this side of the House would like to know the reason why our foreign exchange reserves are continuing to be so sticky. In the absence of the information for which I have asked and which is not available to us, we can only assume that either all is not well with our foreign capital flow situation—I refer to long term and short term capital inflows and outflows—or that the item which appears in our balance of payments account under the heading “Errors and unrecorded transactions” is larger than we would wish to see and may include leakages, on a substantial scale, of foreign exchange. I believe that it is probably a combination of both those factors that is keeping our foreign exchange reserves so sticky.

As far as foreign capital flows are concerned, let me say that in the absence of quantitative information all the evidence we have from bankers, businessmen, company reports, chambers of commerce, chambers of industries, the Handelsinstituut and so forth points to an overall reduction in the net capital inflow, to the difficulty of raising foreign capital and to the fact that what capital is entering the country is doing so on a shortterm basis. I think that the reason for the reduction in the capital inflow is clear from the evidence that is available. The reason is a lack of confidence. It is, however, not a lack of confidence in our economic potential …

It is not a lack of confidence in the policy of the Government

… but rather a lack of confidence in the policies that are being followed by the Government. I have said before, and I shall say it again and again, that I am convinced that the least step that is required to restore confidence, a big step in itself, is to do away with the discriminatory legislation which the Nationalist Government has put on the Statute Book. I shall return to the question of capital flow in a moment.

I think the hon. the Minister should also have a good look at the item of errors and unrecorded transactions which in 1976 rose to a record level of R389 million and which was reflected as a debit against our balance of payments to that extent. One area which I think we should look at is the amount of insurance premiums leaving the country. Now that brokers’ commissions are limited by law, I ask the hon. the Minister whether there is sufficient control over premiums which are paid to foreign insurers outside of the country, insurers such as Lloyds of London, where the limitations on commissions on premiums cannot be effectively controlled by the legislation we have in this country so that there is an incentive for brokers to divert business to foreign insurers.

I also ask the hon. the Minister whether he is satisfied that the flow of reinsurance business to foreign reinsurance companies is normal at the present time and not inflated as a means of exporting foreign exchange. I believe that these matters and, in fact, the whole subject of exchange leakages is something that requires very careful scrutiny by the hon. the Minister and his department.

Coming back to the question of capital inflow, I want to say that I believe we have got to face the fact now that we are not going to be able to rely on an inflow of foreign capital to the same extent as we have had in the past and that we must plan accordingly. It therefore behoves the Treasury to do everything possible to mobilize the domestic capital market and to encourage domestic savings by voluntary means. For that reason I would like to say to the hon. the Minister that I welcome most strongly and hearily the two announcements he made this afternoon with regard to the defence bonds and the second issue of the premium bonds. I believe, though, that there are one or two other avenues which the hon. the Minister could also explore to encourage savings. I would like to suggest to the hon. the Minister that he should consider increasing the tax abatement which is at present allowed in respect of pension fund contributions and contributions to retirement annuity funds, and to permit it to include a limited amount of investment in a Government bond. He would have to issue a special non-negotiable Government bond for this purpose. I believe that that would be a very fruitful source of capital to the Government and that it would be one that would encourage savings.

That is the only positive thing you have said today.

I think the hon. the Minister should also consider allowing a tax-free discount of, say, 1% per completed calendar month for early payment by provisional taxpayers of their provisional income tax. This would help the Treasury’s cash flow and all the Treasury would stand to lose would be the tax on the interest which the pre-paid amounts might earn for the period of the pre-payment.

I believe, that if the Treasury were to do more to stimulate voluntary savings, it would be in a position to relax some of its compulsory saving schemes. We have a whole battery of compulsory saving schemes at the moment. There is the enforced investment by financial institutions in Government stock, there are the loan levies, there are inflated prices and charges by public corporations like Sasol, the Post Office and Escom, in order to raise capital. I would like to see more avenues being left open to the private sector to raise its capital needs. The Government must never lose sight of the fact that it is investment in the private sector which is going to provide for the growth, the prosperity and employment in this country and not growth in expenditure by the public sector.

Mr. Chairman, there is one final matter I would like to raise with the hon. the Minister. It is a matter which I have already raised under the Vote of the Minister of Social Welfare and Pensions, but I now raise it again under the Treasury Vote, since the Pension Funds Act is administered by that Department, I think it is high time that the hon. the Minister and his department did something about amending the Pension Funds Act to make preservation of pensions rights a compulsory matter when a member leaves a pension fund for reasons other than death or retirement. It is now 11 years since the Cillié Commission recommended that that step be taken. This is a Treasury matter. The same recommendation was repeated last year as a result of an investigation into a possible national contributary pension scheme, made by the Department of Pensions. The squandering of lump-sum payments by pension funds to their members when people change their jobs is something that is creating social problems on an increasing scale. It is also creating liabilities for the taxpayer on an increasing scale, particularly in hard times such as the present, when people are losing their jobs. This is a problem which is growing all the time. I would appeal to the hon. the Minister, in conjunction with his colleague, the hon. the Minister of Social Welfare and Pensions, to consider doing something and doing something fairly soon about this matter.

Mr. Chairman, in connection with the hon. the Minister’s announcement on defence bonds, I should like to say that I think that the announcement is generally welcomed. In particular I think that the valuable aspects that are deserving of praise are, firstly, the negotiability of the defence bonds. I think this will definitely serve as a stimulus to the purchasing of the bonds, thereby promoting their distribution. In my view the other very positive aspect is the fact that the interest on defence bonds will be tax-free. I think this will also be welcomed throughout the country. To judge from the interest there already is in defence bonds, I think that there ought to be a very nice and very favourable turnover. That is, of course, in the interests of the country.

I do not want to engage in a dispute with the hon. member for Constantia In fact, although he was somewhat pessimistic here this afternoon, I think that he nevertheless made a few constructive and valuable suggestions. I just want to point out to the hon. member, however, that when he says “the bankers are pessimistic”, this may be a valid claim in regard to some bankers—those who perhaps feel just as pessimistic as the hon. member for Constantia himself. Such an allegation, however, is not valid throughout. As proof of this I should like to quote to the hon. member for Constantia what Mr. J. van Kahn, the General Manager of Nedbank, said recently in an address he delivered to the National Development and Management Foundation. The hon. member for Constantia was also present at that lecture. He ought to remember exactly what Mr. Van Kahn said. I quote—

When a responsible banker like the General Manager of Nedbank makes such a responsible statement and pronouncement in public, I do not think that the hon. member for Constantia is justified in making a general statement here to the effect that bankers are supposedly pessimistic about the present financial situation. On the contrary, I think that what I have just quoted proves the very opposite.

The hon. member for Constantia also referred to the decrease in the capital inflow. I shall come back to that again at a later stage. I want to concede, however—I believe, in fact, that everyone will concede as much—that the inflow of foreign and overseas capital has recently been sluggish and that in that respect the situation evidences some rigidity. This does not, however, only apply to South Africa. It also applies to other countries that are dependent, or to some degree dependent, on foreign capital.

That, of course, is not true!

Mr. Chairman, the hon. member for Yeoville may start shouting. He knows, however, that it is true. It would be a good thing for me to remind the hon. member for Yeo ville again that according to the latest report of the Reserve Bank the net inflow of capital for 1976 reached a total of R995 million.

What does that mean?

It means exactly what I have said. There was an inflow of capital. It seems as if I must repeat that the hon. member for Yeoville apparently does not understand the position. What I have just said does, in point of fact, sketch the picture. I believe the fact that it is difficult to obtain capital in the international sphere—on the world market— merely goes to prove what an achievement it was for South Africa to have succeeded, in spite of its political situation, in getting together a net capital of R995 million. I could continue in this vein. As far as the present position is concerned, there are quite a few tangible, visible, positive factors specifically arising from this budget. They result from the conservative measures in the budget, measures which are the direct result of the Government’s conservative, thorough policy. I want to quote what a very well-known British financier said about South Africa’s monetary position and the Government’s handling of this issue. Hon. members must bear in mind that recently we were, and still are, under strong pressure as regards loans in Britain. The financier said—

That is what is being said abroad about the handling of South Africa’s financial position by the Minister of Finance and the Government.

One can point out even more of these positive factors. There is, for example, the increase in the gold price. In this connection I want to refer to a report in The Cape Times of today about the gold situation—mention was also made of it on the radio. The report reads as follows—

That is the pronouncement of Consolidated Gold Fields about the possible position. Even the hon. member for Johannesburg North will probably acknowledge that a prediction of this nature is not only optimistic, but also indicates that in this specific connection we can expect a very steady position in the future.

In spite of the inflow of foreign capital we had in the past year, I accept the fact that the position in respect of foreign capital inflow in the period ahead will be very tight. The messages of Messrs. Carter, Mondale, Young and others have certainly not passed unnoticed. We are also aware of the pressure being applied to friendly bodies in an effort to have them refuse loans to South Africa. We have taken note of the action of the Greater London Council and we know what our old friend, the World Council of Churches, is doing in this connection. We know what its message is, and in this connection I agree with the hon. member for Constantia. Dr. G. de Kock of the Reserve Bank also said that we must plan from the point of view of realism and on the basis of decreased capital inflow. For various reasons we accept this. We accept the fact that it is not merely as a result of our political policy; we accept that it is an international state of affairs. In future the inflow of capital to South Africa will be scant and meagre, and this includes other rival countries whose positions are comparable with that of South Africa.

Just mention one of those countries.

I can mention half a dozen or a dozen countries, but I cannot use the few minutes, which I have left for that purpose. [Interjections.] Mr. Chairman, what is the message? The message is nothing new. It is an old idea, yet one that we shall have to pursue. What I am saying is that South Africa must try to become more self-sufficient in respect of the provision of capital. 13% of our capital investment comes from abroad. We, on the other hand, must try—there I agree with the hon. member for Constantia— to mobilize our own local capital sources to such an extent that we can make ourselves independent of foreign capital if that is at all possible. I therefore want to suggest to the hon. the Minister that we have the aspect investigated in depth and determine how this can be done scientifically. It is clear that there is some potential in this. It is reflected in this year’s budget. It is also reflected in this one issue by the State in regard to which, according to reports, the amounts subscribed amounted to R493 million. Escom asked for R40 million. They were over-subscribed and, as a result, had to close their lists earlier than was intended. The total amount subscribed was R70 million. Iscor asked for an amount of R30 million, which was subsequently increased to R40 million. The amount offered was R48 million.

That being the position, I do believe that there are great possibilities and great potential. [Time expired.]

Mr. Chairman, the hon. member for Ermelo has continued to perpetuate the untruth that South Africa is in fact in the same position as comparative countries with regard to the borrowing of capital from overseas. But not one single example can be given by the hon. member for Ermelo, by the hon. the Minister or by any other hon. member sitting on the empty benches of a comparable country which has the same problems in regard to the obtaining of capital at the present moment of time. On the contrary. Anybody who would bother to look at for example the new issues which are taking place in the Euro-dollar market and in the other currency markets throughout the world at present, will unfortunately see South Africa as being conspicuous by its absence, whereas other countries find themselves able to get money. The question is why this is so.

All other countries?

I am referring to countries of a comparable kind, countries of the same credit-worthiness and the same wealth. I challenge the hon. the Minister to name one. He must look at the issues and he will see it. The truth is that it is a political issue. There is no question about that: It is due to the political situation in Southern Africa. We bluff ourselves by the continual perpetuation of these untruths.

I want to come back to some of the things the hon. the Minister has said. Firstly, I want to deal with the issue of the defence bonds. I should like to raise a specific issue with the hon. the Minister, and that is that a considerable portion of the population in South Africa disapproves of the concept of defence bonds because they believe it is a form of gambling, of lottery. I do not happen to agree with that. However, I suggest to the hon. the Minister that for the sake of those people, who also would like to participate in defence bonds, there should be a series of defence bonds in which this extra 3% is given to them on a tax-free basis, so that they do not have to participate in the draw and their feelings in this matter are respected. In this way they can contribute towards defence bonds on the same tax-free basis but without having to participate in the lottery. The other defence bonds fall in a different category. These are bonds on which one has to pay tax. Unfortunately the second series of bonds are also not in the same category. They are not issued in small denominations. I appeal to the hon. the Minister to have respect for the religious feelings of those people, to allow them to participate in defence bonds and to create a bond on which they receive the full interest and do not have to participate in the lottery.

There is a second matter to which I should like the hon. the Minister to react. I should like him to tell us about his proposed visit to Europe and the United States of America after this session. What does he propose to achieve in the USA? In the Other Place the hon. the Minister indicated that he was going there, and I would like the hon. the Minister to take the House into his confidence as to what he proposes to do on this trip.

The third thing I would like to touch upon in order to get a reaction from the hon. the Minister, is the question of the taxation of devaluation profits and losses. I believe we should encourage people to borrow overseas. The hon. the Minister knows that it is his policy and Reserve Bank policy that one cannot get forward exchange cover in respect of the loans. One can get forward exchange cover in respect of the movement of goods, in respect of trade, but one cannot get it for this. The hon. the Minister also knows that the courts have held that the profits are not taxable nor are the losses deductible. I wonder whether it will not be in the interest of the encouragement of people to borrow overseas, at a time when we need to get as much borrowing as we can, to allow these items to be regarded as being of a revenue nature so that the losses can be claimed and so that the profits are taxable. For example, when people are in the manufacturing business, they are not necessarily in the money business. They should be obtaining money not for the purpose of making profits or losses on exchange; they should be in the business that they are conducting and in regard to the profits and losses they should have them on a deductable basis or on a taxable basis. I would like the hon. the Minister to react to this specifically.

I want to deal with one last small item, i.e. the question in regard to the money which is voted to the provincial councils. I would like to ask the hon. the Minister whether he will approve of the kind of ante-diluvian Administrator who wants to perpetuate himself for prosperity by the creation of magnificent opera houses when South Africa cannot afford this kind of expenditure. I want to ask the hon. the Minister: Does he and his department approve of this kind of thing that is being done in South Africa when there are …

Order! The hon. member must not take that point too far. It is a provincial matter.

With respect, Sir, money is being voted under this Vote to the provincial administrations and I am suggesting to the hon. the Minister …

Order! I have given my ruling.

Sir, I want to talk about provincial money. With respect, you cannot stop me from talking about money which is being voted for the provinces.

The hon. member may discuss that during the Third Reading. He cannot discuss it during the Committee Stage.

The purpose for which that money is to be used, is something in respect of which we can withhold supplies. If it is being voted for a purpose which we regard as undesirable, we can withhold supplies. However, I have made the point and I do not want to carry it further. I want a reaction from the hon. the Minister to the question whether he approves of the fact that when some people are living in slums and some people have to be squatters because there is no housing, we can spend R40 million on the building of opera houses in South Africa.

I now wish to deal with what I consider as being the main thrust of this debate. The challenge I want to put to the hon. the Minister today is to tell Parliament and the people of South Africa whether he and his party have a plan to get South Africa out of the economic mess in which we are at the present moment. If he has a plan, I challenge him to tell us now what his plan is. The impression that is being created, is that the hon. the Minister finds himself in a rudderless ship, running along patching up holes with no actual firm and determined plan to solve South Africa’s problem. We have high inflation, a negative gross national product, no per capita growth in the domestic product, reduced living standards … the hon. the Minister can smile and laugh, because his living standards have not been reduced.

I can do what I like.

The hon. the Minister must not laugh when the people of South Africa have their living standards reduced …

You get on with your job. I shall get on with mine.

That is precisely what I am trying to tell the hon. the Minister to do, but all he does is to sit there and laugh when we speak about reduced living standards in South Africa. He should really be ashamed of himself. He should be concerning himself with unemployment in South Africa. He should be concerning himself with living standards and he should not sit there laughing. He knows very well that there is a lack of demand locally. There is an under-utilization of manufacturing capacity. There is reduced local investors’ confidence. There is a shortage of overseas capital. At this very time when we have to spend more money on defence, when the rising aspirations of a considerable portion of the population cry out for satisfaction, the time has come for the Government to tell us whether there is a plan. There is no such thing. We do not even see an economic development programme any more. The hon. the Minister talks about a recession. It is no longer a matter of recession. If one is realistic in South Africa today, one will have to use the word “depression” in describing the situation in which we find ourselves. The hon. the Minister dampens imports in order to prevent a revival and so as to try to deal with his balance of payments problems. What is the effect of all this? The effect is that we have no growth, we have increased unemployment and generally find ourselves in a very serious situation.

The hon. the Minister knows that even with a growth in the domestic product of just over 6% per year, we are not going to solve the problem of unemployment. We need growth in the domestic product at the rate of about 10% if we are going to solve the problem. This is nowhere in sight. We have heard of no plan on the part of the Government. We have heard of no plan as to how to deal with the maintenance of living standards and how to give employment to the hundreds of thousands of unemployed in South Africa [Time expired.]

Mr. Chairman, the hon. member for Yeoville shocked us again this afternoon. He launched certain attacks and, inter alia, referred to the South African economy as “an economic mess”. The hon. member must spell it out in further detail, however, and tell us what this means. In the Western world we have had a depression and the biggest countries, such as America and Germany, have experienced a negative growth rate. In spite of the fact that the world-wide depression blew across to South Africa after 18 months, as is usual, we have not had setbacks of the same intensity. We have still maintained a positive growth rate. It is true that it has been only about 1½%, yet South Africa has been much better off than before. The hon. member surely knows that if there is an upswing, it takes about 18 months before South Africa is affected. The opposite is also true. The hon. member spoke about a tremendously large unemployment figure. Does the hon. member not realize that there is not the extensive unemployment he has tried to sketch for us? A large number of the unemployed are, in fact, work-dodgers. We acknowledge that there is a certain amount of unemployment, and the hon. the Minister has spelled this out very clearly. We are not trying to evade the issue of the unemployment. We cannot, however, stimulate the economy to create more job opportunities, thereby sending inflation rocketing. That hon. member knows just as well as I do that steps had to be taken to combat inflation. He simply advocates more foreign loans.

The hon. member for Constantia said they had too little time to discuss the Vote. He said that only an hour and a half had been allocated to discuss this large amount. It is not, however, only the NP that allocates the time; his own Whips also do so. His Whips agreed to that period of time because they knew that he and his party were not in a position to use more time. Why does the hon. Opposition not come to light with the true facts? They requested so little time because they knew that the hon. the Minister’s budget and his policy is beyond any criticism. Those are the true facts of the matter. We have had a budget that is acknowledged by every living soul, in South Africa and overseas, as an excellent budget. The hon. member cannot criticize the Minister’s policy; those are the true facts.

This afternoon I should like to have a look at a few small matters. This is a large amount that we have to vote, but what does it involve? The hon. the Minister’s Vote reflects an amount of R3 119 736 000. Included are, of course, transfer payments and statutory amounts. The figure in the printed estimates is R9 365 million. The hon. the Minister’s share of that does, in fact, amount to 33,3%, but I want to analyse it further by looking at other percentages and figures. The transfer payments, which amount to R2 293 million, are 73,5% of the total amount this hon. Minister is requesting under his Vote. This must be transferred. The hon. the Minister is also requesting an amount of R634 million which must go to the Railways. Hon. members must now say whether they are criticizing the hon. the Minister for supplying the Railways with a loan from local sources so as to make it unnecessary to borrow money abroad. The hon. the Minister has made it clear that we shall not borrow money from abroad, and that is the correct policy to adopt. Let us create our own capital locally; let us find the money locally to cover our own State expenditure.

If there is no growth rate, where do we get the money?

There is a growth rate! There is a great deal of money, and this year, by way of this budget, the hon. the Minister is getting all the money he needs. There is a growth rate! The Government cannot, on its own, get everything in this country to grow. What is the private sector doing? It must also make its contribution. Hon. members are so quick to say that one must borrow, but I want to point out that we are saddled with R808 million in interest which must be included in the total the hon. the Minister is requesting here. This constitutes 8,6% of our total budget.

That is because there is also 14% inflation.

Now the hon. Opposition wants to borrow more money, when in effect the hon. the Minister and the Government is financing Government expenditure in such a way that we can obtain the finance from our own revenue and sources without negotiating these exorbitant loans. I just want to refer to the money allocated to the provinces, i.e. R1 596 million. The total amount that must be voted for Defence is R1 654 million, the transfer to the Railways and Harbours Fund is R634 million and the amount in respect of the national debt is R808 million, a total of R4 692 million or 50% of the budget. Those four items alone represent 50% of the budget. Yet the provinces are being tom to shreds, but I think that a tribute should be paid to the provinces today because they have cut down so much on expenses that it was possible for the Minister to request so small an amount for the provinces.

I should like to raise another matter with the Minister, and that is the fact that our marginal scale in respect of private individuals is so high. It is 66%, plus the loan levy, which they do, of course, get back. Together, of course, this makes up 72%, if the person is earning more than R28 000. We know it is not easy. The hon. the Minister has already said so, but I do want to ask again that the matter be looked at to see whether we cannot decrease this high marginal scale, for example to 60% plus the loan levy.

Under this hon. Minister’s Vote there is also an amount of R26 million as South Africa’s contribution to the International Monetary Fund. I wonder if the hon. the Minister could indicate to us how South Africa compares with other countries, particularly with those that have so much to say about South Africa and want to boycott us. What are the percentages that they contribute, and on what basis does the IMF make these calculations? It would be a good thing for us to have a look at these matters and see how other countries, who also get their share from the IMF by way of the drawings they are continually making, compare with South Africa.

As far as the turnover tax is concerned, the hon. the Minister has given a clear guideline, as in the past. This is one method which can be used to reduce the marginal scale and which can help to decrease the company tax, which is too high at the moment. We hope that the turnover tax, which is to replace the sales tax, will be put into operation as quickly as possible. We know the problems involved and we know that the department is working very hard on it, but we do want to ask that this tax be introduced as quickly as possible, if this can be done. If it is found that it can be introduced in December instead of February, it must be introduced in December so that the other matters can receive attention. This will bring more relief to the taxpayer in general, particularly to the taxpayers in the high brackets, those people who earn more than R28 000, who have the capital, provide work and create capital by way of their savings. The quicker we can set this process, which the hon. the Minister has come to light with this year, in motion, the better it will be, because we shall thereby be able to do our own financing, thus enabling us to save. That also answers the question of the hon. member for Hillbrow.

In general I want to say that we are very grateful for the fact that in his budget this year the hon. the Minister turned his attention much less to loans and more to taxation, i.e. revenue, to finance our current expenditure—that is, in fact, his policy—and also for the fact that so much has been done by the departments towards saving and curtailing Government expenditure so that the policy of the Government can be implemented.

Mr. Chairman, it is difficult to reply to Opposition speakers in this debate.

Of course.

It is difficult in the sense that one has to reply to people who were actually behaving in an unpatriotic manner.

Mr. Chairman, on a point of order: Is the hon. member allowed to suggest that other hon. members behave in an unpatriotic manner?

Order! The hon. member may continue.

They are unpatriotic!

Mr. Chairman, with an Opposition such as that, and with a man who adopts a standpoint about the economy of South Africa such as the standpoint the hon. member for Yeoville adopted this afternoon, South Africa does not need enemies. The hon. member said that the hon. member for Ermelo had been guilty of an untruth. If there is any untruth to be identified in South Africa, it is the policy of the PRP. On the one hand they pretend to advocate “one man, one vote”, but on the other they trick the Black man with their “franchise” policy. That is an untruth. That is the biggest untruth I know of. [Interjections.]

That is political fraud.

Hon. members spoke of the taxpayers’ money being spent on an opera house. This side of the House has always adopted the standpoint that one should also look to the spiritual values of the people. We are not prepared to adopt a purely materialistic standpoint, as the Opposition parties do. We want to retain the individual identity of the people. If the hon. member had wanted to be honest, he ought to have pointed out that R168 802 000 is being voted in the Community Development Vote for the provision of housing in the country. The major portion of that amount is being spent on behalf of the non-Whites in South Africa.

But R40 million is being spent on one opera house.

In that connection there was certain planning under way. Neither is it a question of R40 million being spent on that project this year. If I remember rightly, only R10 million has been spent on it. This Government takes care of housing for non-Whites as no other Government has ever done.

The PRP has said that bonds must be made available which are not subject to prizes, because there are people who are not happy about participation for the sake of winning prizes. That is typical of them. They want to run with the hare and hunt with the hounds. They always want to adopt a popular standpoint. That is their policy. They simply adapt their policy.

Instead of being insulting, why do you not answer the argument he raised?

I think we owe the Government and the hon. the Minister a great deal of thanks for the intelligent way in which the Estimates were drawn up. Hon. members must just have a look at what has been done over the years in regard to planning, the fiscal and monetary steps that have been taken and the policies about these matters in order to strengthen South Africa’s economy. If they were to take note of that, they would sing a different tune. They always come to light here with a superficial standpoint. I want to thank the Minister and his chief officials sincerely on the bonus bonds. I think they have worked out a functional plan. It is a workable plan in which everyone, who has South Africa’s welfare at heart, can participate. Anyone can obtain these bonds from the Post Office in his area. I think that the hon. the Minister has thereby done our country a service. He and his officials have done significant planning to make this possible, so that people can participate in it.

