In my previous Budget speech I professed my belief in the old-fashioned virtues of industry and thrift, and suggested that the motto “Work and Save” be adopted as the tenet on which to base our campaign against inflation. It is with much humility and some pride that we, as a nation, can look back today on a year during which the benefits emanating from this approach have accrued to us in measurable and immeasurable form. The success which has been attained would have been impossible without the willing and active co-operation of all sections of the community, co-operation which has been extended in the belief that the cause of national welfare is best served, in times such as these, by the subjugation of temporary and sectional interests to the requirements of more enduring and widespread benefits. Last year I referred to the responsible attitude adopted by labour organizations, organized industry, and commerce, and I am pleased to confirm the encouragement which I have derived from these sections in the execution of a difficult task. A special word of appreciation is due to public servants and employees of the Railways Administration for their efforts during the past year and the restraint which they have displayed in their demands for improved service conditions. My colleague the Minister of Transport has already announced concessions for personnel in the transport services, and I shall presently deal with the case of the civil servants.

I have already had occasion to point out that adherence to old and tested financial virtues does not preclude the adoption of new methods or approaches to the problems of the modern world. In my last speech I introduced the concept of the cash budget, also called the unitary budget, which is useful for identifying the sources required to finance the needs of the Exchequer. Another innovation which has gradually been introduced and extended, is the classification of Government expenditure on a functional and economic basis, in contradistinction to the traditional classification according to departments. Details are provided in the White Paper accompanying the Budget. Hon. members have, furthermore, seen the announcement in the Press that the Government has appointed a Commission of Inquiry into Fiscal and Monetary Policy, with the special injunction to investigate the relation of taxation and related matters to economic stability and growth. I have no doubt that the House and all sections of the community will look forward to the findings of the Commission with more than ordinary interest. I am also considering the appointment of a Technical Committee to inquiry into banking legislation, similar to that which reported in 1964, and its task will be to re-examine the operation of the laws governing banks and building societies in the light of recent developments. In these and other ways efforts are being made to review and adapt the instruments of policy in order to keep economic and financial developments and institutional conditions in a healthy state. It is our endeavour continually to refine, and if necessary to extend, the monetary and fiscal measures required to cope with the needs of a modern economy.

The year 1967 was by all standards an excellent year, and in many ways exceptional, for the South African economy. Lethal blows have been struck at the dragon of inflation, but while we may rejoice at the success achieved, we can by no means be certain that the battle is finally won. Inflation is a many headed hydra, and it might unexpectedly rear an ugly head again if we were to let down our guard for a moment.

The upward trend in the consumer price index was arrested in August, 1967, and it did not increase in any single month up to the end of the year. This meant that the rate of increase for the full year amounted to only 1.8 per cent, compared with 3.8 per cent for the previous 12 months. The behaviour of the wholesale price index has been even more encouraging, as may be inferred from the increase of only 0.8 per cent during 1967. During the first two months of 1968, the consumer price index increased at an annual rate of 1½ per cent, while the wholesale price index remained unchanged.

These figures reflect the greatly improved balance which has been attained between the total demand for, and the available supply of, goods and services in the economy. While demand was largely curbed by restrictive monetary and fiscal policy measures, including the paring of expenditure in the official and semi-official sectors, the supply of goods was increased as a result of the progressive relaxation of import control and the improved production conditions in agriculture. A gratifying feature of these developments was the fact that the restrictive measures succeeded in reducing inflationary pressures without imposing hardships or burdens which were either unbearable or could not be relieved by selective measures. It is therefore no mean achievement that our gross domestic product, adjusted to exclude price movements, increased by almost 7 per cent in 1967, compared with 6 per cent in 1966, and an average of just over 6 per cent during the years 1960 to 1966. During these seven years consumer prices increased by only 2½ per cent per annum, which is extremely low by world standards. No wonder that our prosperity is the envy of many nations, the more so if viewed in the light of the turbulent conditions which have been the hall-mark of many under-developed countries in recent years.

Admittedly, the favourable conditions in agriculture contributed a great deal to the high real growth rate experienced in 1967, but even if the contribution of agriculture to gross domestic product is excluded, the resulting real rate of growth still amounted to at least 5 per cent.

Gross domestic expenditure, i.e. total spending on consumption and investment and purchases by the Government, showed a higher rate of increase than the gross domestic product in 1967, a rapid increase during the first half being followed by a slower rise which turned into an absolute decline in the fourth quarter. This reflected, in the first instance, a large increase in agricultural inventories, due to the favourable season, and their subsequent decrease. Manufacturing and commercial inventories also showed substantial increases in the first half of 1967, followed by much smaller accretions during the second half. The initial large accumulation of stocks took place under the impact of a relaxation of import control as well as a slowing of demand, while the subsequent relative stability of inventories reflected the fact that a better balance had been attained between total demand and supply. The decrease in total gross domestic expenditure in the fourth quarter of 1967—the first since the third quarter of 1965—was due mainly to lower net investment in all types of inventories and in fixed assets, and is significant testimony to the effectiveness of the disinflationary policies which we have been pursuing.

A major objective of our policy of restraint was the curbing of expenditure on fixed investment, and the total of such outlays recorded an increase of only 6 per cent in 1967, which is lower than the figure for the previous year. Fixed investment by the private sector rose by per cent, and by public authorities 5 per cent. Consumer spending and current Government expenditure similarly showed reduced rates of increase in 1967, and thus bore further testimony to the success of the adjustment process which we had been striving to bring about. On the other hand, gross domestic saving increased by nearly 20 per cent, mainly in the form of additions to personal saving and current surplus of general government.

The index of the physical volume of manufacturing production increased rapidly during the first half of 1967, but leveled off thereafter. The figure for the year as a whole was, nevertheless. 6.4 per cent above that for 1966. Manufacturing employment continued to increase throughout 1967, while the index of unemployed Whites, Coloured and Asiatics rose slightly towards the end of the year.