I now want to refer to the agricultural co-operatives. In that connection the Steenkamp report, which was made public in 1968, contained certain recommendations that were contentious in the sense that they met with the approval of some people whilst being unpopular with others. I think that the hon. the Minister handled this matter extremely skilfully and cleverly. It was a difficult task to eliminate the dissention that existed between the co-operative society movement in South Africa and the retail trade, to bring these people together and to enter into a meaningful agreement. I think our senior Public Servants deserve a great deal of praise in that connection. We want to say thank you very much to them for the impartial action they took, for the far-sightedness they displayed and for the sound economic principles that applied throughout the discussions to find an acceptable solution in the interests of both those parties. We want to say thank you very much for the standpoint the hon. the Minister adopted this afternoon about the financing, by the Land Bank, of the farmers, the cooperatives and the control boards at preferential interest rates. We think that is the right thing to do. I also think that the hon. the Minister has adopted the correct standpoint in connection with short-term financing for the treating and processing of products which could otherwise not be marketed. As far as long-term financing is concerned, which will also embody preferential interest rates for facilities such as the storing and processing of our products, I think the hon. the Minister is quite correct and dead on target. That is the task performed by the agricultural cooperatives in this country. They do it with a great deal of care in the interests of the whole population of the country. It is right that those preferential funds should be available for those purposes. As far as secondary industries are concerned, there has been some dispute over the years. Terms were used that did not clearly identify items. In that connection the hon. the Minister also succeeded in finding a solution for the farmers. It is right that in that respect we should have to pay interest rates, on the long-term loans in the secondary industry, which compare favourably with bank interest rates. No one can have any criticism on that score. I am also glad that in this package of agreements the non-member business, which has always caused great dissatisfaction, will in future be subject to the approval of the Minister of Agriculture.

I think the Minister of Agriculture will see to it that nothing happens that is not right. I am glad that there is acceptance of the principle that the activities of the agriculturist on his farm, as a farmer, are activities that the agricultural co-operatives can perform, i.e. the collection and processing of our products.

The term which was used with regard to farming requisites, was not a term that could be defined, but I think that the principle which the hon. the Minister has stated here as a principle is very clear, and we are in full agreement with that. We are also glad that complete unanimity has been obtained in this connection.

In respect of the licensing of commercial activities, I also think it is only right. We are also glad of the decentralization benefits there are going to be. For the first time there is recognition of the principle that co-operatives also form part of industry in South Africa. In that connection we are on the right road. Here we have reached a milestone in South Africa, and we are glad that the co-operative society movement, which has done so much, not only for the agriculturist in South Africa, but also for the consumer, is now obtaining full recognition. With the money it had available, it was often very difficult to venture into the secondary field, but since it will now be possible to obtain Land Bank funds for that purpose—even at increased interest rates; it does not want preferential treatment in that connection—we are glad that that avenue has been opened up to it and that the co-operative society movement will participate fully in South African industry.

Another small point I want to refer to is the bonus system, which remains the sole right of the co-operatives. We want to thank the hon. the Minister very sincerely for that. The other problems in that connection can be ironed out by the Marketing Council.

Another aspect for which we want to thank the hon. the Minister is the right of pledge. The co-operatives lend money to farmers at very small returns. I have in mind, for example, the earnings on items such as fertilizer, etc. The co-operatives make very small profits. If they did not have the right of pledge, they would not be able to do as much financing to enable the farmers to produce on such a broad spectrum and to perform their task. That is why the right of pledge is very important. We have to congratulate the hon. the Minister on that. [Time expired.]

Mr. Chairman, I do not intend to react to the hon. member for Heilbron. I simply want to remind him, in relation to the remarks he made about patriotism, that it was once defined as the last refuge of a scoundrel. In so far as the hon. member for Sunnyside is concerned—and his remark that unemployment is not all that bad—I will deal with him during the course of my speech, and I hope the hon. the Minister will dissociate himself from that particular remark.

Our present economic position is stark. The recession in which we find ourselves is still deepening. Unemployment, which has been a matter for grave concern and disquiet for some time, is still rising, and it remains a very serious cause for concern. Real standards of living are dropping, and indeed, as the hon. the Minister will be well aware, most of the economic indicators show a decline as against the same period last year. All of this could have been expected, as the strict monetary and fiscal policies adopted since early 1976 have had a cumulative depressing effect on domestic spending, on the money supply and on the current account of the balance of payments.

Indeed, the latter, viz. the current account of the balance of payments, is now in much better shape, but at the cost of a huge price which is being paid by all of us. Against all of that the fact remains that the Government has not been able to balance the negative factors. The negative factors are political and they are on the capital account of the balance of payments. Indeed, I suspect—and I hope the hon. the Minister, if he has the figures, will give an answer to this, because we have not yet had the official figures from the S.A. Reserve Bank for the first quarter of this year—that the net outflow of capital may have continued during the first quarter of this year and that the net reserves may have decreased still further.

Despite this very serious economic downturn, there is no evidence as yet that we have succeeded in breaking the back of inflation. This is one of the most serious problems that we face, because it is indeed the one advantage that one could reasonably have looked for and reasonably have hoped for in the economic climate in which we now find ourselves, and which is a result of the strict monetary and fiscal policy of the Government. It is here that business and the general public, Black and White, should have found some solace. However, as I have said, there is as yet no comfort to be found. If we look at the most recent figures for the rate of inflation, the facts are as follows: In April this year it was 11,5% above that of April of last year. That is admittedly an improvement on the 11,9% increase in February and the 11,8% increase in March, but it is still a far cry from what is acceptable.

In addition—and this is the key figure, the frightening figure—if we look at the rate of increase during the last three months over the previous three months, we notice that that rate of increase is just in excess of 15%. That is how fast the rate of acceleration is, and of course if that were to continue for a further nine months, that would be the rate of inflation for the year. Let us be clear. We are not suffering at the moment from the particular type of that vile disease which arises from excessive present demand—far from it. We are suffering from a rise in the cost of living, a rise which has been caused by the never-ending stream of price increases, approved of by this Government, due to the removal of subsidies on food, and due to the effects of the increase in indirect taxes, like the increased duties on alcohol and cigarettes. In referring to the leader of the Opposition, the hon. the Minister said, and 1 quote (Hansard, 15 April 1977, col. 5341)—

Mr. Chairman, I know perfectly well that on occasion increases in indirect taxation can be deflationary. Indeed, some prices, I know, have already fallen. Others may decline in the future. I accept that this can happen, as the strict monetary policy takes increasing effect in the future. However, as we now stand, there is a credibility gap with the general public. We cannot indefinitely ask the general public to accept the present economic scene if price increases continue. They all know that times are bad, but they must see the dosage of the medicine as equitable, otherwise their self-restraint is going to break and they are not going to accept wage restraints. Indeed, in certain of the lower rungs of the ladder that should not be asked for.

It appears clear that the Government and the hon. the Minister, unless they change their policy, are on the horns of a dilemma in the light of our present level of reserves. As a result of the Government’s present economic policies, sooner or later, unless something changes, in particular Government policy, the situation is going to become untenable. What the general public wants to know is whether a chink of light can be seen. Can they see the way forward? That is really what everybody who lives in South Africa wants to know.

On the positive side, it is clear that the exports have and are continuing to perform well, particularly in the case of the export of minerals, and the anticipated contribution which will be made from maize should add to that. One can reasonably anticipate that during this year, even in the present economic climate, exports are going to show significant growth in rand terms. The value of our gold, as has been mentioned, should also be high. All of that augurs well for the current account. However, on the capital account the picture seems very different, because it seems that the deeper the recession gets, the more the economy is pushed into recession and the more the political uncertainty escalates in the absence of the Government taking the requisite action, the worse the capital account becomes. This cannot continue, and the point will come when, irrespective of the level of the net reserves, the present economic policy will have to be changed and its effects will have to be alleviated.

Socio-political pressures are going to force that change from the Government and the hon. the Minister. The hon. the Minister is going to have to reflate, even in the absence of an inflow of foreign capital. The implications of that for the rate of inflation are quite obvious. Indeed, in those circumstances there is a clear risk that the value of the rand will again come into question. It is difficult to see much further ahead than that at this point of time and, of course, circumstances can and will change. However, what can be said is that one cannot reasonably foresee a resumption of adequate growth, let alone satisfactory growth, without overseas confidence, unless the rest of the Free World’s Economies simply take off in a very dramatic way, but there is no sign of that happening. The key remains overseas confidence and its restitution demands political change from the Government. Tragically there is no sign of that and no evidence of a positive thrust or action to do what is not only right but required.

Mr. Chairman, the hon. member for Johannesburg North concerned himself mainly with the increase in the rate of inflation. At the end of his speech he tried to talk politics a little. I think it was a very poor show. During the course of my speech I will refer to inflation in the agricultural industry. With a view to the problems facing the country’s economy at present, and taking the inflation, balance of payments and capital problems into account, it is of importance to consider the role played by the agricultural industry in the South African national economy. The agricultural industry has undergone a revolutionary change. It has changed from a self-supporting undertaking in respect of which a farmer could to a great extent meet his own capital needs, to a more specialized industry which has taken on the character of a business undertaking. Although the agricultural sector’s contribution to the gross domestic product was only 7,9% in 1975, it has nevertheless developed into one of the key industries of the Republic and today it plays a vital role in the South African national economy. It plays an important role as a producer of food and raw materials and also as a consumer in the usual sense of the word, and as a consumer of industrial products. The industry is also an important source of employment and an important investor and it plays a particularly important role as an earner of essential foreign exchange. After the gold industry, agriculture is the largest earner of foreign exchange. Indeed, the primary sector, viz. agriculture and mining showed a considerable improvement during the second half of 1976 as a result of better weather conditions and an increased volume of export. As a result of this very factor, the real gross domestic product has consistently shown a positive growth rate. During 1975 agricultural products, processed or unprocessed, to the value of R1 245 million were exported. That amounted to approximately 35% of South Africa’s export goods. Considerable capital investments and a growing demand for credit have today become characteristic of the agricultural industry. It therefore follows that the availability of sufficient capital and adjusted credit facilities have become important prerequisites for the success of a farming undertaking.

The credit requirements of the agricultural industry can be divided into three categories, viz. short, medium and long term needs. Apart from the Government, a variety of financial institutions, as well as private individuals, are involved in the financing of the agricultural industry. The Land Bank, however, still remains the main single source of financing specially adapted to the needs of the farmer. At the end of 1976, individual farmers owed the Land Bank R483 million in long term loans and R39,5 million in medium term loans, while agricultural co-operatives owed the Land Bank R146 million in long-term loans and R860 in short-term loans. Apart from direct financing, farmers as members of co-operatives are given indirect short-term credit too in this way. The total burden of debt of the agricultural industry amounted to approximately R2 100 million at the end of 1975. The monetary bank sector supplied R645 million of this. The liability asset ratio of the agricultural industry amounted to only 12% in 1975. One can deduce from that that in general, the agricultural sector does not bear too heavy a burden. However, that does not give a true picture of the total financing involved in agriculture, because although the direct indebtedness of the agricultural industry to the Land Bank amounted to R470 million at the end of 1975, in fact the Land Bank’s total outstanding loans amounted to R1 359 million at that stage. An important part of the Land Bank’s loans goes to agricultural cooperatives, as I have tried to indicate, and as is reflected in the annual report as well.

Over the years the Land Bank has traditionally been the financier of agricultural cooperatives, and in the course of time it has developed into the main source of financing for both long-and short-term needs.

The hon. member for Heilbron dealt at length with the function and the task of the agricultural co-operatives. I do not want to add anything to what he said, except to say that we welcome the conditions under which cooperatives will in future still be able to receive financial aid from the Land Bank.

As a result of the agricultural industry’s access to financing by means of the Land Bank, directly as well as indirectly via the agricultural co-operatives, the farming community is to an important extent safeguarded from the full effect of the monetary measures in times when a restrictive policy is being followed, as at present. In carrying out its financing policy the Land Bank therefore has to take note of the reigning economic conditions in the country and also formulate its loan policy in such a way as not only to meet the essential needs of the agricultural industry but also to maintain a healthy financing pattern for agriculture. The imbalance between the real productive value of agricultural land and the present exorbitantly high market prices not only increases the risk factor of granting credit to the farmer, but also has a harmful effect on the stability of the agricultural industry in general. It is true that the number of applications for long-term loans in the Republic dropped by 14,4% during 1976 and the number of loans awarded also dropped by 15,6%. This drop was mainly caused by the considerable reduction in the amount requested during the year for the purchase of land. It is also encouraging to know that there was no unusual increase in the amount requested for the consolidation of debts. In these difficult times, expansions in agriculture should be limited to only the most essential projects and then only projects directed at boosting the industry’s volume of production and its export capacity. Farmers and their co-operatives will have to adapt the planning of their capital expenditures accordingly.

With the amendment of the Land Bank Act, 1975, an effort was made to right certain shortcomings with regard to short-term and medium-term loans to farmers in terms of the provisions of section 34 of the Land Bank Act. By doing away with the system of the right of pledge on goods purchased by means of mortgage loans and cash credit schemes and instead only requiring a promissory note, farmers made more extensive use of the facilities offered by the Land Bank. The number of applications received, the amounts requested and awarded in terms of the new scheme, have increased considerably and are proof of the acceptability of the new scheme. Capital is at the moment one of the scarcest resources and every body or person making a demand on the country’s capital resources— that includes agriculture—should ask himself whether the capital will be employed for increased production and for the export capacity of the country. The state of the economy at the moment necessitates our reconsidering our priorities and our way of life and once again emphasizing the benefits of greater productivity, greater thrift and greater initiative. I do not doubt that the agriculture, in the best traditions of the past, will serve as encouragement to greater effort and perseverance.

Mr. Chairman, the hon. member for Smithfield indicated that there had been a drop in the amount awarded in loans by the Land Bank during the past year. The only thing I can say in that connection is that it is an indication of the recession which we are experiencing and that the time has come for the hon. the Minister to do something about strengthening and boosting the agricultural economy to some extent.

† I was a little bit disappointed that the hon. the Minister did not give us any information about Government expenditure for the month of April. Almost six weeks have elapsed since the end of the month of April and one would have thought that at the commencement of the debate on his Vote, he would have taken the trouble—if he did not have the final figures— to at least have given us some preliminary figures to indicate what the expenditure was during the month of April. I believe the hon. the Minister could have done that, and I believe the reason why he did not do it, is because these figures are not very flattering as far as the hon. the Minister is concerned. The figures might show that Government expenditure has not decreased in relation to last year, but might have increased. I wonder if the hon. the Minister can, at this late stage, say when he replies to this debate whether my guess is right and whether there has, in fact, been an increase in Government expenditure during the month of April. That would give us a very good indication as to whether the policy which the hon. the Minister says he is going to follow …

It would not at all. I explained last year that one has to take it over the year.

Yes, one has to take it over the year, but one can at least compare the figures for April of last year with the figures for April of this year. I think we are entitled to know the information and it is no use the hon. the Minister saying that it does not work that way. I think he must give us the information and let us decide for ourselves whether we can make any deduction from it or not. That is not the point I want to discuss this afternoon. What I would really like to discuss is the question of provincial finance. This is a matter which I raised with the hon. the Minister last year. Unfortunately I did not get a very satisfactory reply and that is why I am raising it again. The needs of the provinces are defined by two pieces of legislation, viz. the Financial Relations Act of 1976 and the Provincial Finance and Audit Act of 1972. Amounts are made available in terms of the Financial Relations Act by way of subsidies. The subsidy is calculated by taking into account the financial requirements of the province in respect of normal and recurrent expenditure and the province’s capacity to pay, taking into account the revenue that will accrue to the province. Both these criteria are subject to a proviso that the subsidy plus the capacity to pay—in other words, the amount the accrues to the province—will not be less than the financial requirements. In this respect there is a special criterion, viz. that the hon. the Minister may determine what that expenditure and revenue shall be. Last year when we debated this matter the hon. the Minister said in his reply that he had a special committee. I think he called it a departmental committee. He said that this committee was at pains to consult with the provinces at all times. In fact, he said that they were practically in daily consultation and therefore they knew from day to day exactly what the provinces’ requirements were. I am assuming that this is in fact what takes place. Therefore, I assume that the hon. the Minister knows at all times what the position is in arriving at this enormous amount which we budget for in this Vote. In so far as the capital or non-recurrent expenditure is concerned, the expenditure is approved of for the construction, acquisition, extension or improvement of buildings, bridges, ponts, works or undertakings of a permanent nature. There are some very interesting methods by which the hon. the Minister, I believe, can control this expenditure. There are also other ways in which an Administrator of a province has some control over the expenditure. The point is: Just what control does the hon. the Minister of Finance exercise? It seems to me that he exercises control only in so far as the amounts that are required are concerned. In other words, when the request is made to him for subsidy or for capital amounts, the control he exercises amounts to saying: “You can only have so much. You cannot have as much as you want.” I would like the hon. the Minister to be clear as far as this is concerned. We on this side of the House would like to know whether that is the only way in which he controls the finances of the provinces or whether there is some other way. It was suggested many years ago in the Schumann Report that there should be proper planning of the finances of the public sector and that there should be priorities as far as the financial planning of the public sector is concerned.

I do not know whether this planning and these priorities are matters which the hon. the Minister of Finance busies himself with. I have an idea that it is not so because up to last year there was no planning in the finances and there were no priorities in the finances. However, in this year’s budget speech for the first time he announced that there now was

How can you say a thing like that?

The Minister announced this year for the first time that there was now going to be proper planning and that there would be proper priorities. That is what the hon. the Minister said in his budget speech. I see he shakes his head now, but I remember it particularly because it is a matter in which I am very interested. If this is the case, then surely, when there are priorities the hon. the Minister will know from year to year whether those priorities are being complied with or not. In other words, when the finances for a province are planned I assume that they are planned on a five-year basis so that a province will know for a period of five years in advance just how much money will be available to that province by way of subsidies and by way of loan capital. The province can then budget these amounts during the following five years. Many of the works that are erected by the provinces cannot be completed in one or two years. Some of them take a few years. If the provinces are not in a position to have that information before the time it is very difficult for them to plan. I am assuming that that is what the hon. the Minister has in mind; in other words, that he has this plan, that he knows exactly what the provinces are going to do for five years in advance. If he does not know exactly what they are going to do, he knows what they are planning to do. I assume that he does exercise some control over that planning and that he also exercises some control over the priorities, in other words, that he exercises some control over whether 20 schools are built this year and an opera house the next year or whether an opera house is built this year and 20 schools next year. I want to refer to the budget of the Transvaal province just shortly by way of illustration.

In so far as the Transvaal is concerned, additions to school buildings amount to 22 million and in the case of hospitals to R54 million, but there is an amount of RIO million this year for building an opera house. I should like to know from the hon. the Minister whether he knew in advance that this would be the case and that these were the amounts that would be budgeted for by the province of the Transvaal? Did he know what the total cost of those additions to the schools would be? Did he know the total cost of the hospital? Did he know that the total cost of the opera house would be almost R50 million? In these times of financial stringency, did the hon. the Minister not say to the Administrator of the Transvaal: “I am very sorry, Mr. Administrator, but I believe that you have your priorities wrong. They are not in terms of the priorities that I recommend. I recommend quite different priorities.” [Time expired.]

Mr. Chairman, I am sorry to say that it seems to me that the hon. member for Wynberg expects the hon. the Minister to take over the provincial administrations and do the work of their staff members. I am not going to pursue his speech any further. I think that as an ex-MPC, he ought to know that the Provincial Council also has its officials who are very careful in spending money.

This is a financial debate, but by way of introduction, Sir, you will allow me to comment on a few of the Opposition spokesmen. When I look at them, at the members for Johannesburg North and Yeoville in particular, I get the impression that they regard this country which I call my fatherland, as a milch cow and not as a fatherland. They consider how quickly they can make money and then they apparently intend to run away. I do not know whether that is true, but I have not heard from them one word of recognition of the fact that this country, South Africa, has at least a few achievements in the field of economics to its credit. I understood from the Chief Whip that the hon. member for Yeoville and I, amongst others, would soon be going on a short overseas trip. This afternoon he talked about South Africa’s “economic mess”. Now, I wonder whether he is going to tell this story in America when he gets there. I think he spoke this afternoon for the sake of political expediency, for the Rand Daily Mail and those people. I think it is time for the PRP, more specifically the hon. member for Johannesburg North, the hon. member for Yeoville and a few others, to become more loyal and to regard South Africa as a fatherland and not as a milch cow from which they want to extract as much as they can before running away. The arrogance and impudence of the hon. member for Yeoville astounds me.

The hon. member for Johannesburg North said: “The world demands change.” I do not know whether he is talking about the Western world or the Third World. It has recently become clear, however, that not even the policy of the PRP, i.e. the policy of the hon. member for Sea Point—I am not talking about the policy of the hon. member for Houghton, because the two differ from each other; one stands for “one man, one vote” and the other does not—is accepted by the Western world or the Third World. If the policy of the PRP were “one man, one vote”, the Western world would accept it, but since this is not the case, not even their policy is acceptable to either the Western world or the Third World. Mr. Chairman, I am astounded …

We are conducting a financial debate.

I know this is a financial debate. I shall come to financial matters presently. I must say, Sir, I often have respect for the standpoint of the hon. member for Yeoville, but as a loyal South African citizen—I cannot speak in the same terms about the hon. member for Johannesburg North—he must recognize that the economic situation in South Africa is not as bad as in other countries and that we do in fact have some achievements to our credit.

Mr. Chairman, mention was also made of the inflation rate. I admit that our inflation rate is not satisfactory, but when I look at the present downward trend, when I look at the tremendous economic and financial problems South Africa is wrestling with and when I look at the achievements of other countries in this field, I should like to say that I do not think our record is so bad that I have to crucify South Africa every time I stand up to speak.

Mention was also made of Government expenditure. It is not only in South Africa that Government expenditure has shown an upward trend over the years. I admit that we have to contend with those problems here as well, but let us take a closer look. Despite the tremendous pressure that is being exerted and the tremendous demands concerning expenditure which are being made on the Government in respect of defence services, social services, the infrastructure, etc., I nevertheless want to prove on the basis of certain official figures that we have in fact done well in that respect. I have here an official publication in which comparisons are drawn between Government expenditure for the financial years 1975-’76, 1976-’77 and 1977-’78. Between the financial years 1975-’76 and 1976-’77 there was an increase of 15,26%. This includes defence expenditure. Between the financial years 1976-’77 and 1977-’78, however, there was an increase of only 12,64%. Therefore there was a drop of almost 3%. How does Government expenditure during those years compare if one excludes defence? If we compare the financial years 1975-’76 and 1976-’77, we see that there was an increase of 11,38%. However, from 1976-’77 to 1977-’78 there was an increase of only 10,62%. Therefore there was a drop in real terms. What is particularly important is that if one excludes defence, it is clear that a very fine feat has been accomplished as far as Government expenditure on essential services is concerned.

In the time still at my disposal I want to try to mention a few of the achievements of the hon. the Minister and his department. Last year, and again in his budget speech this year, the hon. the Minister of Finance presented us with the slogan “Growth with stability.” I believe we are justified in saying that the hon. the Minister—as I shall attempt to indicate in the next few minutes—has in fact succeeded in bringing about stability and, to a certain extent, growth as well. Firstly, ever since he took up the post, the hon. the Minister has not been afraid to implement strict monetary and fiscal measures. When I talk about the hon. the Minister, I cannot fail to consider, too, his senior staff in the Department of Finance, the Treasury, Audit, and Customs and Excise. These are all people with years of experience who have shown their loyalty. Therefore, when I speak of the hon. the Minister, I should also like to include all the senior staff of his departments. Of course, I am also referring to the senior staff of the Land Bank and other departments. These are people who furnish him with advice. When he accepted the post, he told them he would implement strict fiscal and monetary measures in order to bring about stability.

I have here a testimonial given by the former president of the Handelsinstituut on January 1977, in which he states emphatically—

I am quoting from page 17 of Volkshandel of January 1977. This is one of the many achievements of those departments, under the leadership of the Minister.

The second point is that the Minister and his advisers could very easily have come up with snap solutions, or with popular vote-catching measures, but they were committed, and are today still committed, to long term economic planning and development and they have not taken any action which could have had a disrupting effect on the national economy as a whole. I think it is a very important characteristic I am mentioning here.

Thirdly, the hon. member for Yeoville and the hon. member for Houghton may laugh, but I think that the Minister and his departments, through their actions, have succeeded in generating confidence abroad. Despite domestic problems, he has nevertheless succeeded in generating confidence in the outside world. Now the hon. member for Yeoville is asking the hon. the Minister what he is going to do in America and Europe after the adjournment of Parliament. He is not going to plead. He is not going to go down on his knees and say “Please, help me.” He is definitely not going to do that. I think the hon. the Minister is going to hold discussions, he is going to state his policy and describe the situation, but he is certainly not going to go down on his knees and beg overseas.

A fourth achievement of the Department is that they have frozen the pressure for higher salaries for the Public Service. In this way they have set a very fine example to the private sector to ask their people, too, not to come forward with demands for salary increases. [Time expired.]