The volume of agricultural production increased by no less than 26¼ per cent in the production year 1966—’67, compared with an annual rate of only 2.1 per cent during the preceding five years. The influence of the drought in the preceding years and of the exceptionally good rains in the 1966—’67 season is obvious, and the improved conditions in agriculture undoubtedly contributed to the recent stability of the consumer price index. Unfortunately, the favourable climatic conditions were not repeated in the current season and many parts of the country have again suffered severely from drought. I shall refer to this again later in my speech.

The conclusions which emerge from the trends depicted above are, firstly, that our economy has demonstrated an eminent degree of flexibility in adapting itself to the changed economic climate induced by our monetary, fiscal and related measures, and secondly, that a slower phase of cyclical development was evinced from about the middle of the year.

The balance of payments of a country generally reflects the health and well-being of the domestic economy in much the same way as a person’s eyes reflect the tone of his physical condition. Perhaps the most striking evidence of the better balance which was attained between demand and supply during 1967, was the substantial improvement in the balance of payments on current account during the second half of the year. Although a deficit of R151 million was recorded for the year as a whole, the second half produced a surplus at an annual rate of R26 million, after adjustment for seasonal influences. The latter figure was attributable mainly to a sharp rise in merchandise exports and a marked decline in imports. While the expansion of exports was due largely, but not solely, to the huge maize crop, the decline in imports can be ascribed to the effects of the Government’s monetary and fiscal policies, especially in view of the prior relaxation of import control.

The attractiveness of the Republic as a field for foreign investment was once again proven by the high rate of private capital inflow in 1967, viz. R198 million, which was even more than the R160 million registered in the previous year. Central Government and banking institutions accounted for a net outflow of R73 million in 1967, and the net result of the various flows on capital as well as current account was a net decline of R26 million in the total gold and foreign exchange reserves of the Republic. This figure was, in turn, the outcome of a decrease of R118 million during the first half, and an increase of R92 million in the second half of 1967.

It would appear that the trends observed in our balance of payments during the latter half of 1967 continued to exercise a favourable influence on our gold and foreign exchange reserves during the first two months of 1968, and total reserves increased by R73 million to a level of about R630 million at the end of February.

In the light of these facts, and taking into account the high growth rate which the country has continued to enjoy, I believe that South Africa was fully justified in not following sterling when Britain devalued by 14.3 per cent on 18th November last. In fact, if the subsequent course of events is considered, and account is taken of the need for restoring the faith of our savers, investors and consumers in the stability of prices, any tampering with the external value of the rand would undoubtedly have had adverse effects on both the immediate and more distant prospects for the welfare of our nation. Suffice to say that our economy is at the moment a bastion in the mounting seas of international currency uncertainty, and that ours is one of the very few which can view possible and probable changes in the international economic scene with the utmost confidence.

The net inflow of foreign capital through the stock exchange has recently increased to an abnormally high level, and in fact reached R17 million during the fourth quarter of 1967. These funds are in large part responsible for the relatively high level of share prices, and represent a direct addition to the amount of money and near-money in circulation, without a corresponding direct addition to real assets in the form of plant or buildings. In view, therefore, of the inflationary effects of these funds, their behaviour will be scrutinized more closely in future.

Transactions are settled in money, and it has been an objective of our monetary policy to bring the amount of money at the disposal of the public into better alignment with production. The total of money and near-money increased by 8.7 per cent in 1967, compared with 6.2 per cent in the previous year, and an average rate of 11.7 per cent during the period 1955 to 1965. The ratio of money and near-money to gross domestic product declined slightly to 28½ per cent in the fourth quarter of 1967, after reaching a peak of more than 29 per cent in the first quarter of 1966.

The increase in money and near-money over the year 1967 as a whole was due entirely to credit extended by the banking sector to the private sector, and this happened notwithstanding an appreciable reduction in discounts and advances during the third and fourth quarters. A complicating factor was the cash credit advances of the Land Bank, but if allowance is made for these and certain other exemptions from the Reserve Bank’s credit “ceiling”, the resulting total of discounts and advances turned out to be well below the level required by the authorities as at the end of September. The “ceiling” has since been extended indefinitely and the corresponding amount of discounts and advances has remained below this level.

The major part of the next increase in credit extended to the private sector by the banking sector in 1967 took the form of an addition to the latter’s investments. The accretion was substantial during the fourth quarter, when Land Bank debentures and stocks of public corporations and local authorities were acquired.

A matter deserving special mention is the size of the financing operation required to harvest and market the huge agricultural crop which accrued during the year. It will be appreciated that the credit which had to be created for this purpose necessarily nullified a part of our effort to restrict the liquid funds at the disposal of the public. The cash credit advances of the Land Bank, in contrast to the decline in the discounts and advances of the other monetary banks, increased from R171 million at the end of 1966 to a peak of R345 million at the end of September, 1967, and then decreased slightly to R332 million at the end of the year.

Due largely to the above operations of the Land Bank, as well as the favourable turn in the balance of payments after the middle of the year, the institutions in and around the money market experienced increased liquidity conditions, and the Treasury Bill rate declined from a peak of approximately 5 per cent in March to 4.70 per cent on 8th September. However, the monetary authorities took several steps to mop up the surplus liquidity, such as the provision of additional investment instruments to the market, and at the beginning of February the rate on the new issue of Government stock with a maturity of 3½ to years was raised by ⅛ per cent to 5½ per cent. The latter proved to be to the taste of the market, as evidenced by the proceeds of R94 million. The Treasury Bill rate showed a rising trend during the last two quarters and reached a level of 5.08 per cent on 15th March.

Conditions on the capital market remained tight throughout the year, notwithstanding the slowing down of domestic expenditure during the latter half and the more favourable developments in the balance of payments. These conditions appeared to be due largely to the preference of investors for equities and other investments which held out prospects of capital gain. Although the Reserve Bank’s pattern of rates for long-term government stock remained unchanged at 6½ per cent, the yields on long-term stock issued by local authorities and public corporations reflected small increases to a level of about 7.27 per cent at the end of the year. The House has already been informed of the assistance which has been granted to building societies, who have experienced a decreased inflow of funds since the fourth quarter of 1967.