Mr. Chairman, you will understand if I decide not to do a pas de deux with the hon. member for Worcester as I have very few minutes at my disposal and I want to raise another subject with the hon. the Minister. I want to say something about the rather tricky question of joint taxation of husbands and working wives, which the hon. the Minister has very good reason to know is a touchy subject, because it is of interest to thousands of married women who are already working and to thousands more aspirant working wives. Last year, in his budget speech, we still had a ray of hope, because the hon. the Minister then said, although he would not alter the system of joint taxation, that he was still considering the joint report of the department and of the Standing Committee on Tax. This year, I am afraid, has spelt the death knell to any hopes that working wives have, because the hon. the Minister has announced that he is accepting the recommendations in toto of that report, and that report, of course, recommends that the existing system be maintained.

There were many, what I call, questionable statements made in that report. First of all it doubts whether the change in the system from joint taxation to separate taxation will result in any considerable number of additional women entering the labour market and therefore doubts whether any additional revenue thus gleaned will offset the undoubted loss that the fiscus will have to sustain if the system is changed. However, I would like to point out that no in-depth inquiry has really been undertaken into this particular subject. According to the statement made in the report, in 34,4% of households in South Africa, both spouses are already economically active. I want to point out that this is a pretty low figure in comparison with other countries. I think it is particularly low when one considers the amount of domestic help that is available in South Africa. This, of course, helps to release women with qualifications to take jobs. That is one of the, what I would call, doubtful statements made in the commission’s report.

Another statement made is that the commission considered it inequitable that separate taxation of spouses could result in single-breadwinner families paying higher taxes than families with both spouses working. That may well be the case. However, this argument is not used with regard to families where, say, sons and daughters are working while living in the household and also contributing to the general income of the household. I think the fact that both spouses are contributing towards the Gross National Product of the country should entitle such a household to an additional reward. The hon. the Minister’s honeyed words about the charming and eloquent ladies who came to see him are not going to soothe this savage breast. There is no chance of that! The campaign to have the taxation system changed is certainly going to continue. Those ladies are not about to give up the campaign because the hon. the Minister has flattered them in that way.

I must state though that I agree with the statement in the joint report—and made also by many experts on tax—that the real villain of the piece is of course the high marginal rate of tax in South Africa. I think that is commonly accepted. Unfortunately the hon. the Minister shows no sign of changing that high marginal rate, which I think should indeed be done, because it is one of the highest marginal tax rates in the world outside of the United Kingdom. We pay something like 72%. That is without any additional amount. 72% is the marginal rate at R28 000. In Australia the maximum individual income tax is 65%. In Austria it is 62%. In Canada it is 47%. In West Germany it is 46%. In Sweden it is 65% and in the United States it is 70% for incomes of $200 000 and more. At $30 000, which is roughly the equivalent of our maximum of R28 000, it is only 39%. We pay a very high marginal tax indeed at that rate.

Of course, the hon. the Minister will not reduce this. I wonder if he would not consider two alternatives that have been adopted in other countries. The one is to widen the bracket—that is the rate band—from the present R1 000 to say, R3 000. That will certainly bring considerable relief. Secondly, of course, there is the alternative of reducing the maxima. I end by saying that the very least the hon. the Minister must consider doing is to increase the ludicrously low deductible amount of R750 from the taxable income of a working wife. That does not even begin to cover the additional expenses a woman incurs when she goes out to work. There are the additional clothes she needs, the transport costs and the additional domestic help she has to hire for her household, which are all factors which should be taken into account.

This was the first time in a long time you have had your feet on the ground.

You must have a working wife, Cas!

Mr. Chairman, the hon. member for Houghton discussed the working wife. We are sympathetic towards such women, but the hon. member is aware— she also mentioned it—of the commission which went into all the aspects of this particular question. I do not know whether the hon. member for Houghton classifies herself as one of those working wives.

Do you not think I am a working wife?

I shall leave that to the sound judgment of the hon. the Minister of Finance.

The hon. member for Yeoville or one of the other members of the PRP said: “The world demands change.” When one consults the budget, one finds that the allocation in respect of services for non-Whites as reflected in the budget, in fact amounts to more than we are going to spend on the defence of South Africa. I think this is really phenomenal and not only the Opposition, but the rest of the world as well, must take cognizance of the Government’s attempt to meet the needs of all our people. They must take cognizance of the fact that even in these times when Southern Africa has to contend with difficult political problems, we are nevertheless willing to spend more, on the whole, on the needs of our non-Whites than on the defence of South Africa.

I also have problems with the ideas about unemployment advanced by Opposition spokesmen. We accept that a certain measure of unemployment exists in South Africa at present. The reasons for this are obvious. However, when the Opposition deals with bottlenecks and problem areas in our economy, they are inclined to discuss them in total isolation. One cannot discuss them in that way, however. One has to consider the problem within the total context, because one thing leads to another in the economic set-up.

The hon. members of the Opposition must realize that in these times in which the entire economic cycle is in a downward swing, when there is a reduced tempo and less expenditure and demand, it is logical to expect that unemployment will increase. That is why the Government has held out the prospect of selective stimulatory measures in the budget in order to combat the increase in unemployment in part. The hon. members of the Opposition ought to know, and do know, that until one can stimulate the economy by means of stimulatory measures, there definitely cannot be full employment in South Africa. Let us be very clear on the fact that even if the economy were to show an upward swing at this juncture, we would have to expect that the employment opportunities would not simply be there for the asking. We cannot eat more than we produce. I acknowledge the need that is going to exist for us to provide and create employment opportunities in times to come, but we shall and can do this in such a way that it keeps pace with and relates to productivity, which is a basic, primary requirement in that regard.

As far as the economy is concerned, I believe it is right for us in these times in which, as the hon. member for Constantia and others have said, we are experiencing a difficult economic period, to refer to the real trend prevailing at present and to the wonderful improvement in our current account.

The hon. members said that there had been an improvement in the current account but that we were still having problems with our capital account. That is true, but let us take cognizance of the fact that there has been an improvement in our current account. Basically, this is a first step towards the upswing, recovery and forward movement of our economy. According to figures in Press reports—I do not want to allege that they are official figures or include every item—our trade surplus for March was as much as R21 million. The total amount for April was R92 million. I think this is a very clear indication. In fact it is the first time in years that we in this country have experienced the situation in which this favourable position exists in respect of the current account. If we can maintain this position, I believe that not only have we touched bottom, but every economic yardstick indicates that we may now expect our economy to improve gradually.

I now want to come back to the idea I put forward earlier, namely that we should become more self-sufficient in respect of capital requirements, something the hon. the Minister and the Government are fully aware of. That is why no provision whatsoever is made in the present budget for foreign loans, excepting for an amount of R149 million in respect of re-investments. I think this indicates that the Government not only accepts and realizes that foreign loans are scarce, but also that they realize rightly so, that the time has come for us to become more self-sufficient and to mobilize our own resources to satisfy our capital requirements.

In fact we must also bear in mind that at best, foreign loan prospects are of an extremely variable nature. If we look at the figures for the last few years, we see that they fluctuated from an outflow of R92 million a few years ago to a total inflow of R1 900 million in 1975. I therefore believe we must attempt to arrange and regulate our affairs in such a way as to get by, if at all possible, without that foreign capital.

If I might make a few suggestions as to how we ought to attempt to order and regulate this position, I would say that I think we should try to encourage and promote joint ventures, consortiums and companies with parent companies here and abroad in a purposeful manner. I think our shareholders should be made up of South African and foreign shareholders. We must plan and establish joint ventures in this way in order to remedy our position. This will entail tremendous benefits in respect of capital investment and productivity. The greatest benefit it will entail is that to a large extent it will relieve the international pressure we are now experiencing. I think our sophisticated economy in South Afriaca as it is today, will definitely be capable of accommodating joint ventures between us and foreign undertakings.

The other path we could follow in this regard, is to make maximum use of trade credits by way of project financing. A very good example of this is our Sasol 2 undertaking, where we are making very extensive use of project financing. It is a very useful method which is well understood abroad and which we can make use of to a very great extent in order to satisfy our capital requirements.

Mr. Chairman, when we talk about the question of foreign capital, one of the things we have to do is to see it in its correct perspective. In 1976 what was called long term foreign capital, as a percentage of the gross domestic product, was about 3,83%. If we ask ourselves why the situation has arisen that we need inflows of capital in order to deal with our balance of payments situation, I think we need to look at what is called the fiscal deficit which exists in South Africa, i.e. the difference between the total Government expenditure and the tax revenues. What is interesting in this regard, is that the fiscal deficit doubled from 3% in 1970 to 6% in 1971 and that between 1974 and 1975 the fiscal deficit increased from 2½% to 7% of the GDP. This year there will be a slight difference because of the new approach which the hon. the Minister has adopted, but one of the reasons why we have needed foreign capital, is because of the existence of this fiscal deficit in South Africa. What the hon. member for Ermelo seems to ignore is that this is the Government’s making and that the fiscal deficit is due to the attitude of the Government in the way in which they have budgeted. As I have indicated, we are not getting the full economic development programme, but while I was talking earlier on in the debate, the summary was put on my desk in my office. What is interesting from this summary, is that no forecast is made as to what our growth rate is going to be. Some statements are nevertheless made, and the summary indicates quite clearly that the maximum growth rate, until the year 1981, is put at about 5% per annum. Yet, in the same paragraph of the report it is said that from a labour point of view, it appears as if a growth potential of 5% per annum over the new programming period is the minimum rate that can be accepted.

That is in respect of employment. The simple point that I am trying to make to the hon. the Minister, which I tried to make earlier on and which is borne out by this report, is that on the figures that are available for existing growth in South Africa of the domestic product, and on the strength of what forecasts there are of potential, it seems to us that the unemployment situation is, unfortunately, going to get worse. We do not see a real plan in regard to the solving of that problem. That is what we have appealed for here, because we in these benches regard unemployment not only as being a social problem, but also as a problem which has political dangers inherent in it. That is why we issue this warning to the hon. the Minister. That is also why we feel frustrated at the fact that there is no planning ahead to deal with what we regard as being a major problem in regard to stability for South Africa in the future.

The hon. member for Ermelo returned to the question of the balance of payments. I invite the hon. member to read the report, because if he does, he will see that the future situation reveals very real dangers in respect of our exports, so that imports will have to be continuously limited. With the limitation of imports as they are, we cannot stimulate the economy and we are finding ourselves in an increasingly serious situation. None of us in these benches are entitled not to issue a warning that we see a house that is burning but that we do not see the hon. the Minister, who is in charge of the fire brigade, doing anything about putting out the fire. [Interjections.] That fire is serious not only for us, but also for the hon. members who interject contemptuously from the other side of the House. It is our duty to warn of this fire and to appeal to the fireman to do something about it, because he is in charge of the fire brigade and not us.

Another matter I would like to deal with, is the question of discrimination in taxation. I would like to appeal to the hon. the Minister to tell us whether he does not believe that there should be one Income Tax Act for all South Africans, an Act in which taxation is levied without discrimination based upon colour or race. The discrimination which exists today in terms of which Black people pay higher taxation on the same income as opposed to Whites, Coloureds and Indians in South Africa—I am referring to the lower income levels—is not capable of justification.

The hon. the Minister of Finance must repudiate it because this is not something that he can justify on a public platform in America where he intends to go and on which I have asked him to make a statement. No more can the hon. member for Worcester justify his attitude when he is asked in America why he objects to Coloured and White children having ballet classes together. That kind of attitude does more harm to the financial image of South Africa than one can imagine. That is the tragedy that exists in South Africa.

Mr. Chairman, may I ask the hon. member whether, if we all paid the same tax, everyone, irrespective of their colour, would have to pay the same for their hospitalization, rent, etc. ?

Mr. Chairman, I say that there should be no discrimination in South Africa. The poor person, whether White or Black, should have the same privileges.

†That is the point, and that means payment as well, make no mistake. Let me tell the hon. member something he does not know. When the Black man goes to hospital in the Transvaal he has to pay more than the White man. [Interjections.] Whites do not have to pay before they reach a certain income level. The hon. members do not know their facts. My attitude is a very simple one and there is no difficulty about it. When one is poor, it does not matter whether one is White or Black, one should be entitled to the same privilege of not paying. If the Black man does not pay, the White man in the same position should also not pay because one does not discriminate either way. One cannot discriminate against the White man any more than one can discriminate against the Black man. Non-discrimination means no discrimination on colour and it does not mean privilege because of colour, whether one happens to be Black or White. That is our policy and there is no question about it.

However, we are talking about taxation. I appeal to the hon. the Minister to get up here and say that he disapproves of discrimination in taxation based on colour. If he does not, he will have grave difficulty in explaining this to the world, let alone this House.

I want to come to another issue, namely the issue of securities rand. The hon. member for Ermelo proudly stated how much money had come in for Escom stock. However, will the hon. member tell us what in fact the return is to the foreigner who uses securities rand which he can buy if he buys Escom stock? The truth is that one can get a return in excess of 25%. I say that that is an indictment of South Africa, because I believe that South Africa’s future is not such that anybody should want to get a return of 25% on his investment. I believe that we have a sound future and I believe that there is a future for South Africa. However, I believe that it is a falsity to try to create a situation where people pay in order to get a 25% return on Escom stock in South Africa. What is the hon. the Minister going to do about this? What is he going to do about the whole issue of securities rand? What is he going to do about the fact that our stocks on the international market are showing a yield which indicates a lack of confidence in South Africa which I do not believe is justified and which I do not believe anybody in this House is entitled to say is justified. We are here, we intend to be here, we intend to remain here and we believe that South Africa has a future. Why do we have to borrow money at an interest rate of 25% from anybody in the world? [Time expired.]

Mr. Chairman, I listened to the hon. member’s speech today, particularly when he said that it seemed as if the House was on fire in South Africa and the hon. the Minister was not putting out the fire. That reminds me of a joke and I think the hon. member will accept it in the spirit in which I tell it because my nickname is “Jood” and he is a member of the Jewish community. It reminds me of Abe and Moshe who had a business in Wale Street. Things were not going very well with the business. One day Abe said to Moshe: “This business of ours is not so good. For the salvage of the business, I think you must find a job.” Moshe then left to look for a job. He came to the fire station in Roeland Street. There they employed him and he really enjoyed his new job. He found it fantastic to slide down the pipe whenever the whistle blew to signal that there was a fire. When that happened, he jumped onto the fire engine and off they went. One day the alarm was raised once again. Moshe slid down the pipe and jumped onto the fire engine. When they came to Wale Street, he saw that it was brother Abe’s shop that was on fire. When Moshe came running up with the fire hose, Abe said to him: “Moshe, do not put on water.” Moshe then said to him: “Do you think I am a fool? This is petrol!” [Interjections.] I just want to say that this is not the situation in South Africa. We are not throwing petrol on the fire.

I want to come back to another aspect which I find very important, the third level of our government, namely local authorities. We know what the central Government has done to effect savings in its departments. The result is that our budget this year clearly shows what has been saved if one compares it to expenditure during the previous year. I am a little concerned about whether our local authorities and our city councils are saving as much. It is true that it is the duty of local authorities to provide essential services and in that regard one thinks of the supply of water, electricity, sewage and similar services. In view of the times we are living in, however, I think the time has come for the committee to keep a much closer watch over the capital expenditure of local authorities.

If we have to lay streets, then we have to lay them, but is it really necessary in these inflationary times for us to have tarred streets? Is it really necessary for us to have kerbstones? I can remember the days when I was serving on a local authority that it cost one almost R1 to lay a paving stone. Today it is much more expensive. Today we do not find a street being laid in a town without a pavement and kerbstones being laid as well. Is this really and truly necessary? Let us look at the development of our townships. When one drives along the Ou Kaapseweg and looks down, one sees that the streets in that area are tarred. Those tarred streets do not last if no cars drive over them. One finds lamp-posts standing in town areas and in the evening when the lights are shining, they shine as brightly as poppies in a field but no-one lives there.

I want to make an earnest plea that we give some consideration to this type of thing. Since our sources of revenue perhaps do not run to that and we cannot always look at only the revenue side of it, we must now give closer consideration to the expenditure side. I think we have to insist that the local authorities forget about this tremendous competition among them. One wants to build a larger and more impressive civil centre than the next. We must even consider the planning of fire brigade services so that we can perhaps do this on a regional basis, because these are expensive services. Capital is tied up in a building which one only really uses perhaps once in six months. I really think that we ought to give closer consideration to those matters.

Finally, I want to bring two matters to the attention of the Minister. The first is this one-man business concern where the wife is employed together with the husband. The man may not be able to afford to employ an extra clerk and now the husband and wife are together in the business. If the woman had been employed elsewhere, then at least R600—I do not know what the exact amount is—could have been deducted from her husband’s income. However, if the wife is employed by her own husband, this is not deductable. I should also appreciate it if the Minister would give some consideration to doing something with a view to a compromise in this regard.

Since we are now going to levy sales tax, we must consider whether we cannot accommodate the company as far as company tax is concerned. The company is having a hard time of it, because due to the tax it pays, it cannot build up capital for future expansion. These are the people who generate employment opportunities. I should appreciate it if some attention could be given to those aspects in particular.

Mr. Chairman, I have listened attentively to all the various contributions to this debate. I want to express my sincere thanks to those hon. members who took part. I found the debate really interesting. The debate was conducted in an objective and pleasant atmosphere. The hon. member for Yeoville got a little worked up. I do not know why. He even objected to the fact that I smiled at one stage. Sir, listening to him, I sometimes do not know whether to laugh or to cry. On that occasion I decided to laugh, and that made him furious. I am very sorry about that. On the next occasion I may cry. But that is as it may be.

Actually I do not want to anticipate the taxation matters which will come before this House in the next week or two, but since numerous inquiries have been received lately concerning estate duty on pensions, I should like to refer to that briefly. Articles have been appearing in the daily newspapers as well as in the technical Press lately about the alleged burden of estate duty on the pension payable to a widow as a result of her husband’s death. The purport of these articles is that the interest rate of 6% at which the pension is capitalized is unrealistic and causes an unusually high amount, in proportion to the current value of the pension and of the estate of the deceased, to be included for estate duty purposes. The lower the interest rate applicable to this, the higher the capital amount. Representations in this connection have been addressed to me and my department by certain institutions and also by hon. members of this House and of the Other Place.

As I have said, I do not want to anticipate legislation still to be introduced. I may have more to say about this during the discussion on the Income Laws Amendment Bill. However, I think it is appropriate to say on this occasion that my department has gone into the representations and that I have decided to increase from 6% to 12% the rate at which the annual value of the right of enjoyment of a usufruct or a similar right is calculated, as well as the interest rate for the capitalization of such right and assets paid in instalments—such as annuities, pensions and other income—the increase to be paid from funds. I believe that this will do much to alleviate the situation.

Furthermore, I just want to refer very briefly to the so-called turnover tax or general sales duty. This is a matter to which a few hon. members also referred. Just after the budget was introduced, the Department of Inland Revenue appointed a working committee, and this committee is making an intensive study of all the details of this complicated tax. Of course, we should like this tax, which we consider to be very important, to be launched and implemented as soon as possible.

†It is very difficult at this moment to set a time-table in respect of the introduction of this general sales tax, because several factors are involved. For instance, a system must be developed which will suit the South African situation. It is something new, and therefore quite an educational task will have to be undertaken in this regard. The public will have to be educated to gain an insight into the various problems and niceties of this tax. Secondly, there is the recruitment and training of staff, especially field staff, who have the duty, firstly, of assisting traders with advice and information on how to implement the system and, secondly, to act as inspectors to ensure that the system is, in fact, effectively applied. Thirdly, there is the drafting and introduction of legislation. In this regard it must be remembered that the Department of Inland Revenue, whose main task has been the administration of direct income tax, will now have to adjust itself to the basic principles of a new type of tax which lies somewhat outside its experience, but which I am quite satisfied they are mastering already. Fourthly, there is the implementation of a system, both as regards the department and the private sector. There is, for instance, the question of the registration of all traders, which in itself is a very big task. Then there is the general question of the transition from the present to the proposed system and all the other things that that entails. When talking about a general sales tax, or a turnover tax, as some people rather loosely call it, I would just like to stress the fact that the taxpayer would be any person who sells goods not intended for resale. So the emphasis is really on sales, rather than on goods. I simply point that out in passing.

*The main objectives and the main basic characteristics of the new system, as I see it, will be as follows: In the first place, the ideal is that the tax should have the widest possible base; in other words, no commodities should be excluded. In the second place, a wider base could lead to a lower scale. Not only will our system of no exceptions make it easy for commerce to administer it, but the wider the base, the lower the tax rate can be for collecting a given amount. In the third place, the tax will be levied on items sold for use or consumption in the Republic. Exports will not be subject to the tax. In the fourth place, it is not a retail sales tax in the normal sense of that term. It can be levied at any point where a sales transaction is concluded with a final consumer or user, i.e. at the point of importation, at the point of manufacture, in the wholesale or in the retail trade. That is why I say it is really a transaction tax and not a commodity tax. In the fifth place—and this is very important—it will have no so-called escalation. According to a study which has been made, the average escalation factor of the present sales duty is 41%. Because it is levied at the starting point, i.e. at the point of manufacture or importation, the margins added by the various channels of commerce through which it passes before reaching the eventual consumers have the effect of causing the consumer to pay an average of R1,41 for every R1 in taxation received by the Treasury. This is something we also want to eliminate.

We always warned you about that

It is inherent in the present sales tax. Finally, this is not a so-called value-added tax. It is a terminal point consumer tax, as I have already said. I am merely mentioning these things. A committee of the department is hard at work, but legislation will be required, and therefore we shall have to be patient for a while, for we want to be quite sure that when we introduce this important tax, matters will ran smoothly, that the administration of the tax will have been properly worked out and that we shall not have to contend with administrative problems at that stage.

†Mr. Chairman, while I am talking of taxation I can perhaps immediately refer to the hon. member for Houghton’s plea for married women. It is a very worthy cause. I listened with interest to her and I think she put her case extremely well. I shall not go into all the detail of the matter now. It is perfectly true that I did say in my budget speech that after very careful study over quite a long period, I had come to the conclusion that a case had not really been made out to change the existing system. But we in the Treasury are extremely reasonable people and if convincing arguments are put to us, we shall always look at them again. I can certainly say to the hon. member for Houghton that we shall look further into this matter. It is true that I did try in my budget speech to calm some of the feelings a little bit by refering to the charming ladies who have been writing to me and coming to see me. I had no sooner done that, when, on the day after the budget speech, I received a telegram from Johannesburg saying: “We have read what you said, but do not think that flattery is going to make any difference to us.”

I am not surprised to hear that.

That is what the hon. member confirmed today. Mr. Chairman, the hon. member will forgive me if I do not go into detail now, but I have made a note of the main points she raised. We shall have her Hansard, and the department will certainly look closely at her arguments.

Coming to the various arguments by hon. members—I cannot go into every point that was raised—I want to answer as briefly as possible. In regard to my visit to Europe, I just want to state that I intend visiting a number of Western European countries as soon as I can get away from here. I do not propose to visit the United States at once. I will go to the United States, however, in September, at the time of the annual meeting of the IMF. I will visit half a dozen of the Western European countries as soon as I can. The object, of course, is not to go begging for money. I believe the hon. member for Worcester quite correctly said so. We do not have to do that. What I propose to do, as I have done each year since I have been in this position—and as my predecessor very often did—is to renew our acquaintances with the leading bankers of the world and with financiers in a number of countries, as well as to renew friendships with old friends. We have excellent relations with a large number of absolutely top bankers and financiers in many countries. It is in fact a very pleasant and, to me, a very constructive type of contract I thoroughly enjoy renewing these contacts and discussing the various issues that are raised. That is the object of this exercise, and I hope to be able to keep it up as long as I am in this position.

Talking about that, it brings me back to the question of confidence. I wish some hon. members of the House could be with us when we talk to those top bankers, and these are indeed the top bankers of the world.

Well, invite us to come along!

It does one’s heart good to hear what they think about South Africa and to listen to what they tell us. Over the last few months I have had a large number of visits from them. They are constantly coming here. They are top people, top executives. The vice-president of one of the biggest banks in America is one of them. He wrote to me after his visit—

He goes on to say—

That is the executive vice-president of one of the worlds biggest banks. Then follows the senior vice-president of another one of the half dozen biggest banks in the world. He and one of his colleagues visited me not long ago. We had a long meeting. He writes—

Then he says this, and I believe it is important that the House should know how these people see us—

This happens to be an American—

These are distinguished visitors we have received here over the last couple of months alone. Here follows a Swiss banker of great repute, who was here within the last month—

[Inaudible.]

He refers to Southern Africa, of course. Here is another one. This is the last one with which I shall bother hon. members. It is from a leading German banker whose name is a household word in banking circles. He says—

I have a file building up of a few dozen letters in this spirit and with this as the main content.

Mr. Chairman, we are greatly encouraged by these discussions which are taking place behind closed doors, but may I ask the hon. the Minister if he could tell us why, when a country like Mexico borrows money in West Germany at an interest rate of 9%, when South Africa does it, we must pay 14%?

I do not know what loans the hon. member refers to when he says 14%. We do not pay anywhere remotely near 14% on any loans. [Interjections.]

What do you pay on Escom’s securities rand?

I was going to refer to securities rand, but if the hon. member is so impatient, I will do so now. In the first place, I would like to say that the market for securities rand is, of course, a very limited market. The hon. member is attaching quite undue importance to it. We are not particularly concerned about that issue in the Treasury at the moment and we have not been for quite a while, because there are much more important financial markets.

I want to come to one or two points that have been made by hon. members. The hon. member for Constantia deplored the fact that the time allowed for this discussion was rather short. I must draw the hon. member’s attention to the fact that virtually throughout a session of Parliament, in both Houses, we are almost daily, or weekly, discussing some or other aspect of financial policy, if one really analyses it. Not only members on this side of the House, but also one or two hon. members from the other side of the House raised the point with me in the last year or so whether in fact it was necessary to have a separate debate on the Finance Vote when there is so much opportunity for it in the budget debate, no-confidence debate and all the debates on financial measures during the session.

As far as I am concerned, I am perfectly happy to have the system remain as it is if that suits the House, because it is still a good thing to discuss these things. If one looks at the position as a whole, finance does not get a raw deal in point of time. I think we have a very liberal allocation of time for the discussion of financial matters.

The hon. member also said that he thought that the defence bonds were rather complicated. I think the new system is as simple as one can possibly make it. We had the committee …

I only said that I hoped it would not be too complicated.

Well, obviously, one has to test these things. This is a new system. But we have certainly endeavoured to make it as simple as we possibly can and I hope that is how it will work out.

How often are you going to draw the prizes?

I said in my statement that we are hoping to do so every month. Someone raised the question with me as to what I would do if I won the first prize. I said that I would probably keep the money and vacate my post.

Make sure you get the prize! [Interjections.]

I would now like to refer to the question of capital inflow, a matter which has been the subject of quite a bit of discussion. In all fairness to myself I must say that I have never said that the position has not become more difficult this year than it was last year and particularly the year before. In fact, my Hansard reflects that I have said just that at least three times in the House and on several occasions outside the House in recent months. However, I am certainly not pessimistic. This is a difficult issue. I think the hon. member for Yeoville has had a good deal to say about this question. He further said that no comparable country experienced the same difficulty in obtaining foreign loans. I wonder. If one talks to some of these overseas bankers, that is not the impression one gets.

Name one.

No, why do I have to name one? I am dealing with South Africa.

There is not one. How many public issues have you made on the Euro-dollar market?

The Euro-dollar market is not a market that suits us at the moment. It is not the only place where we can find capital. Why should we operate on a market which does not suit us?

How many public issues have you made anywhere?

I am not prepared to give the hon. member chapter and verse for all the individual loans we obtain, because these issues are sometimes badly bandied about and used to our disadvantage, sometimes quite unjustifiably. Towards the end of last year the same thing was said by one of the biggest newspapers in this country. It alleged that the State coffers had dried up for overseas loans. Two days before that report appeared, we in fact received a loan of $110 million on jolly good terms in view of the then prevailing circumstances. That is the sort of thing we are up against. These foreign bankers—my senior officials can bear me out—express great surprise at this attitude. They ask us why our own people constantly say that we are not obtaining capital when we are, in fact, getting it. Why does the hon. member adopt that attitude?

Because you do not give us the facts.

Order! The hon. member must observe Standing Order No. 106.

Let us deal with the issue. We have published these things for years in the quarterly bulletins of the Reserve Bank because we need to have thoroughly reliable official figures. The first quarter’s bulletin gave the figures up to the end of last year. The second quarter’s bulletin will appear towards the end of June. I have spoken to the Governor about the hon. member for Constantia’s request, but as the Governor points out, it is a tremendous task getting that bulletin out. The detailed figures have to be very carefully checked and have to be obtained from a wealth of sources. We must remember that it is not an easy task. But the figures will be brought out as soon as it is possible to do so. I cannot anticipate them. However, let us just for a moment look at the figures for last year. One sees that we had an inflow of long-term capital of about R1 100 million last year and an outflow of private short-term capital of R233 million, according to the revised figure. Errors and unrecorded transactions amounted to R389 million. R433 million plus R389 million puts us R822 million on the negative side. A large part of this—this is the point I should like to make again—represents repayments by the private sector of short-term foreign loans for foreign credit. This in turn is directly associated with a decline in imports and the improvement in the current account of the balance of payments. To that extent it is surely something to be welcomed. This is a major reason why the gold and foreign exchange reserves have not yet risen to the extent I obviously should like to see.

The hon. member for Constantia and others must not overlook the extent to which both the public and the private sector have been repaying short-term loans.

Give us the information.

This information will be put in the hon. member’s hands as soon as possible. That is a very important point. The hon. member speculated on many things, but he did not raise that point, and yet it is the most important of all.

I now want to come to the balance of payments. In the first quarter of last year there was a deficit on the current account of something like between R600 million and R700 million. In the last quarter the deficit on the current account was about R170 million. Since then it has fairly substantially been reduced even further. In other words, what was a current deficit of something of the order of more than R2 000 million—I am talking in round figures—last year, is now running at an annual rate of something like R500 million to R600 million. This is a preliminary figure based on comparisons made available to me. I do not have the final figures. To my mind that is a dramatic improvement and is very substantially due—we get criticized, but I think we also deserve a little credit—to our fiscal and monetary policies, our budgetary policies. This is accepted right throughout the world. The bankers see what I have been talking about, i.e. that we have a tight money policy, a policy of restraint on Government spending, and I can assure hon. members that we are holding Government spending to the very minimum.

It is a pity we did not have these measures five years ago.

I shall give the figure for April and hon. members will see that the figure for April is something like R12 million or R13 million up on the year before, which is not even 2%. This is the situation while the inflation rate is running at 11%%. Those figures are published in the returns every month, and the hon. member for Wynberg could have seen them there. The hon. member tackles me and asks me where the figures are and why I do not publish them. Of course we publish the figures.

Where were they published?

They are published in the monthly exchequer statement of which the one for April has already been published.

When was it published?

It was published a little time ago.

Today?

No, not today.

Yesterday?

No, not yesterday either. The hon. member must not be petty. He raised the point and attacked me out of the blue by asking: “Why did you not give us the April expenditure figure?” It was never in my mind to give the figure, because one cannot judge by one month’s figure. I have got the figure, and it is very much to the Government’s credit, and the hon. member might give us a little credit for that The figures are available, but still one gets these criticisms.

I can see why the hon. member for Yeoville spoke a second time. Of course he had to speak for a second time, because the first time he spoke he tackled us and said that we had no proper plan for the economy. He also said that we did not even have an economic development plan any more …

No, that is not right.

I am sorry if I have misquoted the hon. member, but I wrote down that he said that we did not even have an economic development programme at the moment. It was tabled today. I must agree that it was tabled in a somewhat shorter form, but it was tabled and I believe it contains quite a bit of information.

It is not a plan; it is an assessment.

So I think we must be a little more careful of throwing these criticisms around when the information is already available.

As far as the balance of payments is concerned, there is a very substantial improvement in the current account, and this is due to the fact that because of our policy imports have been curtailed. Exports have been rising very encouragingly. In fact, on a seasonally adjusted basis the increase in the export figure from the first quarter of last year to the last quarter was 25%. That trend is continuing, and the most hopeful sign to me is the very substantial increase in the export of metals, minerals and coins, but excluding bullion, which forms a very big item on its own. Metals, minerals and coins already represent, in value, 50% of all our exports. That is a very substantial improvement for one year. It is a very good sign for the future and it gives me great hope that we shall, before too long, be getting into the phase of an export-led recovery in this country, a recovery which could make a tremendous difference to us.

I would say that one obviously has to be cautious about the capital inflow position at the moment, but that it is not a hopeless position at all. One must remember that with the very much smaller deficit on the current account, we can handle the situation. A deficit of, say, R500 million is not going to give me grey hairs; that I can assure the House. Last time when I said that we should mobilize our capital resources more effectively, the hon. member for Constantia attacked me for saying that. Yet today he says we must do it.

I did not say so.

Yes, he said that we must mobilize our capital resources. Of course we are going to continue to mobilize them more and more. We are not, however, going to make ourselves completely independent of foreign capital. We can never do that. But we are going to make ourselves as independent as we reasonably can. We have huge resources in this country. Therefore we must keep a sense of balance and perspective. We have much bigger capital resources in this country than we sometimes appreciate. What country with our gross domestic product can simultaneously go ahead with the building of two huge, modern deep-sea harbours, two first-class major railway links, one from Sishen to Saldanha and the other from Transvaal to Richards Bay plus all the other railway developments? In addition, huge extensions to Escom are being carried out for much-needed power, plus extensions to Iscor which we cannot cut out altogether although we prune the requirements as much as possible. There is also the huge oil-from-coal project which everybody who talks to us, from inside or outside the country and knows something about this, agrees that it is a first-rate project and that we must go ahead with it.

What does that mean to the private sector?

We are doing all these things and a great many more. Of course it is straining our capital resources. The railways expansion, for example, apart from the Sishen-Saldanha and Richards Bay lines, is already a strain on our resources because it is done on a very big scale.

When the private sector gets there, the cupboard is bare.

One can be frivolous about these things, but I think it is important.

I am not at all frivolous. I am desparately serious.

I am glad to hear that because I thought the hon. member’s remark was frivolous. Be that as it may, the fact of the matter remains that we have been tackling huge capital-intensive projects and still are at a time when capital is extremely costly and scarce. We are continuing these projects. I think that is an achievement.

What is the use of crippling another sector of the economy?

We are not crippling another sector of the economy at all. What does the hon. member think this very big improvement in exports is due to if it is not directly related to the Sishen-Saldanha scheme and the Richards Bay harbour which enable coal to be exported from Richards Bay? They are directly linked, and these are most productive schemes already.

In addition to that, we are still contriving to repay short-term debts on a substantial scale, both in the public and in the private sector. That is why the reserves are not higher than they are, and I think it is the right thing to have done. We have maintained our position and we have managed to enter into another gold swop agreement, an agreement which is certainly not to our disadvantage and which reflects the very high credit rating of this country. If hon. members see the terms of that agreement they will realize that we did a good deal. I do not understand why I must make the details of this extremely important deal, which goes to the heart of our gold selling strategy, public. How can I make it public? The hon. member has queried me on that about three times and I hope he will think about it, because I do not think it is a fair question to ask.

It is a secured loan. Is that not all it is?

Although there are problems with the balance of payments, if one looks at the improvement of the current account and the overall position, we are certainly in a position where we can handle it.

Inflation is an extremely stubborn problem and I would be the first to hope that the inflation rate would come down pretty steadily. We did succeed in the last quarter of last year to bring it down into single figures. Unfortunately we ran into the need of having to raise certain important administrative prices, particularly rail tariffs and Escom’s electricity tariffs. In the circumstances in which we found ourselves, those were unfortunately unavoidable increases. It was cost inflation. On the demand side, as the hon. member for Johannesburg North said, we do not have inflationary tendencies. I think he ought to give us some credit for our budget policy, because we held our monetary and our fiscal policies strictly anti-inflationary. If one analyses that, one will have to say what all the leading bankers and economists have said to us, one after the other, namely that our budget is in general deflationary.

You kill demand by making people poor.

What is easier and what is a greater temptation to me than to stimulate the economy? Who would not like to see a greater growth rate, what Minister of Finance who has to handle these things every day, would not like to see that? Who would not like to see greater employment opportunities and all the rest that flow from a greater growth rate, who more than I myself? Yet, would that be the policy to follow under the present circumstances where I believe a policy of restraint and financial discipline is absolutely essential? It has had an effect, because it has pulled the balance of payments right round and, on a longer term basis, I hope that it is going to contribute to the anti-inflation influences as well. Suddenly to let things go at this moment is not going to help anybody, and will not help the employment situation. That is the last thing it will help. That is why I plead that we have a little more patience and that we hold to this policy of restraint, holding down Government expenditure wherever possible, and exercising restraint on wages and salaries. This is regrettable in an inflationary situation, but the world is facing one of the biggest financial and economic problems it has latterly seen. It is strange that where there is unemployment and a slackness in activity, inflation should still be so persistent. One does not find these things in the old text-books on economics. The hon. member for Houghton, for one, will bear me out. This is something new, something which has cropped up in the last few years. I do not believe that we are the only country without a final solution to the problem, but I am certain that if we do not follow the policies we are maintaining financially and economically, we would find ourselves with greater problems than we do now. I would just like to make that point.

When talking about the economic situation, I cannot resist saying that when one looks at our overall position today, and one compares it with only three or four years ago, for instance in the field of our balance of payments, we find that we now have an oil bill which is up by at least R1 000 million per year. That is quite a figure. We have had an adverse movement in the terms of trade, that is, export prices in relation to import prices, of about 22% in the last two years. One can imagine what effect that has had on our trading position and the balance of payments. That is one of the reasons why we had this big deficit. One also must take into account the very big defence bill. This involves buying abroad on a fair scale, although a lot of the money is spent in South Africa as well. This also is a very big burden on the balance of payments. The drop in the gold price during the last two years has also contributed to it, which has caused an adverse movement in our balance of payments, compared with that time, of about R500 million in round figures. If one adds it all up, the position today, in one year, is R2 000 million worse off than it was, say, three years ago. This is comparing it year against year. One has to find the money somewhere, and yet our reserves are still R750 million even when the gold content thereof is valued at $42 per ounce and not at the market value.

That is a gross figure.

That is the position. If we had not had those tremendous adverse movements, we would have been in clover today, if other things had been equal, which I think they would have been.

It is all hypothetical. Other things are never equal.

Yes, it is hypothetical, but at least it gives us an idea of the scale on which external factors have moved against us, factors which are outside our control. The effect on the fiscus and the Exchequer is that the drop in the gold price has cost the Exchequer something like R300 million in one year as a loss on mining—particularly gold mining—taxation. I think we may agree that if it had not been for the great uncertainty in Southern Africa, the defence budget could perhaps have been something like R1 000 million instead of R1 700 million. Immediately there is another R700 million we could have saved. Straight away on two items, one therefore has to face an amount of R1 000 million, against us, on the revenue of the State, which we have to find. Obviously one can hold the budget down as tightly as one likes, but unless one is going to have big-scale retrenchments of staff, which I think would be most unfortunate, one has to make good the adverse trends. With respect, in this budget we have found the money without raising personal income tax or company tax at all. I think that redounds to the credit of the Government. I mention these things because they are so easily left out of account.

*A number of other specific points were raised, and I want to refer to just one or two of them, for I think that I have been speaking long enough as it is. The hon. member for Wynberg was one of the members who asked me about our priorities and about provincial expenditure. He implied quite clearly that he thought we had not determined any priorities.

†How can any Government budget if it has not determined its priorities? If one looks at the budgeting process that goes on from August right through to March, one sees that it is a non-stop exercise in priorities, current and capital. This goes on the whole time at a high level. Therefore I do not understand a statement such as the one made by the hon. member. We have gone further and we now have a report on capital priorities. I received it the other day and I have it here. It is a report on capital priorities for the whole economy, one might say. It includes the State, public corporations, the Railways, the Post Office— the entire public sector.

Is that the first time you have had such a report?

No. It is perhaps the first time we have had the report in this form, but it is not the first time we have had a report on priorities, because, as I have said, we have the priorities before us and discuss them at top level privately every week for eight to nine months each year. One cannot budget in any other way. Do hon. members think we simply take these figures out of the air? The hon. member should come and visit the Treasury some time. Believe me, Sir, I shall ask my top officials to have a chat with him to show him what we do. Let him come and visit us.

How do you do the provincial budgeting?

The hon. member also referred to the provinces. It is true that he questioned me on this last year, and at the time I said to him that a senior official in the Treasury, one of our best men, had been specially appointed to deal with provincial finances on a full-time basis. He does an excellent job. A formula for the provinces has been worked out very carefully, on a scientific basis. It has been done in collaboration with the provinces. We are now looking more closely at the capital side as well to see whether this aspect cannot also be reduced more into the form of a formula. As I have said, it is done with the greatest possible care and in continuous negotiation with the provinces.

The hon. member and others have asked me: “What about the opera house?” Sir, the provinces are autonomous in important respects. As I have said, we apply a formula and in that way work out very carefully on an agreed basis what each province is to get. The provinces themselves also have certain fundraising powers. Their powers in that respect are limited, but, as the hon. member knows, they do have a limited source of revenue from, for example, horse racing and certain forms of tax such as entertainment tax. Once their subsidized income which forms the biggest source, has been determined, as well as their own income, they are autonomous in respect of how that income is spent. If I know that something is coming up which is perhaps not in the best interests of financial policy, I will most certainly talk to them. We discuss such things with the Administrators. Let me say that, with the strict financial discipline we have had to apply over the last two years at least, I do not think any institutions or sections of the country have reacted more positively and more helpfully than the provincial administrations. We have cut them back repeatedly, and they have taken it, have adjusted and have not complained about it. I think that, as far as the provinces are concerned, the position is remarkably stable and sound. I really think that. However, I cannot go into all the details now.

Mr. Chairman, may I ask the hon. the Minister whether he would have made the decision to build an opera house at such a cost to the country?

I think that that is somewhat hypothetical. I have explained the position. On that point I can perhaps say in defence of the Treasury that 18 months ago we set up a Building Norms Committee—’n Bounormekomitee—under the chairmanship of the Secretary of the Treasury. That committee is looking at the construction costs of hospitals, university buildings of all kinds, medical schools and other buildings. It is even looking at some aspects of road financing. That committee, up to this stage, has saved this country millions and millions of rand. That is part of my answer. That is my attitude to the matter.

Would you have built it?

The hon. member for Vanderbijlpark asked us to keep a very close check on all the capital expenditure of local authorities. I want to assure him that this is exactly what we are doing. We are doing it by means of this Building Norms Committee, where it is appropriate, but especially by means of the committee which investigates municipal financing and finances, under the chairmanship of the Secretary for Finance. This is done very thoroughly. The hon. member also referred to a one-man business enterprise and the question of the taxation of wives. We shall go into that. I think it is something we have to go into.

As regards company tax and personal income tax, I believe that the marginal rate is too high. In this connection I agree with the hon. member for Houghton. But the figure of 72% does include the loan levy. If the loan levy is omitted, it is 66%. Then it is a little better. However, I shall welcome the day when we are able to lower that rate. It is not practicable at the moment, for then I should have to obtain more money from taxes in other fields.

†We are looking at the matter of the size of tax brackets. The Secretary for Inland Revenue spoke to me about the matter about six weeks ago and earlier. This is therefore something we have looked at. We have looked at the position in Canada, for instance, where they have a much wider bracket. We shall see whether we can possibly introduce something of that kind. It is a question of the implication it has for our revenue. If we lose a significant amount from one source, how do we recoup it from another source without creating hardship? These are points at which we are looking very carefully. The Standing Committee on Income Tax Policy is in session virtually continuously throughout the year and it is doing very thorough work.

*There are quite a few other matters I should have liked to raise. I am sorry, but my time has almost expired. Very important points were raised on both sides of the House which I cannot deal with now. I should be glad if hon. members would come to see me about matters which were raised here and which I cannot deal with now.

†The hon. member for Constantia has raised some important points too. For instance he raised the question of the payment of provisional tax. He must remember that PAYE is being paid by monthly salary earners. These are matters I would welcome discussing. Important matters were also raised from this side of the House.

*Mr. Chairman, perhaps you will allow me to leave it at that and to thank hon. members for the very fruitful discussion of my Vote.

Mr. Chairman, before the hon. the Minister sits down, may I ask him to deal with the issue of discrimination in taxation?

Mr. Chairman, it is true I have raised certain tax matters, but as the Income Tax Bill and the Revenue Laws Amendment Bill are still to be introduced, I wonder whether the hon. member can leave that matter until then. I do not think I can deal with that matter in merely a few minutes.

Votes agreed to.

Chairman directed to report progress and ask leave to sit again.

House Resumed:

Progress reported and leave granted to sit again.

Mr. Speaker, I move—

The main purpose of this Bill is to make provision for the revaluation of the gold reserves of the S.A. Reserve Bank and for certain related matters when the proposed Second Amendment of the Articles of Agreement of the International Monetary Fund formally comes into operation.

The commencement of these amended IMF provisions is a matter which closely affects South Africa. I therefore deem it important to give this House an exposition at this early stage of the Government’s views on these new provisions and of the steps which it is contemplating in this regard.

As hon. members know, the international monetary system which came into existence with establishment of the International Monetary Fund in 1946, the so-called Bretton Woods system, had begun to break down by the end of the sixties and collapsed completely in the early seventies. Since then several attempts have been made to establish a reformed international monetary system, inter alia, by the so-called Committee of Twenty in the years 1972 to 1974, and subsequently by its successor, the present Interim Committee of the International Monetary Fund. All these attempts, however, have to a large extent failed. The principal member countries of the Fund were simply unable to reach a consensus on such basic matters as the convertibility of the USA dollar, the monetary role of gold, control over international liquidity and the ideal international exchange rate system. Consequently the world has during the past few years had to make do with the present unsatisfactory dispensation, which amounts to an unconvertible dollar standard with floating exchange rates and an IMF agreement which is simply not honoured any more.

The only progress that has been made is that it was agreed in 1975 and 1976 to effect certain limited changes in the contractual provisions of the fund in respect of gold, exchange rates, “special drawing rights” and certain other related matters. It is this agreement which is now being embodied in the envisaged Second Amendment of the Articles of Agreement of the Fund. This amendment will come into operation when three-fifths of the member countries of the Fund with four-fifths of the voting strength have formally accepted it, which will probably be by the end of 1977.

South Africa is not overly enthusiastic about this envisaged amendment and does not in any way see it as the establishment of a satisfactory new international monetary system. However, it represents a compromise which contains certain important elements with which South Africa agrees. The Government has consequently decided to vote for the acceptance of the amendment.

For South Africa the envisaged amendment of the provisions in respect of gold are the most important. These amendments are based on the well-known “understanding” on gold which was reached in August 1975 already by the Interim Committee of the Fund in Washington and taken further in January 1976 in Jamaica.

This understanding is essentially a compromise which was reached between those who gradually wish to “demonetize” gold, and those who wish to retain an important monetary role for gold. On the one hand it was agreed that there would be no return to a system of fixed exchange rates or stable par values for monetary units based on gold. Gold would lose its function as a common denominator or numeraire, and in addition the special drawing rights of the fund would no longer be linked to gold. Also, there would be no increase in the official gold price to a higher fixed level expressed in terms of all monetary units. Instead of that the fixed official gold price of STR 35 per ounce would be abolished. It was also in terms of this understanding that the Fund has already begun, over a period of four years, to sell one-sixth—approximately 25 million ounces—of its gold to the benefit of developing countries and to “restitute” or return a further sixth to its members countries at the old official price.

On the other hand the understanding recognizes that gold forms an important part of official reserves which should once again be made operative to help finance balance of payments deficits. Consequently it was agreed that monetary authorities could conclude gold transactions among themselves at market-related prices and could also sell gold on the private market at such prices, which was prohibited under the old IMF rules. The only restriction placed on gold transactions by monetary authorities was an agreement outside the new fund provisions that for a period of two years—of which one has already almost expired—the total gold holdings of the fund and the monetary authorities of the Group of Ten—the principal industrial countries— would not increase. At the same time it was agreed that, after the abolition of the old fixed official gold price, no attempt would be made to peg the new floating-market related price for official transactions.

If the role of gold under the envisaged new provisions of the fund is compared with the de jure position of gold under the old provisions, it certainly indicates a reduction in the monetary role of gold. The anti-gold school consequently interpret the proposed amendments as the “phasing out” of gold from the monetary system.

However, if the new dispensation for gold is compared with the defacto position of gold in the period between the establishment of the two-price system in Washington in March 1968 and the achievement of the new “understanding” in 1975, then it represents a major step forward from the point of view of those who believe that gold still has an important monetary role to play. Between 1968 and 1975 the official gold price was kept at unrealistically low levels and there was a prohibition on gold transactions among monetary authorities at higher prices, as well as on gold purchases by monetary authorities on the private market. Official gold reserves were consequently immobilized. The anti-gold countries wished to maintain this situation as a method of demonetizing gold. Under the new compromise understanding, however, the official gold price is in reality being raised, not to a new fixed level, but in reality to a floating level which is at present approximately four times higher than the old official price. In addition gold is being rentalized as a primary official reserve asset. I consider this to be very important. For these reasons I still consider the new understanding to be a great improvement on the de facto gold dispensation which existed during the immediately preceding years. This does not in any way represent the demonetization of gold.

Initially the gold sales by the fund naturally had a depressing effect on the price of gold on the private market. As hon. members know, the market has proved during the past few months that it can absorb these sales, and the gold price has in fact risen from $103 per ounce in August 1976 to its present level of between $140 and $150 per ounce.

The envisaged Second Amendment of the Articles of Agreement of the Fund does not therefore give a final decisive answer on the future monetary rold of gold. Instead the said understanding is an agreement to differ. There is as yet no question of a consensus on this matter. Therefore, the conflict in regard to the monetary role of gold is by no means over, and may flare up again in future, particularly in times of increasing inflation.