The monetary and fiscal policies which have been applied during the past year have shown gratifying results, and the economy has responded in a heartening manner. The time has unfortunately not yet arrived for the easing of the restrictions, and it would be no exaggeration to state that a premature relaxation of the measures may not only nullify the gains thus far achieved, but could also destroy the faith of the public in the efficacy of similar measures in future. The factors set out below indicate that a possible resuscitation of inflationary influences is a real danger, and will remain so for time to come:

1. (1) Although the demand for labour in general has eased somewhat, most classes of skilled labour remain in short supply. My colleague has announced increases in wages and salaries for railway personnel, and I shall presently return to the case of civil servants. While these increases have undoubtedly been justified, they do, however, add to the purchasing power available for expenditure on consumption, though this effect is modified by the fact that they are spread over a period of time.
2. (2) The public sector has not yet satisfied its requirements for funds to expand the services and facilities of the economic infra-structure. The postponement of a number of major projects has not reduced, but rather increased, their urgency.
3. (3) Many entrepreneurs and investors still appear to harbour over-optimistic, even inflationary, expectations. The sobering effect of our domestic policies has apparently not yet penetrated deeply and widely enough, and the uncertainties surrounding the international currency markets have obviously acted contagiously on local investors. Investment outlays on fixed assets remain high, and will probably rise in response to any easing of the restrictions.
4. (4) The inflationary expectations of savers, investors and operators on the capital market have favoured the demand for equities at the expense of fixed-interest investments. Consequently the building societies, public corporations and municipalities have been experiencing difficulty in attracting the right kind of funds, and unless inflationary expectations can be damped, the financial needs of these institutions may have to be met by methods which will involve the injection of inflationary bank credit into the economy.
5. (5) Although the ratio of money and near money to gross domestic product has declined recently, the level of 28½ per cent reached during the fourth quarter of 1967 cannot be considered a “safe” level from which a new phase of expansion could be launched without the danger of a new inflationary spiral. It is significant that the above ratio averaged about 26 per cent during the years 1955 to 1964.
6. (6) Reference has been made to the sharp rise in export earnings during the second half of 1967, and this may continue to have secondary stimulating effects on the economy.
7. (7) It appears likely that the inflow of capital has been increasing in recent weeks, especially for the purchase of listed shares, and has therefore probably added to the level of liquidity in the country.

To these factors has now been added the change announced nine days ago in the arrangements for the marketing of gold, i.e. the decision of the seven countries which actively contributed to the Gold Pool to cease supplying gold to the London gold market (or any other gold market), and thus to open the way for the establishment of free gold markets in which the price may exceed the official parity price ($35 or R25 per ounce). In other words, transactions in officially-held gold between monetary authorities at the official price will occur side by side with gold transactions at a premium price on the free gold market. This somewhat artificial conception hardly seems to bear the hallmark of permanence, but at least the change is realistic in its recognition of the impossibility of staving off completely the world-wide pressure for a higher gold price. It is still impossible to estimate what additional revenue will accrue to the gold mining industry from sales on the free market. Whatever it may be, however, such additional revenue must have an expansionary effect on our domestic economy, not only because of its direct stimulating influence on gold mining, but also because of the secondary expansionary effects of the additional purchasing power of the gold mining industry on the economy in general.

Even without the added stimulus of higher gold mining revenue, it would have been injudicious, in the light of all the other factors I have mentioned, to contemplate any general easing of the fiscal and monetary restraints at this stage. The potential inflationary effects of the possible rise in the income of the gold mines make it even more important to maintain the present restraints on the economy. Naturally, the situation will be closely watched and the anti-inflationary measures will not be retained any longer than is absolutely necessary. But it seems to me that, if any relaxation should become possible in the coming months, it would have to be gradual and, in the first instance, confined to measures which can be easily reversed if inflationary forces should again emerge. Fiscal measures are not easily or quickly reversible and consequently no general relaxation of fiscal policy can be contemplated in this Budget.

I turn now to the Government accounts, and I shall first deal with the financial results for—

Revenue proved to be more buoyant than expected and should amount to R1,496.6 million, about 4.1 per cent more than originally estimated. The increases were spread over a number of items, of which the most important are the income tax on persons and mining companies, the excise duty on petrol, and departmental receipts. Expenditure is now estimated at R1,4-10 million, which is R17 million or 1.2 per cent higher than the original estimate. After allowing for the transfer of R43.7 million to Loan Account as provided for in my previous Budget, the estimated surplus on Revenue Account is R42.9 million.

I have given careful consideration to the disposal of this surplus. In present economic circumstances it would not be advisable to use this money to finance ordinary Government expenditure during the ensuring financial year, and I therefore propose to apply it as follows.

In the first place, hon. members will be aware that it is proposed to confer a measure of financial independence upon the Post Office during the present Session of Parliament. When this occurs, Post Office receipts and expenditure will be credited and debited to a separate Post Office Account outside the Exchequer. It will be necessary to give this Account a working balance to start with, and I think it would be appropriate, and in the spirit of the announcement made in December, 1966 by my colleague, the former Minister of Posts and Telegraphs, if this House were to authorize the transfer to the new Account, out of the 1967—’68 surplus, of the approximate “profit” earned by the Post Office in that year. I propose that an amount of R21 million be set aside for this purpose.

Some years ago the Government established a Strategic Minerals Account to assist in financing important mineral development. This Account has served a most useful purpose, inter alia in providing money for oil exploration, but it is now almost exhausted. I propose that R10 million be transferred to this Account.

South Africa has always been ready to cooperate with other countries in the improvement of economic and social conditions and in the promotion of international economic welfare. As a member of various international organizations we have also contributed, financially and otherwise, on a multilateral basis for this purpose. Often, however, our contributions have received no recognition, and we have been slandered by the very countries which derive benefit therefrom, for reasons which have nothing to do with international co-operation. In cases where we have been denied the full benefits of membership, such as in the International Labour Organization, the World Health Organization and the Food and Agriculture Organization, we have naturally ceased to contribute; in other cases, with a view to the considerations which I shall mention, we have reduced our contributions.

I believe that our resources must be applied in the first instance to promoting the welfare of our own peoples. Nevertheless, the Government recognizes that it has a responsibility to the international community, and in particular to our neighbours on the continent of Africa; co-operation with our neighbours can, in fact, be to our mutual benefit. I feel that the contributions which we have previously made on a multilateral basis, should in future be applied in greater measure to assist neighbouring countries on a bilateral basis. Legislation will accordingly be introduced to establish a Loans Fund for the Promotion of Economic Cooperation; the purpose of the Fund will be to grant direct assistance (for example, in the form of loans at low interest rates for sound development projects) to well disposed developing countries—particularly those in Africa. This fund will be financed to a large extent from the savings in respect of the contributions to which I have already referred. I propose that R5 million from the 1967—’68 surplus be set aside for this purpose.

The balance of the surplus, estimated at R6.9 million, will for the time being be left in the Revenue Account.

Expenditure on Loan Account during 1967—’68 is expected to amount to R530 million or about R4 million less than the original estimate. Thanks to the great success of the RSA savings campaign (especially the tax-free Treasury bonds) and to the unexpectedly high receipts from the Public Debt Commissioners and from local stock issues, it was possible to find the necessary funds without too much difficulty. The Treasury could, in fact, have accepted loan funds to a considerably smaller amount, but in the prevailing economic circumstances it was deemed advisable to borrow more than was required for the Loan Account and to place some R88 million in the Stabilization Account. The closing balance on the Loan Account is estimated at R5.6 million.

I have already referred to the concept of the Cash Budget, and this innovation has been generally welcomed as furnishing a clearer picture of the effect of the Government’s accounts on the economy. On the cash basis total expenditure on Revenue and Loan Accounts during the financial year 1967—’68 is expected to amount to some R1,940 million, and total receipts (excluding borrowing) to R1626.2 million, leaving a deficit of R313.8 million, to which must be added R315.6 million for loan repayments. An amount of R629.4 million must therefore be borrowed. Considerably more than this has already been raised and over the year it is expected that the Exchequer balance will rise by some R137 million, of which R88 million will be placed to the Stabilization Account.

During the first three quarters of the financial year the Exchequer Account’s net indebtedness to the banking sector decreased substantially, and this anti-inflationary financing contributed notably to the success of the fight against inflation. During the last quarter of the financial year it is possible that the net indebtedness of the Exchequer to the banking sector may increase, but this would be due very largely to the fact that, in terms of legislation passed by Parliament earlier this session, a considerable sum of money available for investment by the Public Debt Commissioners will be invested, not in Government stock, but in public corporation stock, thus reducing the inflationary element in public corporation financing.

Before dealing with the accounts for the financial year 1968—’69, I must refer again to the prospective financial autonomy of the Post Office. This will result in an appreciable net loss to the Revenue Account, since Post Office revenue exceeds its current expenditure. On the other hand, there will be a considerable saving on Loan Account. Since the necessary legislation has not yet been passed by Parliament, however, I propose to take no further account of this prospective change in dealing with the 1968—’69 Estimates, but to proceed on the existing basis. It will be possible to make the change within the framework of the present Budget and it will not be necessary to approach Parliament again for any change in the Budget proposals.

The Estimates of Expenditure which I shall table, provide for an expenditure of R1,504.4 million on Revenue Account, which is R94.4 million or 6.7 per cent higher than the revised figure for 1967—’68. I think that this is a reasonable rate of increase, but I can assure the House that it was only attained, with the cooperation of my colleagues, by limiting expenditure to the absolute minimum.

Defence remains a very substantial item of State expenditure, the amount required being R252.7 million as compared with an estimated R256 million in 1967—’68. Although we are now militarily well equipped to meet aggression from outside our borders, it is essential to maintain our defences at a high pitch of efficiency and to extend and modernize them where necessary. That is the price of security.

Under the Vote “Commerce” an additional amount of R4 million has been included for assistance to exporters. This is to implement the undertaking given in my statement at the time of the devaluation of sterling last November, when I indicated that the Government would consider suitable ways and means, in deserving cases, to assist those agricultural export industries which may find it difficult initially to retain their markets in devaluing countries. I must emphasize that, in most cases, the Government cannot determine what assistance, if any, a particular export industry merits until this season’s sales have been substantially concluded. Those export industries which have already approached the Government for assistance should therefore exercise patience in the knowledge that the Government will give careful consideration to their representations at the proper time.

Apart from the special problems of certain agricultural export industries affected by the devaluation of sterling, widespread drought conditions and other unfavourable factors have created difficulties for many sections of the farming community, and in this connection I would especially mention the wool farmers. The Government recognizes that, in these cases also, assistance may be justified. Details of the assistance will be made known in due course by my colleague the Minister of Agriculture. It is difficult at this stage to estimate what the assistance will cost, but an amount of R3 million has been included for this purpose under the Vote “Agricultural Economics and Marketing—General”, while in the Supplementary Estimates an amount of R10 million will be requested on Loan Account to augment the funds of the Land Bank.

In view of the special problems of the wool farmers, it is proposed to make a special grant of R1 million to the Wool Board for publicity and research in connection with wool. For similar reasons I propose a grant of R150,000 for publicity and research in connection with wattle bark. These amounts will be included in the Supplementary Estimates.

Success in the struggle against inflation will be of special benefit to the gold mines, which for years have been squeezed between rising costs and the fixed price of gold. For some time the State has been assisting marginal gold mines, notably through interest-free loans to approved mines to cover working losses and approved capital expenditure. Before the new arrangement for selling gold on the free market became known, it appeared that a more comprehensive and scientific scheme of assistance had become necessary. The Economic Advisory Council recently submitted such a scheme to the Government. It is possible that the new situation in regard to gold sales may remove the need for assistance, but there are still many uncertainties regarding the future gold price on the free markets and the Government has decided to accept, in principle, the recommendations of the Economic Advisory Council and to implement the new scheme as from 1st April, 1968.