As far as the other envisaged amendments of the fund agreement are concerned, the new exchange rate provisions are also important to South Africa. The old compulsory maintenance of fixed par values falls away completely and member countries of the fund will in future be legally at liberty to choose their own exchange rate arrangements and to allow their monetary units to float independently or together with other monetary units, as they wish. What it amounts to is that the present illegal floating and divergent exchange rate arrangements are being legalized. Member countries will then merely have a general obligation to co-operate with the fund and other member countries to ensure “orderly” exchange rate arrangements and to promote a “stable system of exchange rates”.

†Mr. Speaker, I turn now to the detailed provisions of the Bill.

As I have already stated on more than one occasion in the House, it is our intention, once the new Articles of the International Monetary Fund come into effect, to introduce a system of valuing the gold holdings of the South African Reserve Bank at market related prices. Under the old I.M.F. system South Africa, like all other member countries, had to declare a so-called fixed “parity” price of gold in terms of its own currency. In addition, we had a “statutory” price at which the Reserve Bank had to value its gold holdings. This price was based on the parity price but usually set at a slightly lower level to provide for the costs of realizing gold on overseas markets. In the normal course of events both these prices were adjusted whenever the South African currency was devalued or revalued.

The statutory price was determined by section 8 of the Currency and Exchanges Act, No. 9 of 1933, and also changed on several occasions by means of proclamations under section 9 of the same Act. The last occasion on which this happened was on 25 October 1972, when the statutory price was fixed at its present level of R29,55 per fine ounce, based on a parity price of R29,75 per fine ounce. On the occasion of the devaluation of the rand in September 1975, the parity and statutory prices were not adjusted as the old par value system had by that time already fallen into disuse. The existing South African statutory price of R29,55 therefore has no logical basis under either the old or the proposed new I.M.F. Articles and needs to be adjusted.

When the new fund articles come into operation the South African rand, like all other fund member currencies, will no longer have a gold parity. At the same time the Reserve Bank will terminate the present gold marketing arrangements under which it buys gold from the mines at the parity price and subsequently pays them a premium on gold sold by it on their behalf in the private market. Instead the Bank will then buy gold outright from the mines at market related prices, while its own gold sales will generally continue to be at market prices. Any new so-called “statutory price” which might be determined, will therefore have the limited function of serving as a valuation price for the Reserve Bank, and, if it is to bear a realistic relationship to market prices, will have to be changed more frequently than in the past.

It has not yet been decided precisely what method of determining the statutory price from time to time will be adopted by the Treasury and the Reserve Bank after the new fund articles become effective. This decision will be taken later in the light of the situation prevailing at the time. In anticipation of the new arrangements, however, the Bill provides for the repeal of section 8 of the Currency and Exchanges Act on a date to be determined later and for the insertion in the Reserve Bank Act of the proposed new section 17A. This section provides that “all gold of the bank shall be valued at such price per mass of fine gold— hereinafter referred to as “the statutory price”—as may be determined from time to time by the Minister after consultation with the bank”.

At this stage it is not yet known what valuation methods will be used by other countries once the old official gold price is abolished under the new fund articles. In the initial stages many countries will probably continue to value their gold reserves at the old official price, a practice which will no doubt be encouraged by those who wish to reduce the monetary role of gold. But France and Italy have already revalued their gold reserves, using different methods, and several other countries will probably follow suit once the old official price is legally abolished.

For South Africa, as the world’s largest gold producer, the valuation of its gold reserves under the amended Articles will be a matter of practical as well as theoretical importance. The Reserve Bank not only holds a large part of its reserves in gold, but also buys most of the current South African gold output and then either sells it on world markets or adds it to its reserves, depending on the balance of payments position. Once the amended fund Articles and the Reserve Bank’s proposed new marketing arrangements come into operation, it would therefore clearly be logical for the Reserve Bank to revalue its gold holdings and for a suitable method to be decided upon for adjusting the statutory or valuation price from time to time in response to changes in the market price.

Under present circumstances any such revaluation of the bank’s gold reserves would, of course, result in a large book profit. To take an example for purposes or illustration only, at a new statutory price of $130 or R113 per fine ounce, the revaluation profit on the bank’s present gold holdings would be in excess of R775 million. To this must be added the profit on the gold involved in the bank’s existing swap arrangements. The total revaluation profit would then be in the vicinity of R1 390 million.

In terms of section 8bis of the Currency and Exchanges Act of 1933 any such profit shall accrue to the Government, and in the Bill now before the House this same principle is carried over into the new section 17A of the Reserve Bank Act. To this end the bank will be required to establish a Gold Price Adjustment Account in which it shall account for any profit or loss relating to gold as a result of a change in the statutory price as well as any difference between the statutory price and the price at which it buys or sells gold.

From the point of view of monetary and fiscal policy, however, the way in which the large initial gold revaluation profit is to be used is a matter of the greatest importance. Under present economic conditions the use of any significant part of this profit to finance Government spending could have adverse consequences for the balance of payments and, in the long run, also for the rate of inflation. It is therefore important that the profit should be sterilized to the fullest possible extent. As I shall indicate, some of the other provisions of the Bill have therefore specifically been designed to provide for such sterilization in a practical and, I hope, a logical way.

In terms of sections 8ter and 8quater of the Currency and Exchanges Act any profits or losses made by the Reserve Bank on its foreign currency holdings, its forward exchange contracts and its foreign currency borrowings are also for the account of the Government. In all these cases, as in the case of gold losses or profits, this principle is to be carried over into the amended Reserve Bank Act, namely in the new sections 17B and 17C. To this end the Reserve Bank will be required to establish and manage a Foreign Exchange Adjustment Account and a Forward Exchange Contracts Adjustment Account. These accounts will be similar to accounts kept by the bank in the past to give effect to the provisions of sections 8ter and 8quater.

A new and significant requirement has, however, been included in the Bill in the form of the proposed new section 17D of the Reserve Bank Act. This section provides that any credit or debit balance on the three adjustment accounts specified in the Bill, namely the Gold Price Adjustment Account, the Foreign Exchange Adjustment Account and the Forward Exchange Contracts Adjustment Account, shall, at the close of each financial year of the bank or such other times as the bank and the Treasury may determine, be transferred to a new Gold and Foreign Exchange Contingency Reserve Account to be established and managed by the Reserve Bank on behalf of the Treasury.

It is further provided in section 17D that any credit balance on this new Contingency Reserve Account shall accrue to the Government as a profit, but shall be carried forward in this account until such times as the Treasury and the Reserve Bank deem it desirable to credit such profit or any part thereof to the State Revenue Fund. Similarly, any debit balance on this account shall be a loss for the Government and shall be carried forward until the Treasury and the Reserve Bank deem it desirable to settle the outstanding balance.

The significance of these provisions can be deduced from the fact that at the end of the Reserve Bank’s past financial year, namely 31 March 1977, the Government owed the Reserve Bank a total of R690 million in respect of losses on foreign exchange holdings and forward exchange contracts. In addition, account must be taken of the potential further loss at present exchange rates on existing forward exchange contracts, which could be substantial and will also be a charge on the Government.

In these circumstances the logical way to sterilize the profit on the revaluation of the Reserve Bank’s gold holdings is for the Government to use part of this profit to settle its outstanding debit balances on the above-mentioned accounts with the Reserve Bank, and to transfer the rest of the profit to the new Gold and Foreign Exchange Contingency Reserve Account. In this manner the revaluation profit will be put to good use in a way which will neither increase the money supply nor bring additional pressure to bear on the balance of payments. I propose to employ precisely this method of effectively sterilizing the gold revaluation profit as soon as it is realized.

The various procedures I envisage in this general regard can be summarized as follows: The first step will be the announcement by the fund, possibly towards the end of 1977, that the amendment of its Articles of Agreement has come into operation. By proclamation in the Gazette, the State President will then set a date on which clauses 3 and 5 of the Bill now before the House will come into operation.

On that same date a new statutory price for gold will be determined by the Minister of Finance after consultation with the Reserve Bank, i.e. the gold holdings of the Reserve Bank will be revalued and the profit placed in the new Gold Price Adjustment Account. Also on that date all credit and debit balances which had existed immediately before that date on the accounts kept by the Reserve Bank for the purposes of sections 8bis, %ter and 8quater of the Currency and Exchanges Act will be transferred to the new Gold and Foreign Exchange Contingency Reserve Account.

The final step will follow almost immediately thereafter when, in terms of the new section 17D(1) of the Reserve Bank Act, the gold revaluation profit temporarily held in the new Gold Price Adjustment Account, will also be transferred to the Gold and Foreign Exchange Contingency Reserve Account. In this manner the revaluation profit will automatically serve to turn the initial debit balance on that account into a substantial credit balance, and our sterilization objectives will have been attained. The maintenance of a substantial credit balance in the new Contingency Reserve Account is also desirable in view of the possibility of further losses being incurred by the Reserve Bank on its existing forward exchange contracts, to which I have already referred.

In conclusion I now turn briefly to the remaining provisions of the Bill.

The purpose of clause 1 of the Bill is merely to bring the definition of “special drawing right” in the principal Act into accordance with the proposed new Fund Articles, under which special drawing rights or SDR’s will no longer be linked to gold.

Clause 2 amends the power of the Minister of Finance to suspend from time to time the gold reserve requirements prescribed for the Reserve Bank in section 17 of the principal Act. It does so by abolishing the requirements that any such suspension should initially be for a period of 30 days only and that subsequent extensions should be for only 15 days at a time. When this amendment comes into force, the Minister will be able to suspend the gold reserve requirements from time to time for indefinite periods. The need for such suspensions arises largely from the wide cyclical and other fluctuations traditionally shown by South Africa’s gold and other foreign reserves.

The Reserve Bank’s gold reserve requirements as such, however, are not being abolished. Although relatively few countries still have any legal gold reserve requirements for their central banks, such requirements in our view continue to have merit, and we see no need to dispense with them at this stage.

Clause 4 of the Bill is designed to relieve the Reserve Bank of the obligation to publish a weekly statement of its assets and liabilities in the form prescribed in the First Schedule attached to the Reserve Bank Act. The requirement to publish such a statement for the end of every month will remain in force.

Most countries publish their official gold and other foreign reserves only monthly. South Africa is one of the few countries which does so weekly. It is the considered opinion of the Treasury and the Reserve Bank that under present circumstances this is not always in the national interest.

The main problem in this regard is that in the form prescribed in the principal Act for both the weekly and the monthly statement, the Bank has to show its gold holdings separately. In view of the changed marketing arrangements for gold in recent years, the publication of weekly statements showing changes in the Reserve Bank’s gold holdings either reveals too much about the Reserve Bank’s marketing strategy or leads to speculation and misunderstanding about the Reserve Bank’s actions in this field or about conditions in the gold markets in general. One reason for the misleading impressions often given by the weekly statements is the fact that the South African gold output at times varies considerably from week to week, which makes it impossible for outside observers to conclude from the Reserve Bank’s weekly statements that either more or less gold has been sold on the private market.

For these reasons, and with the support of the Chamber of Mines, we are proposing that the weekly Reserve Bank statement be abolished.

Mr. Speaker, I believe it is clear from what I have said that the introduction of this Bill at this stage is necessary in view of the changed international monetary circumstances and the impending implementation of the new Articles of Agreement of the International Monetary Fund. I would go further, however, and express the view that it is also important from the point of view of promoting sound economic and financial conditions in South Africa.

Mr. Speaker, as far as we in these benches are concerned, this is not a controversial measure. I should like to express our appreciation to the hon. the Minister for the very full, comprehensive and clear manner in which he explained the contents of this Bill in his Second Reading speech.

To me this is in many ways an historic Bill in that it removes from the Statute Book the last vestiges of the gold standard and what the gold standard has meant to South Africa. No longer, after this Bill comes into force, will there be a fixed parity value of gold which up to now has been technically required by the IMF regulations, nor will there be any further requirements for the Reserve Bank to back any part of the gold issue or of their liabilities to the public with any gold content in the banks’ reserves. Although these factors already have no de facto significance because they have in fact already been suspended, they nevertheless were the last remnants of the gold standard. In a gold-producing country such as ours which produces the bulk of the Free World’s gold supplies, I think we must view the passing of the gold standard with some nostalgia, even if in practice it has little practical significance. Nevertheless, we retain a very strong interest in gold, a strong interest that gold should remain an important medium for settling international transactions. We on this side of the House have full confidence that that position is in no way disturbed by the provisions of this Bill. Despite the antipathy of some countries, particularly the United States, to the monetary role of gold, it retains its desirability, it retains its charisma in the eyes of the majority of trading nations.

We on this side of the House welcome the power which is given to the Minister in this Bill to revalue the gold held by the Reserve Bank. Although the revaluation of the gold— obviously it will be an upward revaluation— makes us in no sense any wealthier as a nation since it is purely a book entry, it does give a more meaningful appearance to the total of our foreign exchange reserves. Very clearly, as the hon. the Minister indicated in his introductory speech, a very substantial book profit is going to be made on the revaluation of the gold holding of the Reserve Bank, which profit under the existing legislation would be for the account of the Government. Had this profit been handed over to and spent by the Government, it would obviously have introduced a highly inflationary and undesirable factor into the present economic situation by increasing the monetary supplies very substantially. Therefore, as the hon. the Minister has indicated, it is essential that this profit on gold be sterilized. Therefore the proposal to create the new account in the books of the Reserve Bank, namely the Gold and Foreign Exchange Contingency Reserve Account, which will consolidate the profits or losses on gold transactions and revaluations, on foreign exchange transactions and on forward foreign exchange transactions, is in our view a good one and one which is acceptable to us. This step will enable the profit on the revaluation of the gold to be off-set against the very substantial accumulated losses in the books of the Reserve Bank on foreign exchange transactions and forward exchange transactions, losses which, I believe, have not yet ceased as far as forward exchange transactions are concerned.

As I have said, this is a book entry. However, it is a book entry that is going to kill two birds with one stone in that it is going to avoid the inflationary danger of releasing onto the market huge paper profits on the revaluation of the Reserve Bank’s gold—it is a method of sterilizing the amount involved— while at the same time it will liquidate a substantial contingent liability on the State in respect of accumulated losses on forward exchange for contracts. In order to get this whole measure into perspective, I think it is necessary to emphasize that this is a book entry and that the gold profit is a paper profit which is not going to make us any wealthier, whereas the losses on exchange and forward exchange are real losses which have already made us poorer and also will make us poorer yet in the future. This exercise in no way eliminates the real losses incurred by way of forward exchange contracts and exchange contracts as a result of devaluations of the rand in the past.

Finally, Mr. Speaker, we on this side of the House have thought very carefully about clause 4 which does away with the weekly statement of assets and liabilities of the Reserve Bank. We always view with some reservation any measure which brings about a reduction in the information we get from official sources. However, there does seem to be a sound case to be made out in this instance to rely only on the month-end statement of assets and liabilities, since the weekly figures can lead to a misinterpretation of gold movements and to undesirable speculation in gold and in gold shares. As I have said, this is not a controversial measure and it is a measure which we have pleasure in supporting.

Mr. Speaker, I want to express appreciation towards the hon. member for Constantia for the fact that this Bill is being supported by their side of the House. He made a few remarks which I do not, however, consider worth mentioning or significant.

The Bill can be summarized very briefly according to its four important, cardinal aspects. Firstly, the fixed price level of gold is being done away with. In fact, I do not think that it served any purpose anymore, except perhaps a determined and purposeful attempt on the part of the demonetarists to use it to try and phase out gold.

The second aspect of the Bill is the provision that the Reserve Bank can continue to buy gold at the market price in future, instead of at the old price level plus the idea of a premium, something which I think should be considered today a very clumsy and awkward procedure. I think that the present procedure can at least be considered realistic.

The third aspect of the Bill is the idea involving the statutory valuation of the gold reserves. I think that in this case too, the old basis as we applied it up till now, was completely out of context. It was completely out of proportion and created an entirely false image of the situation. In contrast to that, in the present situation, as provided in the Bill, it will be presented realistically and in the correct perspective and this has the important advantage of reflecting the value and the book value of our reserves on a realistic basis.

The fourth aspect of the Bill which I feel should be mentioned, is that of the provisions concerning the entry and the various accounts which are mentioned in it which seek to counteract the problems relating to the balance of payments and inflation and to cover rate of exchange losses, etc. The hon. member for Constantia has said that this is not actually a profit of any kind, but just an entry. Technically speaking, this is in fact the case, but it is also true that these debits will have to be calculated and taken into account in some or other way. For this purpose, I think that it really serves as a means which deserves our attention.

I think that the agreement to which the hon. the Minister referred in his second reading speech, holds special advantages for us in South Africa. One example is that the gold price is being increased now, without being pegged. It cannot therefore be regarded as demonetization. Secondly, there is the advantage that gold can be kept as an official reserve asset at market value and this eliminates the methods and practices which arose in order to try and circumvent the position as it was.

As a final analysis, I just want to say that I think this measure shows up one aspect very clearly, and that is that the role of gold in the world, whether in the monetary or industrial spheres, is by no means played out. On the contrary, it seems as if gold is growing stronger. In this regard we need only refer again to the statement made this morning by Consolidated Goldfields.

In this particular respect, however, I do not want to neglect to mention our appreciation of the share which the hon. the Minister of Finance had in the new dispensation. I should therefore like to refer to an article in the Sunday Times of 19 September 1976. It is written by Jeremy Woods. He writes as follows—

If we analyse the present situation and the present prediction, it seems to me as if this statement by the hon. the Minister was in fact correct. Gold can take care of itself—

I believe that the action of the hon. the Minister, as well as the action of his expert officials who assisted him in this matter, contributed a great deal towards the favourable outcome of this struggle for gold. In fact I can testify that the hon. the Minister “pulled no punches”. It seems to me that the round has been won through his mediation.

Mr. Speaker, I think there is a tendency that when South Africans talk about gold they get somewhat sentimental about it. Perhaps it is an occasion to be sentimental about gold, because there is very little doubt that gold has been to South Africa over the years a tremendous boon. In fact, if we look at the history of South Africa, we realize that much of our development would not have taken place had it not been for nature which had so abundantly given us this precious metal in South Africa. There is no reason why one should be ashamed of being sentimental about gold if one is a South African.

I think though that one needs to be careful in one’s approach to gold. I think we in this generation and in this Parliament have had a lesson of what happens when one gets too enthusiastic about something, when one gets carried away, when one thinks that everything is going to last for ever, that prices are going to continue to rise and that one can rely on that. We warned in years gone by that one must not rely upon the windfalls of high gold prices. Therefore no one should in fact rely upon the windfalls which come from gold.

However, at the same time, I want to state the view of the PRP. Our view is that in an unstable world, when there are so many values that disappear overnight, the store of value which gold gives to the individual is one in which we have confidence, one which we believe will continue. If we go back to biblical times we note that gold has always been regarded as being a store of value. To my mind those who seek to destroy it as a store of value are fighting against history. One cannot really fight against history. I believe the role of gold will be maintained in the world. It may perhaps change from time to time, but there is little doubt that gold as such will maintain its role in the world.

If we turn to this particular measure itself, I think that perhaps the best way to deal with it, is to deal with the individual provisions. Initially I should say—so that there is no misunderstanding as to our approach to this— that we will vote for the Second Reading of this Bill and that we will support it. However, dealing with the individual provisions of the Bill, I want to refer firstly to the question of special drawing rights. One can have no quarrels with this amendment. I would like to say, however, in passing, that the whole atmosphere in respect to special drawing rights appears to have changed, because at one stage special drawing rights were held up in the world as being really the replacement for gold. Today people no longer talk of special drawing rights in that context. I think it is again an indication of how, when one looks for a store of value, one needs to find a real store of value. I do not believe Special Drawing Rights will play the role which some of its advocates over the years thought that it would play in the international monetary system. I think it will play a somewhat lesser role than was hoped for at the time by those protagonists.

The second provision in the Bill deals with the question of the hon. the Minister from time to time having the power to suspend the reserve requirements. It provides that he will no longer be limited in respect of time. Again I am perhaps being sentimental—this is to some extent a sentimental provision—but I would like to see a reserve requirement in our law, because it draws attention to what we consider to be the position of gold and the reserve requirements which should be applied. Whereas it may be an academic requirement, I would like to see it continued.

It is not abolished.

No. That is why I am happy that the hon. the Minister is retaining the provision, even though to some extent I regard it as an academic provision. I welcome its continuance because I think it shows a high degree of faith on our part. Then I would like to deal with the question of the adjustment of the gold price. I agree with the approach of the hon. member for Constantia. This is in fact a book profit. The asset is there; it is like a business in which one has an asset and suddenly decide to revalue your stock. For the current year one is going to show a tremendous profit, but that does not mean that one’s business is running at a real profit because one has had that stock all the time and one is really revaluing it. Unfortunately, if one is in a business and one does that sort of thing, the hon. the Minister comes along, taxes one and takes part of it away. He is in the fortunate position …

I never tax book profits.

I think the hon. the Minister does. I am going to take the hon. the Minister’s statement out of Hansard and I am going to have it framed, because to my mind this is really a most marvellous confession. With due respect to the hon. the Minister, he is in the fortunate position that nobody is going to tax this book profit. There is no doubt that we must look at it as being a theoretical profit. The real danger which exists is that this book profit could have been spent and wasted away, and could in that way have caused greater inflation in South Africa. To the extent that it has been sterilized, we approve of it, but I want to indicate to the hon. the Minister that we do not think it has been sterilized enough. I still think the hon. the Minister may one day get his sticky little hands on this money, and I want to have a safeguard in this measure to ensure that he cannot lay his hands on that money unless Parliament agrees to use it for a purpose which would be anti-inflationary.

You have a sticky nose.

No, Mr. Speaker. The hon. the Minister knows that when I use the words “sticky little hands” I do not mean to be offensive. It is a term of expression and it certainly was not intended to be offensive. I think it is important that it should be sterilized completely so that we have a safeguard and that Parliament should have the final say in respect of this matter, except where it is specified by Statute.

There is one other problem that we have with this provision. As a measure reads now the hon. the Minister has in the present circumstances the right to determine the price at his discretion after consultation. Although it is after consultation, it is still his discretion. He decides on the price and he need not tell anybody about it. There need to be no public statement as to the amount at which gold has been valued for this purpose.

Very secretive.

I believe it is important to the investment community and to those of us who are concerned with what the real state of our reserves is, that we should know two things; the value at which it is being done and when it is being done. Let me give an example. One may have the miraculous thing that suddenly one’s reserves go up. One does not know why they have gone up and it may just be that the hon. the Minister has at that particular moment in time revalued the gold and therefore the reserves have gone up. Vice versa, the reserves may go down. Again those who are interested in this and those to whom it is important what is happening in relation to the reserves, will be utterly uniformed, unless a public announcement is made.

Business suspended at 18h30 and resumed at 20h00.

Evening Sitting

Mr. Speaker, in respect of clause 3 specifically I want to raise the point that we believe that the public should have knowledge of the quantity of gold held in reserve, the price at which it is valued from time to time by the hon. the Minister and what part of the reserves is constituted by gold and what part by foreign exchange. For that reason we have placed an amendment on the Order Paper in order to make it clear that when the hon. the Minister makes this determination, he should publish the relevant facts in the Government Gazette.

I now want to refer to the next provision of the Bill. I think the matter to which one needs to draw attention here, is that the central banks, including our central bank, the Reserve Bank, are now entitled to buy gold. That of course brings us to the issue which the hon. the Minister touched upon in his Second Reading speech, but did not enlarge upon to any great extent. This is the implication of this particular legislation in respect of the buy back arrangement in respect of gold the Reserve Bank made sometime ago. It seems to us at least that until the actual amendments of the Articles—which the hon. the Minister told us would not take place until the end of this year—technically speaking the Reserve Bank is not allowed to buy back the gold. If that was so, it would seem as if the buy back arrangement was either an elastic one until the Articles were amended or, alternatively, a fairly long-term arrangement in terms of which the buy back provision only come into operation once the Articles were amended. Alternatively, of course, it is possible that the hon. the Minister decided to ignore the Articles in their entirety and he decided that he would enter into this transaction in any case. I believe he should give us an explanation as to what this transaction really involves.

The second point I wish to make is that the hon. the Minister has indicated in his Second Reading speech that the profit that would be made on the valuation—on the assumption that the valuation was taken at $130 an ounce—of the Reserve Bank’s present gold holdings would be approximately R775 million. He then went on to say that to this should be added the profit on the gold involved in the Reserve Bank’s existing swop arrangement, which would then mean that the total revaluation profit—still on the assumption that the gold price was $130 per fine ounce—would be in the vicinity of R1 390 million.

Unless my arithmetic is poor at this time of the night, that indicates that the profit is R615 million on that portion of the gold which is subject to the swop. As we understood the position, once the gold had been sold on the basis of a buy back arrangement, the profit on that transaction was then brought into the reserves by means of the foreign exchange that was obtained on the sale of that gold. In those circumstances it would mean that the difference—some of the profit has already been made—would indicate that one seems to have sold a very substantial portion of the gold reserve. In order to avoid speculation as to whether one has half the reserves subject to this buy back arrangement, or what is in fact involved in it, I think the hon. the Minister should now come clean and tell us what actually happened because we have a situation where there is a revaluation profit of R615 million. I can work out a whole series of calculations in order to demonstrate what in fact has happened here. Thus I think that in order to avoid this kind of, perhaps not knowledgeable speculation—I do not have all the facts—the hon. the Minister has no choice but to come clean and tell us what this transaction was in fact all about.