It is not possible to give an adequate description of the scheme in the time at my disposal, but further details are furnished in a White Paper which will be tabled shortly. Broadly speaking, the scheme is based on the principle that gold mines which are likely to close down within eight years if not assisted, but which could with State assistance show a significant potential increase in life and in total gold or uranium production, may apply for assistance. If accepted, such a mine will have to lower its operating pay limit, and may then qualify for a reduction in tax or for an actual grant (“negative tax”) in accordance with a formula. If increased revenue arising from sales of gold at a premium on the free market should reduce the need for assistance to any mine, the formula will ensure that such assistance is automatically adapted to the changed circumstances. This plan will replace the present loan scheme, but direct assistance in connection with the pumping of extraneous water will continue as at present.

On the basis of the present official gold price and on certain other assumptions it is estimated that the new scheme will cost the State, in grants and in loss of tax and lease consideration, some R82 million over the next eight years, but will result in the production of additional gold to the value of R332 million at the present gold price. For the year 1968—’69 it is estimated that R10 million will be required for such assistance (apart from R1.8 million for assistance in connection with the pumping of water), and provision has been made accordingly on the Vote of the Department of Mines. On the other hand, the provision for loans to marginal mines on the Loan Vote has been reduced from R3 million in 1967—’68 to R0.7 million in 1968—’69, the latter figure representing the arrear payments in respect of the last quarter of the present financial year. On the revenue side, there will be an estimated loss of R1.4 million in gold mining taxation and R0.4 million in lease revenue in 1968—’69.

It is impossible, at this stage, to determine the extent to which the new scheme will in fact be implemented. The Government believes, however, that the application of the proposed scheme, which is the result of months of work by experts in this field, will be in the interest of the whole country if the marginal mines should continue to require assistance on a substantial scale.

Apart from the items already included in the printed Estimates of Expenditure, I wish to propose certain additional expenditure for which provision will be made in the Supplementary Estimates. The first concerns the—

The Government is appreciative of the restraint and responsibility evinced by its employees in seeking some improvement in their conditions of service. I am sure they realize that it would have been inadvisable for the Government to accede to their requests at a time when inflationary pressures were strong. I feel, however, that the time has now arrived to make some concessions. Details will be made known shortly, but I should point out that one of the concessions—a decrease in employee contributions and an increase in State contributions to pension funds—will result in a direct cash benefit to all permanent members of the three public service pension funds and all temporary white personnel who are members of the Government Employees Provident Fund; this concession will take effect from 1st July, 1968. Further concessions which will take effect from 1st April, 1968, include improvements in the vacation savings bonus, increased overtime pay and subsistence allowances, and an increase in the State’s contribution to the compulsory medical aid scheme. The cost of the concessions (including the total additional cost in respect of Provincial employees, which will be reimbursed to the Provincial Administrations) will amount in a full year to R25 million; for the year 1968—’69 the additional cost will be R22.7 million.

Mr. Speaker, I should like to emphasize that these concessions do not, in my view, provide any justification for renewed pressure for wage or salary increases in the private sector. Government servants have been patient and—in contrast to most employees in the private sector—have received no general improvement in service conditions for more than two years. Furthermore, the concessions now granted do not constitute any fundamental change in the salary structure of the public service. I trust, therefore, that employees in the private sector, to whose sense of responsibility I have already paid tribute, will recognize that the new benefits to Government employees give no grounds for a fresh round of general wage increases. The same applies to the concessions to Railway employees recently announced by my colleague the Minister of Transport.

I also wish to propose additional expenditure in respect of—

I am glad to announce that the Government has decided to grant a measure of relief to pensioners.

Firstly, the bonus payable to social pensioners in addition to the basic pension or allowance will be increased by R1 per month. The additional allowance to war veterans will also be raised by R1 per month and the settlers’ allowance adjusted accordingly.

Secondly, a number of concessions are made to beneficiaries under the Children’s Act of 1960—

1. (a) Parents in receipt of parents’ allowances will each receive a bonus of R1 per month and in the case of family and children’s allowances a bonus of R1 per month for each child will be paid.
2. (b) Only half of the income of an unmarried person, e.g. a widow with dependent children, will be taken into account when the means test is applied for the calculation of parents’ and children’s allowances, and the additional allowance of R5.50 per month which is payable in excess of the parents and children’s allowances will be increased to R10 per month.
3. (c) Foster parent allowances will be increased by R2 per month and allowances to children’s homes by R3 per month per child. In both cases the total allowance will amount to R20 per month per child.
4. (d) The allowance in respect of physically or mentally defective children will be raised from R20 to R24 per month per child.

The concessions to social pensioners and Children’s Act beneficiaries which I have mentioned, apply to white persons, but adjustments will also be made in the benefits to non-Whites.

It is furthermore proposed that social pensions for Coloured and Indian pensioners should in future be paid on the scale applicable to urban pensioners in this group; in other words, as is already the case in respect of White and Bantu pensioners, the differential rates applicable to Coloured and Indian pensioners in rural areas will be abolished.

I propose that a bonus of 10 per cent be paid on all war pensions and allowances.

At present, an ex-serviceman in receipt of a military pension may also receive a family allowance in respect of his wife provided he married her within ten years of the termination of his military service, and in respect of children born within the same period. I propose that this time limit of ten years be abolished.

Welfare organizations find it difficult to pay, out of their own funds, adequate salaries to social workers in their employ. Social workers perform an essential professional service which supplements the social work of the State. I propose, therefore, that the State subsidy for a social worker be increased from R1,450 to R1,620 per annum.

1. (a) A temporary allowance is at present payable to certain retired public servants to supplement their pensions, subject to a means test and a means limitation of R150 per month for a pensioner with a dependant and R75 for a pensioner without a dependant. I propose that the means test as well as the means limitation be abolished altogether except in the case of minimum pensions.
2. (b) All civil pensioners receive a bonus on a sliding scale, varying according to the date on which they retired. To give some relief to all civil pensioners I propose that this bonus be increased by 5 per cent throughout.

All these concessions will take effect from 1st October, 1968, except that the increased subsidies for social workers will come into effect from 1st April, 1968.

The total additional cost over a full year will be R8.9 million, and for the year 1968—’69 R4.5 million.