I think the gold swop has other implications. I think we should identify them now so that there can be no misunderstanding. As we see it, we do not believe that a gold swop arrangement is one which is in the interest of South Africa. The reason for it is a very simple one. A gold swop arrangement is, in fact, nothing else but a loan which one secures by means of gold. As far as I am concerned, only two countries have done that, i.e. Italy and Portugal. I believe that our credibility in the world is of such a nature that there should be no need for the Government to have to give gold as security for any indebtedness that it incurred.

We have not done it.

The hon. the Minister explained to me what the difference was between a loan where on pledges gold as security and the situation where a buy back arrangement is made. If the hon. the Minister will look at his own piece of legislation, the Limitation and Disclosure of Finance Charge Act and at the decisions in the Appellate Division this, he will see that he himself has defined that a buy back arrangement is in fact a disguised loan. I do not believe it is in our interest to give security for our indebtedness. I think our credit-worthiness as a country should be of such a nature that we do not have to be in the position that Portugal and Italy are in, i.e. where they indulge in loan activities which they have to secure. We should not be in that position. I believe our credit-worthiness should be substantially higher than that. I would like the hon. the Minister to react to this, because it is a dangerous precedent. Our credit-worthiness in the world should stand very much higher.

I now want to come to the amendment which introduces the new proposed section 17B, 17C and 17D. In this regard both the Foreign Exchange Adjustment Account, the Forward Exchange Account and the Profit and Loss Account in respect of gold, go into one account in the end. The hon. the Minister has told us that the first step will be that the losses that have been incurred on foreign exchange holdings and on forward exchange contract, which was R690 million as at 31 March this year, are going to be set off against this profit that we are going to make. We have no objection to that, because it has to be dealt with in some way. I understand there is no provision as to how this should be dealt with normally. If it is not dealt with in this manner and if at some stage or another the Treasury has to compensate for this, either the money would have to come from the taxpayers or from some other source in order to extinguish them. The Reserve Bank has given forward cover for a relatively nominal consideration to Escom, Iscor and to local authorities—in this regard I think particularly of the Johannesburg loan—in loans which are foreign currency loans and where the rates of exchange have obviously turned against us as it has in the case of Deutsche Mark. In this regard the devaluation had a very substantial effect. As I understand the position, the R690 million does not include what the eventual loss will be when these loans come to be repaid. If that is so, should we not now make provision for that contingency? If that is so, it seems to me that the whole of the book profit which is going to be made on the revaluation of our gold, is already more than extinguished if we make adequate provision for all the foreign loans of Iscor, Escom and of the Johannesburg municipality as well, in those currencies. If I am right, it means that this book profit will be purely nominally in the accounts and we might as well extinguish it now, because it means that the whole of the gold profit has already been lost before it has been made in the book. I would like the hon. the Minister to react to that because it does seem to me that provision has to be made for these particular items in so far as our accounts are concerned.

There is one other matter on this clause that I would specifically like to deal with and that is that the Bill provides that in so far as the hon. the Minister is concerned he may use this with the approval of the Treasury and the bank. They may deal with it together. Amongst other things they may use it for the National Supplies Procurement Fund, which is in fact expenditure. They will be using the money to buy goods. If there is any money available for this purpose after, as I have indicated, we have dealt with all the forward foreign exchange losses, it is then used for a purpose for which normally taxpayers’ money is used. That is not, to my mind, a sterilization. We have no objection to the National Supplies Procurement Fund being built up. A good case can be made out for it. However, it is not a true sterilization. The second point I want to make is that if the hon. the Minister and the bank together decide to spend the funds on other matters, there is no parliamentary control over this. We believe that if this money is going to be spent for any purpose not specified in the Statute, it should be subject to the approval of Parliament. That is why we have put an amendment on the Order Paper in order to cover that particular situation.

The next matter I would like to raise in relation to this is what the effect is going to be of the revaluation of the gold on the agreement which exists between the Republic of South Africa and Mozambique in respect of the payment for labour which comes from Mozambique. What is the position going to be? Are we going to continue to supply gold at the old price and pay in gold at the old price? At what price are we going to do it? What is the implication of this for South Africa? The payment and the loss does not come from the Treasury. It comes from the gold mines as such. I think we are entitled to know what that position is going to be. If the hon. the Minister is not in a position to tell us, will he tell us whether negotiations will take place with the Mozambique Government in regard to this matter? To my mind it is an important issue in respect of the revaluation of gold. We are entitled to know what the implications of this are.

The issue in the next clause relates to the abolition of the obligation to furnish returns on a weekly basis. We accept that a case can be made out on the basis of the marketing of gold why this information should not be furnished on a weekly basis. We will not oppose it even though we want to be as fully informed at all times as possible. There is a question which I want to pose to the hon. the Minister. I am not in a position to move this amendment because that would be outside the scope of this Bill. Does he not think that the time has come that he should look at the first schedule so as to determine whether the first schedule provides the kind of meaningful information that the people in the money market and in other activities should receive in respect of this particular matter? I would like to ask the hon. the Minister whether he will not apply his mind to the amendment of the first schedule or to the furnishing of additional information to make this a meaningful situation in regard to the information which the public receives.

Clause 5 of the Bill repeals sections 8, 8bis, Ster and 8quater of the Currency and Exchanges Act. There is a notable omission in that there is a section that we do not repeal. We are not repealing section 9. It looks as if that is now virtually what the Act is going to consist of. I would like to read subsection 9(3) of the Act—

Now the State President—

In other words the regulations which he may make—

Now this is the most far-reaching provision, as far as I am aware, in any law that is on the Statute Book in South Africa. I am referring to the 1933 Act. It is a law in terms of which regulations which have a bearing on currency, banking or exchanges can be made. Almost anything can have a bearing on that, which means that the power exists, in terms of this law, to change any law in South Africa without Parliament at any time on the basis that it has no more than a bearing on currency, banking or exchanges. One can understand this being the position in the year 1933. One can understand the problems that in fact were facing the country in 1933. Perhaps it should not even have been passed in 1933, but there is no justification for so autocratic a measure remaining on the Statute Book in South Africa. A case can be made out that there should in toto be a new Reserve Bank Act. I would like to appeal to the hon. the Minister to consider repealing this. Let him have the powers which are required in order to deal with the currency, banking and financial problems of South Africa, but let us remove this autocratic piece of legislation from our Statute Book once and for all.

I understood the member for Yeoville to say that the gold swap was not in the interests of South Africa. I cannot agree with him, for the simple reason that if the money is not obtained from the gold swap and the cash flow does not come into South Africa, the money must be obtained from elsewhere. In other words, it must either be obtained from the taxpayer or from another source. The way I see the position is that the cash flow obtained from the gold swap must obviously help to balance the budget, and must help with the building of houses. I believe that we are spending something like R160 million this year on the building of houses. It must help with the infrastructure and it must also help to improve the quality of life for all South Africans. So on that particular point I cannot agree with the hon. member for Yeoville, because I believe that it brings extra money into South Africa.

I would like to ask the hon. the Minister a question. I can fully understand that he cannot give us details of the exact gold swap, but what I would like to ask the hon. the Minister if whether he cannot give us an indication of the totality of money borrowed against the security of gold. In other words, do not give us any details—whether it was done at a price of 120 dollars or 130 dollars; just give us the totality of money that he has been able to borrow in terms of giving gold as a security.

Then you will make sums.

One of the hon. members behind me says, “Then you will make sums.” The hon. member does not realize that you cannot make sums if you do not know at what price the gold has been placed for collateral purposes. You cannot make the sums. So all we would like to know from the hon. the Minister is the totality of the amount borrowed. The price of gold is of the greatest importance to South Africa. Despite the assaults from various quarters to reduce the importance of gold, the importance of gold to people throughout the world has been shown by the distinct preference that they have for gold rather than buying other things which are of a very pale similarity. The resistance of the gold price has been absolutely remarkable if you look at the assault that has been committed on gold. If America really wants an improvement, if they want to do things in South Africa and if they want to see the quality of life improve in South Africa, then America should go out of its way to ensure that the gold price increases and allows South Africa to make the necessary improvements that all of us want to make. Mr. Speaker, this Bill takes us one step closer to the revaluing of our gold reserves at market-related prices. The hon. the Minister has said that this will only transpire after the International Monetary Fund has changed its articles or regulation later this year. The hon. the Minister will also remember that over the last few years some of us have pleaded for the revaluation of the gold reserves. Amongst those who have made this plea are members of the South African Party.

This Bill deals with the Foreign Exchange Adjustment Account, the Forward Exchange Contracts Adjustment Account, the Gold Price Adjustment Account and the Gold and Foreign Exchange Contingency Reserve Account. All these accounts and their method of operation are acceptable to us in this party. We think it is correct that, as a major producer of gold, South Africa should show its confidence in gold by revaluing our gold reserves. We have no doubt on that issue.

I wonder whether the hon. the Minister can tell us at this stage whether we are going to adopt the revaluation according to the Italian style, the French style, or our own South African style. Naturally, the revaluation will affect one country adversely, viz. Mozambique which has been getting our gold at R29,55 per ounce and which over the years has received hundreds of millions of rand in the form of an extra gold bonanza from us. It is more important that we get this additional money to use it internally than it is to use it externally. This other State has been used as a base for hostilities against a friendly neighbour of South Africa. I want to make it quite clear that those of us in this party have no objection whatsoever to that other State losing the golden bonanza it has enjoyed all these years. I presume that, after revaluation, the mines will in respect of future sales be paid the full amount far more promptly than is the case at the moment. At present, as I understand it, they have to wait for the additional premiums.

In regard to clause 4, I want to say that we feel that the monthly statement will present the position more accurately. It will give a far fairer reflection of the position, because the weekly position is subject to too much fluctuation. I think it will be in the interests of South Africa if the information is given only on a monthly basis.

This is one of the worst speeches you have made in your life.

Mr. Speaker, the hon. member for Orange Grove says this is one of the worst speeches I have ever made. The reason why he thinks it is bad is that I said the gold swop arrangement brings an extra cash flow to South Africa and that that extra cash flow will improve the quality of life of all South Africans. The hon. member for Orange Grove is of course against that because he would like to see an uncontented population in South Africa.

Mr. Speaker, we wish the Reserve Bank well in their future endeavours and we should like to pay tribute to them for the services they have rendered to South Africa. We shall not oppose the Bill.

Mr. Speaker, I have listened to the hon. member for Walmer with great interest. It seems to me that he is suffering from a great deal of confusion about what constitutes a gold swop. I look forward to hearing from the hon. the Minister in regard to the composition and details of the gold swop. I hope the hon. member will realize that all that we have done is to borrow foreign exchange in return for a promise to buy back the gold which acted as a security.

Are you against that?

I am just trying to explain the details, because that may change your attitude … [Interjections.] All we have done is to sell gold forward and promise to buy it back.

Order!

The hon. member for Yeoville quite rightly pointed out that the hon. the Minister should tell us what the difference is between that and a secured loan, because that is all it amounts to. Both these gold swop arrangements, in so far as the details have been disclosed, amount to nothing else but a secured loan. There may well be good reasons for that, there may be a necessity for it—I do not want to go into that matter. In any event, we look forward to hearing from the hon. the Minister in that regard. [Interjections.]

Order! Hon. members are not allowed to converse loudly during debates. They may converse, but not loudly.

Thank you, Sir. Let me repeat what the hon. member for Yeoville said. The hon. the Minister has now given us a figure and he said in his Second Reading speech that to that figure must be added the profit on the gold from the bank’s existing swop arrangements. The total revaluation profit would then be in the vicinity of R1 390 million. As the hon. member for Yeoville pointed out, what the hon. the Minister has disclosed is that the profit on the two gold swops—as I understand it, the hon. the Minister was talking about them in the aggregate—is of the order of R615 million. May I ask the hon. the Minister, when he comes to reply to this Second Reading debate, to tell us whether that profit of R615 million is on the original statutory price of R29,55, or whether it is the kind of profit which the hon. member for Yeoville referred to? When we come to the question of the disclosure of the method of valuation of our gold reserves, we can fully understand that the hon. the Minister and the S.A. Reserve Bank have not as yet made up their minds as to which method they are going to adopt. In the interests of all those who are concerned with the economy or the state of performance of the economy and with knowing what our position is at any particular moment of time, it seems to me abundantly clear that the hon. the Minister is under an obligation to tell the general public in some form or other, as proposed by the hon. member for Yeoville, what the price used in the valuation is at any particular moment of time and when it was changed. If not—and let us be quite clear about this—no people other than the hon. the Minister himself and the S.A. Reserve Bank will be aware or have the knowledge at any particular point of time as to what the state of our reserves is. When I talk about reserves, I am talking about the net reserves. What the hon. the Minister is asking us here, is to take onto himself the power for the S.A. Reserve Bank simply to draw a blanket down over the reserve position of this country. That is what will be done if he does not publish the price which he is going to use in the valuation and when that price changes. Everybody in South Africa should be aware of what the Government is going to do, but that will not happen if that is actually his intension and if he will not agree to the amendment proposed by the hon. member for Yeoville.

Let me also warn the hon. the Minister that if he does not do it, everybody will speculate, and they will speculate that the position is in fact a great deal worse than I hope it is, because it is difficult enough to get information in regard to this particular fact of what the level of our net reserves is at the moment. If the hon. the Minister will not accept that he has to publish a price and also when he changes it, what he is in effect saying is that he is going to draw down a blanket so that no South African can actually know what the state of South Africa’s reserves is at any point in time with any accuracy, or how it is constituted in the sense of gold or foreign exchange. No South African will know where we stand at any particular point in time.

I now wish to deal with the Mozambique Convention which will be quite directly affected by this piece of legislation which is before us. We want to know from the hon. the Minister firstly what the position will be when the Government comes to deal with the Government of Mozambique. Until now the gold has been delivered at the official price, i.e. R29,55, as we understand it. Will the hon. the Minister tell us what will happen in the future? Will the gold be delivered at the statutory price as determined by the Minister and the S.A. Reserve Bank, or is it going to be delivered at the market price which prevails at any particular point in time? There is a second point on which we would like clarity from the hon. the Minister. If we are going to subsidize Mozambique, for whatever reason it may be deemed to be necessary in the national interest, will the hon. the Minister then say that in those circumstances—because if one goes through this piece of legislation one will see that the whole basis of the Mozambique Convention with regard to labour on the gold mines is changed—in the future any such subsidy which is deemed to be in the national interest will be borne by the Consolidated Revenue Fund as opposed to the gold mining industry? We would like to hear from the hon. the Minister what his attitude is in this regard.

What is your attitude ? Would you like it subsidized?

The last point I wish to make in regard to this Bill is, as the hon. member for Yeoville has said, that we have no objection to dropping the weekly publication of the reserves, because in effect to a very considerable extent the figures are meaningless anyway, because they talk about gross reserves. To be absolutely truthful, I do not follow the reasoning that it will affect the marketing of gold by the S.A. Reserve Bank, and I notice that it has the support of the Chamber of Mines. Be that as it may, if it does have a marginal effect it does not really matter, because basically when the world gold market is in equilibrium it is not so much South Africa which will determine the price. However unfortunate it may be, it will be the Russians who will do it. We look forward to hearing from the hon. the Minister when he replies to the various points which we have raised.

Mr. Speaker, I want to convey my sincere thanks to hon. members on both sides of the House for their support of this measure. This is a measure which, as I indicated during my Second Reading speech, I regard as a particularly important one. Although there has been agreement on the necessity for this Bill, it is true that there has been a great deal of comment with regard to various aspects thereof. I should like to react briefly to some of the viewpoints stated here.

†Mr. Speaker, I quite agree with the hon. member for Constantia when he says that this is an historic Bill. It is no doubt an historic Bill. What it does show very clearly is the extent to which we attach the greatest importance to the monetary role of gold, now and in the future. I would like to repeat what I said in an interjection across the floor of the House, viz. that, of course, the legal gold reserve requirements of the Reserve Bank are not being abolished. It is simply a question of making provision, far more conveniently from the administration’s point of view, for the suspension of this 25% gold cover where conditions make it very difficult to meet that particular requirement.

In regard to the gold swop agreements that we have undertaken, there is no doubt whatsoever in my mind that these have been to the advantage of South Africa. They have, in fact, as the hon. member for Walmer quite correctly said, strengthened our cash requirements in the reserves. They have been extremely valuable to us indeed. I cannot possibly give details of these transactions. I believe it is absolutely in the national interest when I say that, and indeed the important parties with whom we made these agreements have specifically asked that, for many reasons, we should not disclose the details. However, I want to state emphatically that this is not a loan, not under any conditions whatsoever. The hon. member for Johannesburg North and—if I understood him correctly—the hon. member Yeoville said this was in fact the equivalent of a loan against the security of gold. It is, in fact, nothing of the kind. There is no question of a loan against the security of gold. This is a spot sale of gold at an agreed price, and a buy back of gold later. The ownership of the gold in question passes to the buyer. There is no loan at all.

But there is an agreed price to buy back.

It is a sale and a purchase back later.

With an option to rebuy.

Not an option; an obligation to rebuy.

No, it is not a loan of any kind at all. There is a very big difference indeed, because if it were a loan against the security of gold, we would invoke what we call the negative pledge clause and we would be in trouble with any number of other lenders to us. None of them is concerned, they all accept that it is not a loan involving that negative pledge. It is nothing of the kind. Nothing could be clearer.

I believe we must be very clear in respect of this matter. It is not a loan. It is not a loan backed by gold. It is a spot sale of gold at an agreed price. The ownership passes at that point to the buyer and it is agreed that we have the right to buy back at a future date at a price.

Mr. Speaker, could I ask the hon. the Minister whether we are under an obligation to re-purchase at a price in the future, or do we simply have an option to re-purchase?

No. Normally we have a term attached to this. We agree that at a certain date we can rebuy. However, there is of course always the possibility of a renewal.

And if it has sunk below the official market price?

I am not prepared to speculate on the price whatsoever, and there are very sound reasons for my refusing to speculate. In this respect I also want to point out that the example I gave was a purely hypothetical one. The question involving the loss on the gold swop—or on the profit, if we like—was simply, as I said, based on a hypothetical figure of $130 an ounce. I made a little calculation on that hypothesis. The hon. member should read nothing more into it. It was purely an illustration and nothing else. Those figures have no particular meaning at all. I regret that I cannot give any more information on this, but let me make it perfectly clear that these transactions are undoubtedly to the advantage of South Africa.

Arising out of the revaluation of gold, I have been asked by a number of speakers what the position will be in regard to the agreement with Mozambique. This involves a secret clause in the Mozambique Convention— although I have never known of a secret clause that was more public than this one. Apparently everybody knows what is in the clause. Let me make it perfectly clear that when this revaluation of gold takes place, gold will be sold at market price and the present arrangement will fall away. We have already had talks with Mozambique on this matter. Hon. members who do not like this arrangement need not be concerned about it.

As far as the loss on the forward exchange cover is concerned, the hon. member for Yeoville was much too pessimistic. I can assure him that I can see no possibility that the loss can possibly in any way extinguish the profit on the revaluation. That point really does not arise. The figure of R690 million which I referred to does not include any further potential loss. The hon. member can take it from me that we will still have a substantial balance in that account. Apart from wiping out the loss which is owing to the Reserve Bank, we intend to sterilize that amount. I think we can perhaps take a little credit for that. After all, there are many countries in the world that could not have resisted the temptation to use those balances. We intend to isolate that amount, and it is going to be pretty difficult for anyone to lay his hands on it. I certainly do not intend laying my hands on it. That is why we have adopted this elaborate procedure for keeping it in the Reserve Bank. It is possible, depending on circumstances as they develop, that we may want to use at some future date a part of this amount to finance the National Supplies Procurement Fund.

At the moment I have nothing in mind on that at all, but I say it is a possibility. Before we ever do that, we would of course use any balances we have available in the Exchequer or in the Stabilization Account, which is what we do, before using any money in the Contingency Reserve Account with the Reserve Bank. We can of course simply ask the Reserve Bank for loans, but then we will have to pay interest. If it came to that, if we had no other funds available and felt we had to apply for a loan to the Reserve Bank, by instead using a small part of the money in the Contingency Reserve Account, at least we would save interest which would otherwise be payable to the Reserve Bank. I say again that I have absolutely no plans to raid that reserve account for this purpose. It was simply put as a possibility at some future time.

About the monthly and weekly statement, I want to say that we do have problems in publishing the gold reserve figure weekly. Time and again we have speculation, we have questions arising here and from outside which do not assist us at all and such idle speculation is, in fact, used against us sometimes. We feel that in common with practically all other countries today, this idea of publishing a weekly figure is rather outmoded. As far as the usefulness of the information is concerned, whether published weekly or monthly on the present sort of basis, I would agree with the hon. member for Johannesburg North that there are limitations in the presentation. The Reserve Bank intends to look very closely at this to see whether they ought not to improve the presentation. That is a matter which they certainly will undertake to do. I simply want to refer the hon. member to the fact that, of course, a good deal more detailed information does appear in the quarterly bulletin. There is far more information, which is more meaningful too. However, I have no objection, and I am sure the Reserve Bank has no objection, to have another look at this and to see whether we cannot improve the present presentation.

As far as the question of the publication of the new price which we might determine is concerned, I want to say at once that it has never occurred to me to keep anything secret about any gold price we might determine in terms of this amending Bill. After all, if one is going to revalue and determine a new price, one’s whole intention will obviously be to make this known. How on earth would it assist me to keep this secret? It is a very significant figure. When we come to the Committee Stage, I shall discuss this further with the hon. member. There is no question of trying to hide anything whatsoever. I want to make that perfectly clear. It was never the intention of either the Reserve Bank or the Treasury to do so. I think there ought to be no problems in this regard.

The hon. member for Yeoville said that we left out a very important thing, namely that we had not made provision to repeal section 9(3) of that 1933 Act. Of course, that was not in our purview at all when we were looking at this particular matter. We may have to look at it at some other time. However, it is not strictly within the purview of these amendments. I think the hon. member will agree with me.

I know that. I just hope you do it.

I think I have now referred to the gist of the matters which have been raised. If I have left out of account points which have been raised, I hope hon. members will forgive me.

Question agreed to.

Bill read a Second Time.

Mr. Speaker, I move—

The Bill now before the House embodies amendments to five Acts administered by the Office of Financial Institutions, viz.: the Insurance Act, 1943; the Pension Funds Act, 1956; the Inspection of Financial Institutions Act, 1962; the Banks Act, 1965 and the Building Societies Act, 1965.

As hon. members will be aware, it is continually necessary to effect amendments to the Acts regulating financial institutions in order to meet changed conditions. In addition, some amendments arising out of the budget are also necessary.

In the budget I proposed that certain financial institutions be required to invest a higher proportion of their assets in the public sector, particularly in Government stock. The amendments contained in the Bill include provisions which are designed to implement these proposals.

As hon. members will note from the various clauses of the Bill, the increased requirements in respect of prescribed investments will not be applied in full immediately, but will be put into effect in stages during the financial year.

I now proceed to deal with the most important provisions contained in the Bill.

Commencing with the Insurance Act, I wish, in the first place, to refer to the report of the Commission of Inquiry into the Long-term Insurance Industry, which was recently tabled in this House and which, needless to say, will receive the Government’s close attention. The report contains many recommendations which call for legislation. In so far as these recommendations prove acceptable to the Government, they will be translated into legislation which will in due course come before Parliament.

In one respect, however, it has been considered necessary to act at this stage on one of the commission’s recommendations, namely the establishment of an advisory committee on long-term insurance. The proposed advisory committee, as provided for in clause 2 of the Bill, is modelled on the lines of existing advisory committees, e.g. that on company law. It is considered that its establishment should receive priority as inter alia its assistance will be valuable in implementing other recommendations of the long-term insurance commission.

In my opening remarks I have already referred in general terms to financial institutions being required to increase their investments in the public sector. In the case of the insurance industry an overall increase equal to 5% of total liabilities in prescribed assets, the so-called “part 1 assets”, and 2½% in Government securities are provided for.

In the case of pension funds the corresponding increases are 5% and 2½% of total assets. The increases have been pitched at levels which are designed to ensure an aggregate investment in the public sector by insurers and pension funds during the current financial year of approximately R520 million, of which about two-thirds is intended to go into Government securities.

Hon. members will note that the increases are required to be effected in three stages over the financial year and provision is made for powers to ease the rate of increase at any stage. Such powers will be used if it should become apparent that the prescribed rate of increase will produce more than is actually needed.

It should also be noted that in December 1975, insurers and pension funds were requested to raise voluntarily their investments in Government securities by 2% above that required by law. If this is borne in mind, it will be realized that the effective increases are not as severe as the higher percentages now proposed, seem to suggest.

Powers which the Registrar of Insurance now has to grant an extension of time to certain insurers to comply with the existing asset requirements of the Act are extended by clause 5 so as to be available also in cases where insurers cannot promptly comply with the increased requirements now proposed. These additional powers will be used only in cases of genuine hardship.

Tightening up of the provisions dealing with the handling of short-term insurance premiums by intermediaries has become overdue. Since the existing provisions in this respect were introduced in 1965, it has become clear that they are not adequate to ensure that premiums are promptly remitted or to indemnify insurers against defaulting intermediaries. Amendments to these provisions are accordingly proposed in clause 6 which will place the handling of such premiums on a more satisfactory basis. Where intermediaries elect to furnish security in the form of bank guarantees, the minimum and maximum amounts of such guarantees are also substantially increased.

Hon. members will note that a gradual adaptation to the improved basis is envisaged. This will allow the short-term insurance industry to adjust to the new basis with as little disruption as possible.

I am happy to say that although the interests of insurers and intermediaries sometimes clash in matters like these, the present proposals are acceptable to representative organizations of both insurers and intermediaries concerned.

It has been felt for a long time that the present non-forfeiture provisions applicable to funeral policies need improvement. With the co-operation of the Institute of Funeral Insurers revised non-forfeiture provisions were framed which will serve the interests of policyholders better than the existing provisions in that they generally provide for longer non-forfeiture periods. These are now contained in clause 7 of the Bill.

The last amendment, proposed in clause 8, to the Insurance Act, is designed to solve difficulties experienced by insurers and policyholders in respect of loans made by insurers on the security of their own policies. Normally such loans are entered into with the intention that the loans and interest accrued would eventually be settled from the proceeds of the policies on maturity. By exempting such policy loans from the common law rule which precludes interest from accumulating in excess of the capital amount of the debt and by making prescription in respect of such loans co-extensive with the insurer’s liability under the pledged policy, it will no longer be necessary for insurers to disturb policy loans unnecessarily. This amendment is urgently requested by the Life Offices Association and will also be convenient to policyholders who have borrowed on their policies.

The purpose of the two amendments, proposed in clauses 15 and 16, to the Inspection of Financial Institutions Act need mentioning here as their purpose is the better enforcement of certain provisions of the Insurance Act. In terms of these amendments intermediaries handling short-term insurance premiums or who receive commission which is now limited by regulation, may be inspected, if necessary, under the first-mentioned Act. The need for such powers of inspection is, I think, quite obvious.

I am now coming to the Pensions Funds Act. It will be observed that besides providing in clause 9 for flexibility in respect of financial year-ends of pension funds, and providing in clause 10 in respect of the powers of the Registrar of Pension Funds to exempt pension funds from the provisions of the Pension Funds Act, provision is also made for increased investment in the public sector on similar lines as in the case of insurance—in clause 11—and for amendments to the existing provisions regarding the protection of pension benefits.

I think I have already dealt sufficiently with the question of investment in the public sector. The protection of pension benefits is, therefore, the only matter which requires further explanation. The provisions which were introduced into the Act last year for the purpose of protecting pension benefits have presented some problems in their application. The main purpose of clauses 12 and 13 is to solve those problems.

Strong representations have been received from pension funds collectively and individually to ease the provisions in certain respects so as to make it possible to use pension benefits as security for certain deserving purposes.

Clause 14 allows a fund in the first place to use a member’s pension benefits to repay a loan or meet a guarantee provided by the fund itself or the member’s employer in connection with the acquisition of a dwelling. The amount that may be applied for this purpose is, however, limited to the lump sum benefit a member may take, so as not to leave him without a pension.

For reasons of equity a fund is also allowed to use a member’s benefit to compensate the member’s employer to the full extent that it has been properly proved that the employer suffered loss as the result of any fraudulent action by the member.

Finally, a fund is allowed to pay a member’s subscription to a medical scheme and his insurance premiums. This concession is being made especially with a view to assisting pensioners.

Representations have also been made that pension benefits should be made directly available for a number of other purposes. It has, however, been considered advisable not to go beyond those for which provision is now made, as it would otherwise defeat the object of pension funds wich is basically to provide a person with a pension on his retirement.

*Mr. Speaker, I come now to the amendments to the Banks Act. The first proposed amendments to this Act is in clause 17 and serves to put into effect the budget proposal that banks are also expected to make a larger contribution to the capital requirements of the public sector. At present a banking institution need only keep an amount equal to 10% of its long term liabilities in prescribed investments of which at least half, i.e. 5% of its long-term obligations, shall be in Government stock. Prescribed investments are for the most part long-term securities of the public sector and exclude liquid assets. I may also mention that the vast majority of banking institutions operate for the most part with short-and medium-term funds, while only a small number of institutions have long-term funds in excess of short-and medium-term funds. The proposed amendment will raise the aforementioned percentages from 10 and 5 to 15 and 8%, respectively.

At present the Banks Act restricts the total amount of a bank’s investment in immovable property and in shares other than redeemable preferential shares to the amount of its paid-up capital and unimpaired reserves. Since building society shares, in essence, differ radically from ordinary company shares and are far more in the nature of redeemable preferential shares or deposits, it is being proposed, in clause 18, that building society shares, like redeemable preferential shares, will not be taken into consideration for the purposes of the restriction.

In view of the impending independence of South West Africa, as well as of homelands that are following the same course, banking institutions which carry on a business in some of those territories intend, for practical reasons, to separate their business there and transfer it to a subsidiary which establishes the bank there, or possibly to another existing banking institution in that territory.

From discussions with various banks it has become clear that there is a need to make provision in the Banks Act, co-extensive with the existing provision, for the transfer of all the assets and liabilities of a banking institution, as well as for the transfer of that part of the assets and liabilities of the banking institution relating to the business which is being carried on in a specific territory.

The amendment proposed in clause 20 makes provision for the transfer of such a portion of a bank’s business with the same benefit in respect of the retention of rights and the validity of contracts and the free transfer registration of deeds and proof of title as in the case where all the assets and liabilities are transferred, for which section 30 of the Act already makes provision.

The amendment proposed in clause 19 is necessary in case a bank wishes to separate part of its business in accordance with the provisions proposed in clause 20 and transfer it to a subsidiary while the present restrictions in the Act would not allow him to acquire such a subsidiary. The last amendment of the Banks Act which is being proposed, in clause 21, is urgently necessary to place the management of a banking institution which has found itself in financial difficulties and has been placed under curatorship on a more effective basis.

Section 40 of the Banks Act provides that when a banking institution is in financial difficulties, the Minister may, with the consent of the institution, appoint a curator who takes over the management of the banking institution with the application of certain provisions of the Companies Act concerning the judicial management of the company, under the supervision of the Registrar of Banks. The purpose of curatorship is not only to prevent by such action a run on the bank to withdraw deposits and a further deterioration of the position of the institution, but to attempt, by means of sound management, to set the institution on its feet again, or at least to rectify its position to such an extent that its depositors suffer no or as little loss as possible. When a bank is in financial difficulties it is usually the result of weak management or maladministration or other abnormal circumstances such as a high withdrawal of deposits together with the inability to obtain new money at reasonable interest rates in substitution of deposits which are withdrawn.

It is essential, together with the appointment of a curator, to restrict the further withdrawal of deposits. Only if such a bank is able to retain and possibly expand its funds and reduce the cost of funds which are unreasonably high, will the curator possibly succeed in rectifying the position of the institution or obviating that the depositors suffer losses.

Experience has shown that the powers which may be granted to a curator in terms of the existing statutory provisions are inadequate to enable him to retain the funds in the banking institution, to reduce the cost structure, and to avoid risking investments by virtue of existing agreements. It is therefore imperative to create a special legal position during the curatorship of a banking institution and confer powers on the curator which will afford him the greatest possible opportunity of rectifying the position of the institution.

In order to freeze the institution’s deposits, it is necessary to avoid any legal proceedings against it which may be instituted or proceeded with. It is also necessary to allow a curator to I suspend or reduce temporarily a payment of interest and conclude compromise arrangements with some depositors in regard to the production of interest rates and the time at which deposits are to be repaid.

For obvious reasons it is necessary to suspend the operation of set-off in respect of creditors of the bank which also owe it money.

A curator may also require powers to take action in cases where credit has been granted on an excessively risky basis or where the institution is under the obligation under existing contract to make further funds available to borrowers while the security is inadequate or the institution does not have the necessary funds at its disposal.

The proposed new section 40 makes provision for the powers to deal properly with the aforesaid matters.

Mr. Speaker, the last amendments which are being proposed, are two amendments to the Building Societies Act. This Act provides that a building society shall hold an amount equal to at least 10% of its obligations to the public, including shares, in prescribed investments and, in addition, that the Minister may exempt building societies from this requirement. Unlike the case of banks, insurers and pension funds, there is no requirement that building societies shall invest part of the prescribed investments in Government stock.

Building societies are also being required now to make a specific investment in the public sector, and the Minister is being empowered to prescribe from time to time in the Gazette which percentage of a building society’s obligations, as a sub-minimum of the 10% prescribed investments, shall be kept Government, Government corporation or local authority stock.

The other proposed amendment to the Building Societies Act, contained in clause 23, refers to guarantees provided by the State to building societies as collateral security in respect of home loans to employees of the State, where more than 80% of the value of the property is advanced. At present the Act provides that such a guarantee is supported for at least half of the guaranteed amount by reasonable security in the form of, inter alia cash. In practice what this amounts to is that the State has to deposit cash with the building societies in respect of such guarantees equal to half of the amounts of the guarantees. However, this is not always practicable, and consequently it is now being proposed that the Registrar of Financial Institutions be empowered, after consultation with the State departments in question and the Association of Building Societies, to exempt guarantees from the State from the requirement that additional security has to be furnished.

Mr. Speaker, the organizations which are affected by the most important provisions of this Bill have been consulted, and the provisions have their support. The amendments are all essential, and I should like to ask this House to support them.

Mr. Speaker, first of all I would like to thank the hon. the Minister for the very illuminating explanatory memorandum which was provided with this legislation. This is an omnibus measure which, as the hon. the Minister has said, covers five different financial Acts. Many of the clauses in this Bill are completely unrelated to each other and it is helpful to laymen to have a memorandum such as was provided with this Bill.

As far as this side of the House is concerned, there are provisions in this Bill which we can support and there are provisions to which we are opposed. I do not propose going through this Bill clause by clause as far as the provisions which we can support are concerned. However, I would like to comment on two of those clauses. The first is clause 2, which deals with the Insurance Act and which provides for the establishment of an advisory committee on long-term insurance. This is a measure which we welcome. I think that an advisory committee on long-term insurance to advise the Government on all the implications and actions that need to be taken in regard to an industry as complicated as the long-term insurance industry is, is a welcome measure. This advisory committee should be of considerable value to the Government. I do note, however, that the Bill does not follow the recommendation of the Commission of Inquiry into the Long-term Insurance Industry with regard to the powers which are granted to this advisory committee. While the commission recommended that this committee should have the powers of a commission, the Bill does not make that proposal. Therefore the advisory committee will have to rely on information supplied to it by the registrar. I can well appreciate the reasons why members of the long-term insurance industry may object to giving confidential information to a body on which members from their competitors may be serving, but I would think that the effectiveness of the committee may well be curtailed by not having the full powers of a commission to call for evidence. I would like to suggest to the hon. the Minister that while we are not going to oppose this clause in any way, this is an aspect of this legislation which must be watched very carefully to see whether by curtailing the powers of this advisory committee he is not also curtailing its effectiveness.

The next clause with which I wish to deal is the one which amends the Banks Act, i.e. clause 21. This I regard as the most important amendment in this Bill which affects the Banks Act. It is a clause which we can support. It is the one which deals with the curatorship of banks which get into financial difficulties.

Clearly, these amendments are designed to streamline the appointment and the operation of curatorships and to extend the powers which the hon. the Minister may grant curators to exercise their duties. In many ways a curatorship of a bank is similar to the judicial management of a company that gets into financial difficulties. I think we all know that only a minority—and I think it is a fairly small minority—of companies that get into financial difficulties and are put under judicial management, are restored to health by judicial management. However, in the case of banks, it is a different situation altogether. So many people are affected when a bank gets into trouble, so many people and their savings are affected—sometimes the life savings of people—that it warrants special steps being taken when banks get into difficulties to save the banks concerned, to protect the deposits of depositors with those banks, or at the very least, to partially protect the deposits of customers of the banks concerned. To do so, and to do so effectively, it is very often necessary to act quickly and firmly.

South Africa has had a proud record of financial stability as far as banks are concerned. That has been marred in recent months by difficulties into which two banks have got themselves. The powers proposed in clause 21 of the Bill are made retrospective in order to deal with these two particular cases. That, of course, is the immediate practical purpose of these amendments. Much as we in these benches dislike the principle of making legislation retrospective, I think it is pointless to object to this clause on that score. We certainly hope, that we are not going to see further banks having to be put under curatorship to be taken care of by the provisions of these amendments.

If these amendments do help to improve the position in the two cases which are at present under curatorship—and I hope they will—they certainly will have our blessings.

That ends the comment that I have to make on the clauses of this Bill which we are prepared to support. I now come to those parts of the Bill with which we cannot agree. I refer to clauses 3, 4, 11, 17 and 22, namely those clauses which increase the compulsory investments in Government stocks and prescribed assets by insurance companies, pension funds, banks, and those provisions which empower the hon. the Minister to force building societies to follow suit. These are measures which were announced by the hon. the Minister in his budget speech. They must be judged as fiscal measures required to balance the budget, and not in any way as measures required to ensure the financial stability of the institutions concerned.

I believe very strongly that the Government is going too far in raising its loan requirements by compulsory means. We already have the situation where R462 million are being taken away from individuals and companies by way of loan levies this year. We have an amount of something like R250 million being taken away from motorists by way of excise duty on petrol to provide capital for Sasol 2. We have an Electricity Bill before the House which proposes powers for Escom to raise tariffs in order to provide capital for Escom’s expansion. Likewise, we have provisions concerning the Post Office, and so it goes on. And here we now have the largest plundering of the capital market that the market has even seen. Provision is being made to take R760 million from financial institutions and pension funds. I believe the general estimate of the insurance industry and the Pension Funds Association is that these measures are likely to raise a larger sum than R760 million. [Interjections.] I find this measure quite inexplicable from a Government that professes to believe in the private enterprise system. What the Government is actually doing by means of these measures is that it is shielding itself from the free enterprise system. The Government is shielding itself from the forces of the capital market; it is shielding itself from having to complete in the capital market and having to pay realistic interest rates. By doing so it is weakening and not strengthening the forces of free enterprise, because it is making the capital market, which, after all, is one of the mainsprings of the free enterprise system, all that much smaller. The Government, having put itself in a privileged position, is now leaving the private sector, which is the productive sector of the economy and the sector which is responsible for growth and higher living standards, with a smaller capital pool from which to compete for its requirements. These are not only my views on the subject. I would like to quote what a leading man in the insurance industry, Mr. Donald Gordon, chairman of the Guardian/Liberty Life Group, had to say at his group’s annual general meeting. He said—

I agree with that—

Mr. Speaker, if this is not a socialistic type of measure, then I do not know what a socialistic type of measure is.

Having said that as far as the actions of the Government in copying socialism is concerned, I have further objections to these measures in that I regard them as a discriminatory form of taxation, discrimination against the saver, particularly against the person who is saving for his retirement. After all, the financial institutions and the pension funds are trustees of his savings. They are now being prevented from investing those savings to the best advantage. I firmly believe that instead of commandeering capital, as is being done by this measure, the State, the State corporations and the semi-State corporations must compete for it. The total savings pool of the country is not going to be any less if the Government goes about obtaining its capital requirements in a different way. The savings pool is probably going to be bigger if the private sector is allowed to have more freedom in obtaining its capital from the capital pool. If we stick to the rules of free enterprise, the pool will be put to best use. Interest rates will not be distorted as they inevitably will be by Government interference in the capital market, which is what the measures embodied in this Bill entail.

We on this side of the House strongly feel that measures of this nature are not in keeping with the philosophy of private enterprise and are not in the best economic interests of the country. They form an important part of this Bill. For that reason we are unable to support this Bill at Second Reading.

Mr. Speaker, once again the hon. member for Constantia made a total blunder and misunderstood the position. In his speech during the budget debate, he repeatedly spoke about “the plundering of the assets of the private sector”. On that occasion I proved to him, giving chapter and verse, on the basis of the statements of representatives of all the worthwhile financial institutions and bodies in South Africa that as far as this is concerned they support the budget of the hon. the Minister of Finance as a whole. In fact, the hon. member and his party are the only ones in South Africa to have raised an argument of this nature, the argument “that the Government is plundering the assets”. We proved it, giving chapter and verse. I shall prove it once again. It is pointless to stand up here, as the hon. member did, and make an ex parte statement and say various other things. It is a complete exaggeration of the situation. I shall read two quotations to the hon. member. Firstly, I want to quote the words of Mr. J. van Kahn, the General Manager of Nedbank.

Here we go again.

The hon. member says: “Here we go again.” Hon. members on the other side are inclined to make irresponsible statements when it suits them. However, as soon as one wants to prove the contrary, they say: “Here we go again,” just when we want to refute these hollow, unfounded arguments of the Opposition. The hon. member spoke about banks and specifically referred to the increased prescribed assets which are being laid down for the banks. What better proof could one ask for to refute that argument than proof emanating from the banks themselves? Let me now quote what Mr. Van Kahn, General Manager of Nedbank, says in this regard—

This is true. He goes on to say—

This we accept too. He goes on to say—

This is the view of this man.

Did you read what Borkum and Hare said the next week?

I have just read out what the general manager of Nedbank says and now I am going to read what the chief economist of Barclays Bank says. According to statistics, as I remember them—I do not want to speak on behalf of any body or person—Barclays Bank is the largest commercial bank in South Africa with the largest volume of assets in South Africa.

They took Harry over, too.

Yes, that is true; they have become even bigger since they took over Westbank from the hon. member for Yeoville, which he made a mess of. They had to save him. One of the provisions in the legislation is to provide for banks which go under. Wesbank is one of the banks which went under.

That is not true.

I am prepared to accept this, if the hon. member says so.

That was an irresponsible statement. Does the hon. the Minister of Finance like to hear irresponsible remarks about banks made to that effect?

Let us look at the statement by Dr. Johan Cloete of Barclays Bank in this particular regard. I quote the newspaper report—

Technically this is correct—

The view of Dr. Cloete of Barclays Bank is that the consequences are not going to be very impressive or very serious.

What did Wassenaar say in The Sunday Tribune ?

All that Wassenaar said was that it would curtail lending by the banks; that was his statement.

*Now I want to know: Is the hon. member for Constantia, as the UP’s main speaker on finance, correct in alleging here in immoderate terms in respect of these essential measures that they constitute “plundering of the assets”?

As I see it, one can briefly divide the provisions of the legislation into two sections. The one section concerns a few amendments of existing measures—there are several of these—and the second section concerns the implementation of the budget measures in connection with the increased prescribed investment.

I should like to support the few amendments of the existing measures. In the first place, there are the stricter measures concerning forfeiture in funeral policies. I think that this is an essential measure because I am aware—I think other hon. members are also aware of this—that we have in fact, encountered malpractices in this regard in the past. This applies to the non-White community in particular. I think it is fitting that we should apply stricter measures in this regard. Similarly, there is also the wider utilization of pension fund benefits and this, too, is really to the advantage of the members themselves. The other provisions involved here are quite fair and I do not think that any fault should be found with them. I am not, however, talking about the prescribed assets now.

There are also the stricter measures concerning the collection of insurance premiums. I think that this is a measure which will be welcomed because it is definitely to the advantage of policy holders. This is the case particularly where large-scale use is made of intermediaries and agents throughout the country. That is why it may be correct to regulate the position on a strict disciplinary basis by means of the measures envisaged.

Furthermore, there is the measure in connection with providing and supplementing Government guarantees. Especially in these times when we have to spend and use money very judiciously, I believe that we cannot afford to have any cash funds lying around unused. That is why I think a provision of this nature can be welcomed.

As regards the wider powers which are being granted to curators of banks which are in provisional or final liquidation, this is a situation, as the hon. member for Constantia said, which is foreign to us in South Africa due to the flourishing position of banks over the years. In fact, it creates an entirely new position for us, for which we did not make, nor could have made provision in the past. That is why I think that this measure will therefore rectify and improve the situation to a large extent so that, in the liquidation and the handling of matters by curators of banks, it will in fact be in the interests not only of the banks as such, but naturally, in the interests of the clients who have financial interests in them.

With a few exceptions, the other section of the legislation deals chiefly with the implementation of the budget proposals concerning the increased prescribed investments of assets in the public sector. The formula embodied here is not unexpected.

The basis on which it is embodied in the legislation, has actually been proposed by most bodies and persons. I think that most of the bodies or persons affected by it, already accept it on this basis. Apart from that, I think it is right to say that these measures will be applied on a very fair basis. It will also take place in a very accommodating spirit so that it will not have a disrupting effect on the general liquidity of the smaller businesses in particular.

Furthermore, the legislation provides for the measures to be applied in three stages over the period of a year. Further discretion is also being granted to the hon. the Minister and the banks to negotiate further concessions in this regard if necessary. With a view to the remarks made by the hon. member for Constantia, I want to quote what the hon. the Minister said in his Second Reading speech. His standpoint was—

I think it can be said with certainty that the financial institutions have already taken steps in recent times aimed specifically at the implementation of the proposals in the budget, and at complying with the provisions of the legislation before us at present. I am pleased to point out that the expenditure of Government bonds has been fully underwritten and that an amount of approximately R500 million has already been underwritten in this way. I am talking about Escom once again, in spite of what the hon. member for Yeoville said about the security rands. The position is still such that we have the benefit of it. I also want to say that when he spoke about 25% in another debate, it was a complete exaggeration. In fact it is not so much.

Furthermore, we also have the assurance of the hon. the Minister that as soon as there is an upward trend in the economy, the percentages which he is proposing now, will be reviewed and that they will possibly also be reduced. If we analyse these cases, we find that at the moment the banks are obliged to invest 10% of their long-term liabilities in prescribed investments, of which only 5% must be invested in Government securities. This is now being increased to 15% and 814% respectively. We point out that this is only applicable as far as long-term investments are concerned. We point out that the greater part of their funds—that is to say, 85% and, in fact, more than that—are being retained by the banks to do with as they wish. This is quite free. In 1975 the deposits at banks, excluding the Government sector, amounted to R9 814 million. In the same year the credit to the private sector was R6 354 million. If one takes the difference, one finds that the total uncommitted amount was R3 500 million.

If one bears in mind that the total amount which the Government is going to take here by means of the increased prescribed securities, is a mere R120 million, and that the restrictive measures of the Reserve Bank relating to granting of credit, etc., I believe that the banks are not struggling with a liquidity problem at all at the moment. I really think that they can make this contribution without much trouble. That is why, in view of these figures and in view of this evidence, a man like Dr. Johan Cloete of Barclays Bank is outspoken about this matter and has declared that as far as he is concerned, the position is not too serious.

Let us consider the position of the building societies. We are aware of the fact that they have enjoyed this exemption. We are aware of the fact that the amount which is going to be taken from them may also, I think, be R120 million. This is only going to be a part of the 10% which they are obliged to invest in the prescribed assets according to the law. Here we must also bear in mind that the total bond advances issued by building societies in South Africa amounted to the colossal sum of R4 878 million in 1975. If we bear this in mind, we shall be able to determine by means of calculations that to take away R120 million from these people now, is not in fact such a terrible thing as the hon. member for Constantia wanted us to believe. The building societies themselves have estimated that it is going to mean one out of ten loans for them at most, i.e. that 10% of their loan facilities are going to be absorbed by this.

I now come to the question of pension funds. The prescribed assets are being increased, but this is only taking place in another form, in that it is now being channelled in this direction and that in fact it offers these people an investment. In addition it is a good investment and I do not believe that basically there can be much objection on the part of these people to comply with this.

As far as insurers are concerned, I think that in spite of what anyone may say, it is quite right that they, too, should make a contribution here. I want to point out that they have already made a voluntary contribution of 2% in recent times. Therefore I believe that the additional burden which they are now being asked to carry, will not really hurt them. I know it is being argued that this should be eliminated completely for insurers because the security risk no longer exists. The other argument is that they could just as well have given loans to whoever needed them. I do not think, however, that this is a very valid argument.

In conclusion I just want to quote what the hon. the Minister said in this regard—

These financial institutions are in fact being put in a position to regulate these matters and in the past they were able to make this money due to the facilities and the structure which the Government created for them and the sound judgment which this Government displayed. In the final analysis, if we ask ourselves whether it is right and if we have to react to the words of the hon. member for Constantia that “it amounts to plundering the assets of the private sector” …

Mr. Speaker, may I ask the hon. member a question?

No, Sir, I do not have time now. In the final analysis, if we must reply to this, we must note that firstly, all money which is obtained in this way is deflationary, and secondly, that we are providing a service to the community in this way. In conclusion we must also not lose sight of the fact that the greater portion, if not the total amount, is being used and spent in the interests of South Africa, viz. for the defence of the country.