I also wish to propose a concession in respect of the dependant’s allowances granted to members of the Citizen Force during periods of continuous training. An efficient peacetime defence force is essential and some improvement in the allowances is fully justified. The rates will therefore be substantially increased, the qualifying period reduced from 42 to 14 days, and the allowances will be extended also to the Commandos.

The new maximum rates will be as follows:

1. (a) Married members with full dependants:

1. (b) Other members with full or partial dependants:

The allowances under (a) are payable in those instances where the emoluments actually received from the employer during military training plus the military pay of the member’s rank are less than the normal emoluments received from the employer, in which case the shortfall may be paid to the maximum applicable. The allowances under (b) are payable in those instances where the emoluments actually received from the employer during military training are less than the normal contribution to the dependants in cash or kind in which case the shortfall may be paid to the maximum applicable.

The improvements will come into force on 1st April, 1968, and the additional cost is estimated at R200,000 per annum.

Total expenditure on Revenue Account, after taking account of all the additional items which I have mentioned, is therefore estimated at R1,532.9 million.

Although the estimates of revenue for the current financial year proved to be rather conservative, this was in large measure due to special factors which may not occur again, such as the exceptionally favourable agricultural season, and unexpectedly high prices for certain minerals. In all probability it will be necessary to maintain the Government’s measures against inflation for some time to come, and this must have a retarding effect on profits, incomes and revenue. All things considered, I believe it is reasonable to assume that the income tax on companies (other than mining companies) will yield about 50 per cent more, and that on individuals 10 per cent more, than in the current year. On this basis, and on the basis of recent trends in the yield of indirect taxes and other direct taxes, I estimate the total revenue for 1968—’69 (at existing rates of taxation) at R1,544.3 million. From this must be deducted R1.4 million in respect of the possible loss on gold mining taxation flowing from the new scheme of assistance to gold mines. The net figure is then R1,542.9 million.

This estimate takes no account of possible additional revenue from the gold mines and other sources as a result of gold sales at premium prices. The situation is still too obscure to permit any realistic estimate of such additional revenue. Moreover, it must be clear from what I said in my review of the economic situation that it would be entirely wrong at this stage to use any increased revenue from this source for increased State expenditure. Any such additional revenue will therefore be sterilized, i.e. retained in the Exchequer and not spent until justified by circumstances.

From the standpoint of combating inflation and maintaining stability, it is fortunate that the tax formula for gold mines already ensures that the greater part of any additional revenue to the gold mines will accrue to the State. If the price of gold on the free market should rise considerably above the official price and the income of the gold mines increase substantially, however, it may become necessary to take additional steps to ensure that this additional income does not cause undue inflationary pressure in the economy.

As estimated on the basis I have described, revenue is expected to exceed expenditure by R10 million. Hon. members will no doubt be interested to hear my proposals in regard to this surplus, but I must ask them to be patient while I first deal with—

The Estimates of Expenditure on Loan Account which I shall table, amount to R546.5 million, which is R16.5 million or 3.1 per cent higher than the revised figure for 1967—’68. As in the case of the Revenue Account, this comparatively modest increase was attained only through the unselfish co-operation of my colleagues in foregoing items of expenditure which, though necessary, could at some sacrifice be postponed to a later year; departmental requests were reduced by no less than R47 million in this way.

The Railways Administration requires an amount of R159 million, which is R20 million higher than the provision for the current year; the increase is entirely due to the construction of the new oil pipeline. Under the Vote “Community Development” there is an increase of R9.6 million in the provision for the Housing Fund. The Post Office requests R35.5 million for the expansion of telephone and telegraph services. There is an increase of R3.4 million in the provision for assistance to farmers under the Vote “Agricultural Credit and Land Tenure”, and as I mentioned earlier, a further amount of R10 million will be included in the Supplementary Estimates as a loan to the Land Bank. For the Orange River Project, the provision is slightly higher than for the current year, namely R30 million as against R28.8 million. On the other hand, the Industrial Development Corporation has sufficient funds in hand for border industry development and for development in South West Africa, and no provision for these purposes in the Vote “Industries” is necessary for 1968—’69; the need for a loan to the External Procurements Fund (which absorbed R8 million in 1967—’68) also falls away.

It has become necessary to reinforce the Bantu Education Account and provision will be made in the Finance Bill for an advance of R9 million to this Account.

Repayments of external loans are estimated at R38.1 million and of local borrowings and sundry items at R194.5 million.

It may also be necessary to provide funds in respect of drawings of rand by other members of the International Monetary Fund, similar to the drawing by New Zealand last year. This is, however, a statutory provision which does not require to be voted and which can, if required, be met from accumulated funds.

The total amount for which provision must be made on Loan Account is therefore R798.1 million. Revenue credited to Loan Account (including Loan repayments and certain tax revenues) is estimated at R131.4 million. An amount of R666.7 million must therefore be found from loans or other sources.

While inflationary tendencies remain, and especially while the strong inflow of foreign capital continues, we should avoid undue reliance on foreign borrowing, but I think we can safely aim to raise new foreign loans to an amount of R25 million, while existing foreign loans amounting to R59.5 million may be renewed.

The tax-free Treasury Bonds will, I believe, continue to be popular, but can hardly be expected to raise the same amount as in 1967—’68, partly because many investors already hold the maximum amount and partly because of competition from the new tax-free building society indefinite period shares. I estimate the receipts from Treasury bonds at R50 million.

Receipts from loan levies are estimated at R84.5 million.

The Public Debt Commissioners will, I expect, be able to invest some R225 million in Government stock. The amount actually available for investment may be considerably higher but I think it would be prudent to keep something in reserve for investment in public corporation stock if required.

On the assumption that local stocks maturing during the year (R167.2 million) will be converted in full, a net additional amount of R55.5 million will be required. I think this amount should be within the capacity of the local capital market, without any resort to bank credit.

There is one change which I wish to propose at this stage. Hon members will recall that, when insurance companies, pension funds and investment trusts were required in 1966 to invest a proportion of their assets in Government stock or in the securities of municipalities or public corporations, the percentages fixed for investment trusts were much lower than those for the other classes of institutions. This was partly because investment trusts in their modern form were at that time still of comparatively recent origin. Since then the trusts have had an opportunity to establish themselves and have, in fact, succeeded in attracting very substantial amounts from the private investor. I think it fair that investment trusts should now be called upon to make a slightly higher contribution to the public sector, and I propose that a further 5 per cent of the market value of each unit portfolio should be required to be invested in approved securities, at least half of this additional amount to be in Government stock. At least 15 per cent of every portfolio will then have to consist of approved securities, including at least 7½ per cent in Government securities. Provision will be made for this change in the Finance Bill.

According to my calculations, therefore, it will not be necessary to budget for any transfer of funds from Revenue to Loan Account. Before considering what should be done about the expected surplus of R10 million on Revenue Account, I have to announce two measures which should yield additional revenue. The first relates to—

As the result of criticism that the provisions of the present Stamp Duties Act were involved and had become antiquated, my predecessor, the late Dr. Dönges, agreed to replace the Act with a modernized and simplified version. Financial and other institutions were asked by the Secretary for Inland Revenue to submit their views and suggestions. After due consideration of the comments submitted, a Stamp Duties Bill has been drafted and will be introduced during the present Session. The Taxation Proposals which I shall table give full details of the instruments which will become liable for the duty as well as the rates at which duty will be calculated. In addition the Bill will be published in the Government Gazette at an early date.

Most of the rates chargeable under the existing Act have been in force since 1st July, 1911, and where fixed rates of duty are prescribed, it was felt that reasonable increases were justified. Where ad valorem duty is chargeable, however, little change has been made except with a view to simplification. Hon. members will be pleased to hear that stamp duty on ordinary receipts will be abolished entirely. It is proposed that the new Stamp Duties Act will come into operation on 1st October, 1968. The additional duty which will be collected during the 1968—’69 financial year is estimated at R3.2 million. For a full year the estimate is R6.5 million.

The second is a related measure and concerns—

In view of an exemption from stamp duty which will be provided in the proposed Stamp Duties Act in respect of the registration of transfer of marketable securities purchased through a stock broker, an increase in the rate of Marketable Securities Tax will be necessary. The amendment will take effect from 1st October, 1968.

The increase, which is equivalent to .05 per cent of the consideration for which Marketable Securities are sold and purchased, is estimated to yield R200,000 during the 1968—’69 financial year and R400,000 during a full year.

Mr. Speaker, although the position of the Revenue Account for 1968—’69 appears to be relatively favourable and would in more normal times justify some tax concessions, it must be clear that it would be irresponsible at this stage to propose any general lowering of tax rates. Such a step would only jeopardize our hard-won gains in the battle against inflation. There are, however, a few necessary adjustments which I wish to propose. I deal first with—

My first proposal concerns the duty on—

In my Budget Speech of last year I announced the imposition of an effective excise duty of 2c per gallon on Bantu beer brewed for sale or brewed by certain large employers. The duty was imposed in the place of the excise duty of 1c per lb. on Kaffircorn malt which was in force prior to 23rd March, 1967. The duty on Bantu beer was not passed on to the end-user and thus had the effect that local authorities and certain large employers were required to pay a greater amount of excise duty on Bantu beer than was the case when the excise duty on malt was applicable.

I have therefore decided to reduce the effective duty on Bantu beer by 1c per gallon in order to bring relief to local authorities and the employers concerned.

According to the latest available statistics in respect of Bantu beer sales the loss of revenue as a result of the reduction of the excise duty on this product will amount to R2,000,000.

The next proposal relates to the duty on—

Fox taxation purposes unfortified wine falls into three classes where excise duty amounting to 6c, 12c and 18c per gallon is applicable, depending on the free-on-rail wholesale price of the wine. The unfortified wine which is liable to the higher duties comprises only a negligible percentage of the total sales.

As it is doubtful whether the duty on the more expensive type of wine justifies the administrative costs involved and as it is also alleged that the present sliding scale adversely affects the quality of wine, I have decided that a specific excise duty of 6c per gallon will be applicable to all unfortified wine. The customs duty on imported wine will not be affected by this change. This concession will mean a loss of revenue amounting to R50,000.

With the recent commencement of the production in the Republic of base oils used in the blending of lubrication oils it has become necessary to impose an excise duty of 1c per gallon thereon to compensate for the loss of revenue in respect of the imported product. Base oils obtained from the local processing of used oils are, however, not dutiable. The existing rebate provisions in respect of imported base oils will also apply to the locally manufactured product. The new excise duty and the resultant amendment of the customs duty will mean a loss of revenue of R100,000.

The new excise duty and amended customs duty on base oils and the reduction of excise duty on Bantu beer and certain unfortified wine become effective immediately, and will apply to base oils as such and to those in prepared lubricating oil and to Bantu beer and certain unfortified wine which at this moment have not yet been entered for home consumption, that is, in respect of stocks of the products mentioned which at this stage have not yet been removed from non-duty-paid stocks. The public should receive the benefit of the decrease in duty in respect of certain types of unfortified wines as soon as the duty-paid stocks have been consumed.

Mr. Speaker, in terms of section 58 (1) of the Customs and Excise Act, 1964, I lay upon the Table for consideration in Committee of Ways and Means, the formal taxation proposals in respect of the new excise duty on base oils manufactured in the Republic and the amended customs duty on the imported product.

I come now to—

Here my first proposal, which affects the Loan Account and not the Revenue Account, relates to—

With the decline in the value of money I think that some increase in the rebates in respect of estate duty is justified. I propose that the primary rebate as well as the rebate in respect of a surviving spouse be raised from R20,000 to R25,000 in respect of persons dying on or after to-day. The loss of revenue in a full year is estimated at R3.5 million, but on account of the delay in the settlement of estates the loss in 1968—’69 will only be about R350,000.