Mr. Speaker, the hon. member for Ermelo will forgive me if I perhaps refer to him as the hon. Mbongo of the hon. the Minister of Finance. In the Zulu nation the chief has a praise-singer who goes either before or after him in order to praise what he has done and what has taken place. Sir, the hon. Mbongo has come forth once again with his standard speech of praise. As far as I am aware, nobody in this House has said that the financial institutions are going to go broke as a result of this, as he is suggesting.

The hon. member for Constantia did.

Nobody has said that they are going to collapse as a result of this. That is a lot of nonsense. Nobody has suggested it. What is being said, quite objectively, by people such as the president of the Stock Exchange and by leading figures in the insurance world and the banking world is that this is a burden which the financial institutions should not have to bear, that it affects their profitability and a variety of other matters and that, therefore, it is not a correct thing to do. As I have said, nobody is suggesting they are going to go broke. That has never been suggested at all. What is happening, is that a situation is being created that, whether the people like it or not, they have to invest in Government and public institutions’ securities. They are being forced to do that. Take a pension fund as an example. If a person wants to invest in Government securities for purposes of a pension, he can decide to do so directly if he wants to save for his old age. What is happening now, however, is that more than half the money in a pension fund must perforce be invested in Government and public institutions’ securities. That is what the complaint is all about.

As far as we in these benches are concerned, we shall vote against this measure and we shall do so for two main reasons and a number of subsidiary ones. The first of the main reasons is that there is an increase in the compulsory investment in Government and public authorities’ stocks and that this is calculated to be prejudicial to pensioners. Pension funds cannot invest as they want to invest. They cannot invest the amount they want to invest in equities, but they are forced to invest increasing amounts in this. What is more, the hon. the Minister knows that the inflation rate at the present moment is some 13% and that these bonds do not even give a return to equal that. Therefore, people are being forced to invest in securities which do not give them adequate protection for the future. If the hon. the Minister wants to force increasing amounts to be so invested from pension funds, he actually has an obligation to create a security which is inflation-proof in respect of pension funds. That is something we have asked for time and time again. If that were to be done, he would have a case in asking people to invest in this. However, he has not created that form of security—indeed, he has refused to create that form of security—so that he is actually prejudicing pensioners in this regard. What this is in fact calculated to do is to create captive investors. One cannot choose whether one wants to invest in this or not: one has to invest in it. That is what we object to as far as this is concerned. The hon. member spoke about interest rates possibly going down and he also spoke about the fact that there was a great demand for certain issues. May I read what was said in forecast of this by one of the financial writers? He says—

That was before the major ones came—

That is what he said in this regard and that is really what has happened. But the hon. member for Ermelo chooses blandly to ignore that situation. What is the effect on equity investments? What is the effect on the amount of money which is available for equity investments? The president of the Stock Exchange has indicated what the effect has been on the Stock Exchange. It is there for all to see. I presume the hon. member for Ermelo may well hold stock in institutions in South Africa, institutions which are quoted on the Stock Exchange. He should be able to tell us what has happened to his investments, if he has them. This is partly due to this situation. It is partly what is taking place. With great respect, in these particular circumstances one cannot but register one’s protest against this kind of compulsory obligation upon institutions to invest ever-increasing amounts in Government and public institution securities.

The second matter with which I want to deal and which I think is equally important in relation to the principle which is involved, and where we feel particularly strongly about an issue, is the issue relating to the appointment of curators for banking institutions. We have no objection to the principle of appointing a curator to a banking institution. We have no objection to the powers which are necessary for the exercise of the proper function of a curator being given to that curator. All of that we have no objection to, but what we cannot support, and what we have to register our protest against, is that the powers which can be given to curators in terms of this Bill are powers which will enable him to prefer one creditor above another. It will enable him to give preferential treatment to people, to give preferential treatment to some depositors over other depositors, and that we cannot support. Let me read what the Bill says in clause 21, the new section 40(3)—

In other words, it is the curator’s discretion—

1. (a) to suspend or reduce, as from the date of his appointment as curator or any subsequent date, the right of any creditor of the institution to claim or receive interest on any moneys owing to him by the institution.

If the hon. the Minister would provide that in regard to these matters where there is a suspension or a reduction, that it shall be subject to the security which is held, to the normal preferences which are prescribed by law in respect of that matter, and that they are treated equally, otherwise one could have no quarrel with this. However, one cannot enact in law to give a curator a discretion where he can decide whether a particular man’s claim should be suspended as against another man’s claim and where another man’s claim may be reduced as against a third one, and where one can create a situation where one is giving preferences to some people against others. Anybody who deposits his money in a banking institution becomes a creditor of that institution and is entitled to be treated equally with any other creditor and, subject to the preferences as prescribed by law and subject to any security that may exist, he must be treated equally. One cannot have this kind of discriminatory provision. Let me go further. Paragraph (b) of subsection (3) is even worse. It states that the curator, may, in his discretion—

In other words, the curator now has a power which in respect of companies and in respect of private individuals, where there is a liquidation or an insolvency, is prescribed by law. Where there is an offence in our law to give one creditor preference above another in those circumstances, as prescribed in the Insolvency Act, a situation is now being created in terms of which a curator may, as far as he is concerned, when it comes to a depositor in a bank, say that he is going to give Mr. X all his money and that he is going to give Mr. Y nothing. How can one possibly ask that this kind of legislation should be enacted?

I now come to the next provision, the provision dealing with the cancellation of an agreement. Surely, when there is an agreement in existence and that agreement is to be cancelled, one should not deprive a man of his right to claim damages if he suffers damages as a result of a cancellation of an agreement. Surely, when one enters into an agreement with a banking institution to lend one money, one may well be seriously prejudiced should the circumstances arise in which the said money is not available to one. One may well suffer damages in that way. However, now we take a course by which we deprive people of these rights, and we do it in terms of this provision. This cannot really mean what the hon. the Minister intends. The same applies when it comes to the question of set-off. There are specific rules which are laid down in the Insolvency Act in regard to the operation ot set-offs. Why cannot those apply? Surely, when one has a situation in terms of which a set-off would apply, where, if a man cannot apply it, he may also be ruined, one can nevertheless not allow more ruin to follow upon ruin in order to try to save one institution, while ruining other people in the process. With great respect, the view that we take is that we believe that one must have curators in respect of banking institutions. We support the principle.

We support the principle that they should be given powers which will enable them to properly exercise their functions. However, we cannot be a party—and we want to register our protest in the extreme against this—to a situation where one depositor may be preferred over another and in which one depositor may be prejudiced against another.

I want to know from the hon. the Minister whether he submitted this to the Association of Law Societies, whether this has gone to the Counsels of the Bar, whether the Bars have in fact had the opportunity of considering this, because I do not believe that lawyers and people trained in the law could possibly support a provision of this kind. We must register our strongest protest against this clause.

I think you may just as well sit down now, Harry!

No, I am going to be standing up for a long time. The hon. member for Aliwal must not worry. [Interjections.] Yes, I am going to be standing up for a long time. I now want to deal with other provisions of this clause. In so far as the appointment of an advisory committee is concerned in respect of long-term insurance, we support that concept. However, I think what we really look for from the hon. the Minister is some statement on his attitude to the recommendations of the commission that was appointed. I have asked him this before, but we still have not received any answer as to his attitude to the various recommendations. I raised with him one specific matter about which as the hon. the Minister knows, I feel very strongly. That is the recommendation which relates to life insurance policies which affect servicemen. There is a recommendation contained in the commission’s report to which I am utterly opposed. I want to hear what the attitude of the hon. the Minister is in that respect, because I believe the law should be changed—not in the way the commission wants it—but so that the discrimination which exists against servicemen who fly and against people who are in the Air Force should be removed, because they are prejudiced. The Insurance Act discriminates against them and I ask the hon. the Minister why he does not react to that. That is one of the matters with which he is concerned in this commission.

I ask the hon. the Minister to table a White Paper at the earliest opportunity or make a statement in order to let us know what his attitude is to all the recommendations which are contained in that report.

I have dealt with the issue of the increase in prescribed assets. I will not repeat what I have said about that in going through the Bill. However, I want to deal briefly with the question of brokers. The hon. member for Randburg will deal with it in greater detail. However, we oppose this provision because we do not believe it is an equitable provision. In any case, one of the matters to which I would specifically like to draw the attention is the question of why it should be necessary to increase the amounts of the guarantees while, by doing that, one is again knocking the small business man on the head? Where is the man who is running a small brokerage business going to find the credit-worthiness from to obtain a guarantee for R100 000? I think it is time that somebody spoke up for the small businessman, that somebody is heard on his behalf.

In regard to the funeral insurance provisions, I would like to say that we support them because we believe there is a strong case to be made out for non-forfeiture provisions in respect of funeral insurance. We also agree that in some cases it may not be possible to carry in terms of what is hoped for, but I think that sooner or later one will have to take a long, hard look at the funeral insurance business in South Africa to see what other reforms should be made with regard to that business.

We support the concept of the new provisions relating to prescription on policy loans. We think these provisions are just and necessary.

Then we come to the question of pension funds. Here again we have dealt with the question of the capital investment situation and I will not enlarge on that again. However, I would like to say that we support the concept that members should be allowed in some way to use some of the benefits of a pension, which may be worth a considerable sum of money, in order to get benefits in advance without prejudicing their pension, where the type of benefit they are getting, whether it be a housing loan or matters of that kind, is in fact of benefit to them and will not result in a wasting away of the pension. We also believe it is necessary to protect employers in this respect. We can support these measures without any difficulty. However, we believe it may be necessary to again look at these provisions in the future in order to deal with possible further benefits that people may be able to obtain in advance from these provisions.

With regard to the building society situation, we hold the same view as we already stated with regard to the increase of investments. In this case it has another effect, because the question of housing is a fundamental one. One of the things which worries us is that there is going to be an ever-decreasing percentage of middle-class people who is going to be able to obtain housing finance in the years lying ahead. If that is the case, the burden on the State to provide money for housing directly will increase as time goes on. Therefore, any measure which takes more money away from a building society is to a large extent self-defeating. In all these circumstances we want to make it quite clear that, even though there are provisions in the Bill which we support, the major principles contained in the Bill are repugnant to our philosophy, and therefore we will oppose it.

Mr. Speaker, firstly, I would like to thank the officials of the department for the very detailed explanatory memorandum. It certainly assisted all of us enormously. This Bill covers five Acts and, obviously, if one debated all these Acts, one could have debated here till doomsday. However, doomsday for some political parties is already 28 June. [Interjections.] In the view of the excellent explanatory memorandum I would content myself with only a few remarks.

Clause 2 provides for an advisory committee for the insurance industry and the possible provision of a sub-committee. I think that is an excellent suggestion. It means that the Registrar of Financial Institutions, the insurance companies and these committees will work in far closer conjunction and in very close co-operation with each other.

There are, however, a couple of aspects which perturb us. The property market is already depressed and the hon. the Minister is taking money out of the insurance companies, the pension funds, the banks and the building sectors. These are all sectors which assist and help promote the property industry in South Africa. With this money removed, we feel of necessity it must hamper any future property development to quite a large extent.

In view of the case of the insurance and pension funds, I would like to quote an article on the Guardian Insurance Company in The Financial Mail dated 30 June 1973. The hon. member for Constantia quoted part of the article, but I feel for the record one should also quote the rest of it. I am not inferring that the hon. member for Constantia quoted it out of context, but I feel if one quotes the rest of the article too, it reads in better context and explains the position far better. This is what the chairman of that company had to say—

I think that is fair comment with which possibly even the hon. the Minister would agree. That is why I think it is absolutely essential that the hon. the Minister must see to it that he does not have a severe diversion of long-term investment away from the private sector which will hamper any future upturn of the economy.

The insurance industry and the pension funds substantially invest in large property developments which in turn provides sorely needed turnover for the building and allied industries. The hon. the Minister has to be careful that he strikes a very fine balance and that he does not impose such severe restrictions as he is going to do.

I now want to refer to the banking sector. I must pay tribute to the Registrar of Financial Institutions. He must have nerves of steel. When he saw the quality of some of the lending by some institutions in the banking sector, he must have had sleepless nights as well. However, in view of the inherent strength of our banking sector, I think it is possibly best that they learn their lessons now rather than later. The Registrar of Financial Institutions must have gone through a very tough period indeed, and we feel for him.

I want to make a special appeal to the hon. the Minister to look very carefully after the building society movement. We are told that in the next 23 years we are going to have to build as many houses in South Africa as we have built in the last 300 years. We know that the Government also is building a lot of houses. However, the building society movement plays an invaluable part in providing private home ownership in South Africa. It is absolutely essential that South Africans become a nation of home-owners and not a nation of lessees. Home-ownership is the cornerstone of stability. Give people a vested stake in the land and they will stand shoulder to shoulder with one in times of adversity.

The hon. the Minister is compelling building societies to possibly take up R120 million in long-term Government stock. The building societies are already going to lose funds to the defence bonds. They realize that. A general manager of a major building society said recently that building societies granted R1 100 million in loans last year. He expected that they would grant 25% less in loans this year. He predicted a housing shortage within 20 to 24 months. The building society movement keeps the small builder, the big builder, the architect, the quantity surveyor, the estate agent, the supplier of material and a whole host of other people alive. I shall not mention who else it keeps alive, because hon. members might think I am making a special plea for myself. Because of the vital role the building societies play in South Africa, we are unhappy about the R120 million the Government wants to take from them. We should like an assurance from the hon. the Minister that he and the Registrar of Financial Institutions would do their utmost to meet the legitimate aspirations and the legitimate needs of the building society movement to ensure that it is able to provide money for private home-ownership in South Africa. The hon. the Minister knows that they are very short of money, despite the fact that there has been a down-turn in applications from the public.

Some of the amendments, as the hon. the Minister has mentioned, emanates from the budget proposals. As the hon. the Minister is well aware, we opposed the budget and, in the circumstances, we shall also oppose this Bill.

Mr. Speaker, in giving support to the hon. member for Constantia, who indicated to the hon. the Minister our opposition to certain clauses of the Bill, I would like to say that most of the clauses have been fully canvassed, especially clauses 3 and 4, the clauses dealing with insurance companies both local and overseas. We are also concerned about the amendments to the Pension Funds Act dealing with the diversion of the pension funds money to a certain extent; to the Banks Act of 1965 and to the Building Societies Act. The hon. member for Ermelo has indicated the Government’s viewpoint. We on these benches are discussing the Bill on the principles involved. Why we take this stand, as we have always done as champions of the free enterprise system, is because we believe that institutions of the nature of insurance companies, pension funds, banks and building societies should have a free hand to invest the funds of their clients in the best possible manner so as to ensure the best possible financial return. The compulsion which we have to read into these particular amendments as far as insurance companies are concerned, insists that these companies and similar companies, have to take similar type of securities, and there is now legal provision to force these institutions concerned to invest in yields lower than those which could be obtained in the private sector, thus forcing them into an investment which offers no hedge against inflation.

In the case of life insurance companies, we believe they should be left free to carry out their functions to the full in accordance with opportunities available in the free market investment field. Without doubt we believe that the demands of the Government, as contained in this particular piece of legislation, will have the effect of depriving the Republic of South Africa of millions of rand which could otherwise be beneficially used in financing private enterprise. Instead of these funds being exploited in this fashion, they should be left to private enterprise. This applies equally to the pension funds where—as the hon. member for Yeoville has indicated—the results of these investments does not even take care of the inflationary factor, so that the pensioners concerned are actually losing out on investments there in the hope that their pensions will provide for them in their old age, having full regard to the deprivations of the inflation factor. As long as our inflation rate remains in the vicinity of 11% to 13%, this will remain a serious situation. I agree with previous speakers that we owe a debt of gratitude to members of the department for the excellent explanatory memorandum which accompanied the Bill, but we also appreciate the manner in which the hon. Minister of Finance has presented the Bill to the House. I fully support the viewpoint of the hon. member for Constantia and the hon. member for Yeoville that we cannot vote for Bill.

Mr. Speaker, this evening the Opposition is objecting to a few of the clauses in the Bill because the Government is going to get that money, as the hon. member for Constantia said, in order to balance the budget. That is correct, because the money is being requested in order to balance the budget.

However, hon. members are making certain accusations and statements which do not hold water. The hon. member for Constantia states that the Government should have obtained the money on the money market. If the Government had wanted to obtain the money on the money market it could have offered 12% to 14% interest on it and then the State would have got the money, because no private body would have been able to compete with the State. It is no art for the Government to offer a very high rate of interest and by so doing get all the money it wants.

Another standpoint adopted by the Opposition is that the various institutions should not make a contribution to State funds. We have four types of financial institutions here, namely the insurance industry, the pension funds, the banks and the building societies. After the Reserve Bank, it is undoubtedly these four institutions that exercise the greatest influence on everyone in South Africa from the cradle to the grave, and even afterwards. I want to put the question very clearly this evening whether this is the duty of these institutions and whether the Government is justified in asking them to make a contribution to the State’s funds. Let us argue this point.

Your force them to!

Whether it is compulsory or whatever the case may be, the State is fully entitled to do this. Let us take institutions one at a time. First we can take the assurance companies. Over the years the State has assisted the assurance companies in all respects. During the budget the hon. the Minister again gave a much bigger abatement to encourage and, to a certain extent almost oblige, people to take out insurance policies. Due to that type of concession which the hon. the Minister has made every year over the years, the insurance companies have been placed in the position in which people have taken out policies for the sake of the abatement. Over the years these insurance companies have not been heavily taxed. They have got away with light taxation. As a result the savings of the people have been concentrated in these insurance companies. However, there are other fields, too, in which the State has assisted in supporting the assurance companies.

Let us look at the pension funds. Over the years the pension funds have not paid crippling taxes. In many respects the State has assisted in making the pension funds strong and powerful. As far as the banks are concerned, too, the State has assisted in many respects. Over the years the State has assisted the building societies. Taxation has not been such as to cripple the building societies. Thus the State has helped in every respect.

I want to make mention of the very effective and able way in which the Government liaises with the Registrar of Financial Institutions in order to keep these institutions healthy to the core. This contributes towards the faith and confidence in these institutions among the people of South Africa. Owing to that tremendous confidence which the public as a whole has in these institutions, the people are prepared to entrust their savings to these institutions. This in itself serves as justification for asking the financial institutions to make a contribution towards balancing the budget.

Whose money is in those various funds? Just take the funds invested in pension funds and building societies as an example. It is the people of South Africa who have invested those funds. For whom has this budget been drafted? This budget has not been drafted for people overseas or for anyone else, but for this very country and its people. The funds come from them. This is not being done in a drastic fashion. Some hon. members make the reckless statement that the funds of those institutions are being plundered. I think hon. members should count their words and that they should not make such irresponsible, reckless statements.

I want to take the matter even further. Only a little more than R530 million, plus an additional R120 million, is being requested here to assist in the financing of the budget so that it can be balanced. Here is a single amount on the budget of R1 654 million for defence. Why does the Opposition neglect to say that the greater part of that defence money is spent in South Africa and is pumped into the private sector? It comes from a different channel, but via the budget it goes into the private sector. Now the hon. member for Cape Town Gardens maintains that the Minister has robbed the funds of their money, thereby preventing them from investing very profitably in other bodies. I just want to tell you that a decent rate of interest is paid on the money which the Minister gets from these different financial institutions. After all, these pensions funds, the building societies, the banks and all the rest do not provide that money for free without receiving any interest on it. They get a decent rate of interest on that money which they advance.

The hon. member for Yeoville said that he was going to vote against these provisions, particularly those relating to the curator who is to be appointed. It seems to me that the hon. member for Yeoville would prefer to see certain financial institutions going bankrupt than to empower the Registrar of Financial Institutions and the Minister to prevent it happening. During the Committee Stage we can discuss the matter of the curator further. I think it would be in order for us to do so then.

I want to come back to these different pension funds and insurance companies. The people of these institutions have not complained, nor are they complaining now because of having to make a contribution. Here and there is one that complains. He feels that he has to make a speech and say something. He has to speak on behalf of his pensioners, his shareholders and so on. He feels that he cannot remain silent; he has to say something. These different institutions whose cause the hon. members now seek to champion, and which hon. members are trying to imply will be totally ruined, have no grievance as regards this contribution. On the contrary. They are grateful and pleased to be able to do something for their country, South Africa. I, too, have some contact with these people, and more than one of them has said to me that they know it is difficult and burdensome, but that they are prepared to make their contribution. Just as the workers of South Africa have said that they are prepared to make their contribution by not demanding higher wages and salaries, these different financial institutions are adopting the same attitude and saying that they, too, are prepared to make their contribution for South Africa. I do not believe it is necessary to elaborate on this any further. I have said that we can argue about this one point in the Committee Stage. I think the hon. the Minister has taken a sound step by asking these institutions to make their contributions. It is high time that they, too, contribute some of their savings—which are the nation’s savings—towards this budget. They are being well spent by this Government and I want to support this matter wholeheartedly.

Mr. Speaker, I listened with great interest to what the hon. member for Sunnyside said. If I am not mistaken, he has said at one stage that there is no better place for the people of South Africa to put their savings than with the State. Is that a reasonable translation of what he has said? [Interjections.] Well, I will come back to that later in the course of my speech, because if you take that precedent, it is more or less a bald statement of socialism and neither more nor less than that.

I should also like to ask the hon. member for Ermelo to demonstrate to us, perhaps in the Committee Stage, how in any way this has been in the interest of either the shareholders of the insurance companies or those people whose savings are in fact being used for this purpose.

I want to deal primarily with the increase in the prescribed investments which are set up in this Bill, both for life insurance companies and for pension funds and to a certain extent obviously for the banks. I should like to start, because I think it sets out the rationale or the motivation as I understand it, by quoting from the circulated notes of the meeting between the hon. the Minister, the Secretary for Finance, the Registrar of the Pension Funds and the Deputy Secretary for Finance and four gentlemen who represented the Association of Pension and Provident Funds of South Africa. This meeting took place on 14 April in the Hendrik Verwoerd Building at 11h30. The notes of the meeting read as follows—

That is what the hon. the Minister conveyed to those present at the meeting on 14 April, and that document has been circulated. I want to put it on record because it sets out the motivation in so far as this is concerned and also in regard to certain other points.

I should also like to quote what Dr. Wassenaar has had to say because I think it is germane to a number of points which arise in effect by placing the obligation on life insurance companies and pension funds to place so much of their money in fixed Government stock. Dr. Wassenaar said—

There he has been proved right. He went on to say—

Then, in relation to the remarks made by the hon. member for Ermelo and the hon. the Minister’s remarks in regard to what a fair rate of interest would be, I want to quote the following words of Dr. Wassenaar—

He went on to say in regard to compulsory investment in Government stock of this nature—

He ended up by saying—

To be fair to the hon. the Minister, he did mention that in his Second Reading speech—

It is not only that the Government and the hon. the Minister are proposing this increase in the percentages which have to go into prescribed investments, but there are three basic reasons why we are opposing this measure. Firstly, it moves funds from the more productive private sector to the public sector. Secondly, in the way in which it is done it acts to the detriment of those whose savings are managed by those companies and thirdly, there is the inequity of the rate of interest which is applicable to Government stock. The hon. the Minister said on an earlier occasion during this session that the most important aspect was security. Nobody is going to deny that in long-term loan finance the aspect of security is important, but there are certainly other avenues of nearly similar security open to these institutions where the yields are more attractive. The hon. the Minister said that he thought that 11% for 21 years was a fair return on an investment. How can it be fair to those who have laboured in the past to make the economy of South Africa what it is, who have put in their efforts to create the wealth and to develop South Africa, to offer them 11% on their savings which have been kept to be paid out by way of pension or by way of life insurance policies? In effect this simply means that they are not even maintaining their position when the rate of inflation is running at 11,5%. How can that be fair? The word “fair” is clearly erroneous in this connection. If the hon. the Minister did what the hon. member for Yeoville asked him to do, namely to produce a situation whereby the real benefits of the pension were maintained for those who had built the country up to the point where it now is, then, of course, one could look at it in a different way.

In so far as the proposed standing advisory committee is concerned, its powers are somewhat weaker than the recommendations which were made in the report. I would like to ask the hon. the Minister, when he replies to the Second Reading debate, whether he will assure us that it is his intention that the membership of the standing advisory committee should be representative of the industry as a whole. By that I am obviously referring both to mutual insurance companies and to those other companies which do not fall within that category.

The next matter to which I wish to refer and which causes some confusion—and I hope the hon. the Minister will clear it up—is how the basis of calculation of the amount of money which he requires to draw from these institutions was arrived at. If one looks back at the hon. the Minister’s original budget speech, he said—

Where the confusion comes in, is that if one looks at the Second Reading speech and certain other statements which have been made, the confusion arises …

Statements by whom?

I am talking about the Second Reading speech and also official statements which I can show to the hon. the Minister. I am simply asking for clarity on the point. What we want to know is: Was the calculation made on the basis of drawing R520 million from the inflow of funds to the institutions in the financial year 1977-’78, i.e. out of this year’s cash flow, or was it made on the basis of drawing R520 million by pushing up the various percentages, so as also to draw in money which would be required by these institutions to bring up the amount which they had invested in previous years to the particular percentage, so that at a point in time they would then reach 55% and the R520 million would not only include a portion from this year, but would also include a portion from previous years?