In view of the prospective ultimate decline in our gold-mining industry it is of great importance to encourage our export trade in merchandise. Although our exporters have done well in recent years, the struggle for markets will probably become even more intense. Last year the additional deductions allowed to exporters in respect of allowable expenditure on the development of export markets were raised by 12½ per cent, and I propose that a further increase of the same amount be now granted. In other words, all exporters qualifying for the deduction will be entitled to an additional deduction of 50 per cent of market development expenditure (instead of the present 37½ per cent); those whose exports increase by between 10 and 25 per cent will be entitled to an additional deduction of 62½ per cent (instead of the present 50 per cent), and those whose exports increase by more than 25 per cent to an extra deduction of 75 per cent (instead of the present 62½ per cent). The loss of revenue is estimated at R2 million.

Three years ago my predecessor introduced a concession designed to help those families in the lower and middle income groups where the wife supplements the family income by taking paid employment. The formula then applied was that the combined income of husband and wife was taxed at the rate applicable to an income equal to the greater of the two incomes plus one-half of the smaller, plus also (where the combined income exceeds R8,000) twice the difference between the combined income and R8,000. To give some further relief in such cases, I propose that the rate of tax be that applicable to an income equal to the greater of the two incomes plus two-fifths (instead of one-half) of the lesser, plus also (where the combined income exceeds R8,000) the difference (instead of twice the difference) between the combined income and R8,000. As in the case of the existing formula, it will be provided in the Income Tax Act that a family unit will never be assessed at a higher rate than that applicable to its actual taxable income. The new formula will apply in cases where the combined income exceeds R3,000, and will give the greatest relief to the middle income groups but will also taper off the benefit more smoothly after the level of R8,000; some couples with a combined income of just under R11,400 will, in fact, still receive some benefit. To ensure a greater measure of relief than they have hitherto enjoyed under the formula to couples with combined incomes not exceeding R3,000, I propose that the combined income of husband and wife in that group shall be taxed at the rate applicable to the greater of the two incomes. The cost of these further concessions to married couples will be R2 million.

My remaining concessions are designed to relieve, to some extent, the burden of taxation on the ordinary man, and particularly the family man.

I propose that the medical and confinement allowances each be increased by R50, so that the maximum deduction from income in respect of medical expenses is raised to R250, and to R350 in the year in which a child is born. The loss of revenue will be about R100,000.

The income-tax rebates for children have for some years stood at R34 for each of the first two children in a family and R39 each for the third and subsequent children. To remove a common misunderstanding I should perhaps mention that the State does not imagine that it costs R34 or R39 per annum to bring up a child; the rebate represents an amount of tax corresponding to a much higher amount of income which is attributable to the cost of maintaining a family. I propose that the rebate be increased to R35 for each of the first two children and R45 for each subsequent child. The loss of Revenue is estimated at R2 million.

The tax concessions which I have just proposed involve a loss of revenue of approximately R8.25 million in 1968—’69 (or R9.65 million if the reduction in gold-mining tax revenue as a result of the new scheme of assistance to gold mines is included). Taking into account the increased revenue from stamp duties and marketable securities tax (estimated at R3.4 million for 1968—’69), the net loss of revenue is R4.85 million and the surplus on Revenue Account is then reduced from R10 million to R5.1 million.

I think it will be convenient to summarize the Budget on the Cash Basis. Total expenditure on Revenue and Loan Account for the financial year 1968—’69, including all the additional items which I have mentioned, is estimated at R2,098.5 million. Total receipts (excluding loans), after allowing for net tax concessions totalling R6.7 million, are expected to be R1,669.5 million, leaving a balance of R429 million to be found. If loan repayments and sundry items are taken into account, a total amount of R661.6 million must be obtained from loans. In fact we expect to raise some R666.7 million in loans; in other words, we estimate that on the cash basis we should have a surplus of R5.1 million which can be used to reduce the State’s indebtedness to the banking sector.

For the record, I include here in the printed version of the Budget Speech a summary of the State’s accounts on the conventional basis (but excluding the opening balances) and on the cash basis:

The Budget which I have presented this afternoon, Mr. Speaker, is a budget of strength. It is a budget which reflects the inherent vitality of our economy, a vitality which derives from our abundant natural resources and the energy and enterprise of our people. Like its predecessors, this Budget finances the continued massive expansion of the essential infra-structure of our economy and the major build-up of our defences. It makes provision for the social and cultural needs of all sections of our population, and does not neglect the less fortunate members of the community. It does all this without imposing crushing burdens on the taxpayer and without endangering the stability of our economy.

In recent years our main economic problem has been to contain the inflationary pressures which threatened our stability. It must now be clear that fiscal policy has a major part to play in the battle against inflation, and that the Budget which I presented last year contributed in no small measure to the success which we have achieved.

The principal aim of to-day’s Budget is to continue the struggle against inflation until final victory is won. For that reason it embodies no dramatic change in fiscal strategy or tactics. Nevertheless, within the limited scope afforded by my main objective, I have tried to provide relief where it is most needed, in particular to the public servant, the pensioner, the farmer and the family man.

An uncertain factor of significance in this Budget and in our whole economy is the future of the price of gold. Gold is not in itself a source of uncertainty; on the contrary, it is a bastion of strength in an uncertain world. The uncertainties reside rather in the currencies for which gold is exchanged, and recent events have by no means removed these uncertainties. Fortunately, we in the Republic of South Africa can face these uncertainties with confidence.

The year 1968 may well be a golden year for the Republic. Certainly, if we can keep inflation in check, there is no reason why we should not advance to new levels of prosperity. In so far as fiscal policy can prepare the way for such an advance, I believe that this Budget will succeed in its task.

I now lay upon the Table—

1. (1) Estimates of Expenditure to be defrayed from Revenue, Bantu Education and Loan Accounts during the year ending 31st March, 1969 [R.P. 1-1968, R.P. 9-1968 and R.P. 8-1968].
2. (2) Estimates of the Revenue to be received during the year ending 31st March, 1969 [R.P. 32-1968].
3. (3) White Paper in connection with the Budget Statement, 1968—’69.
4. (4) Comparative figures of Revenue for 1967—’68 and 1968—’69 for inclusion in Hansard after the Budget Statement.
5. (5) Taxation Proposals.
6. (6) Explanatory memorandum on relief to needy gold mines.

Report Stage taken without debate.

Bill read a Third Time.

Bill read a Third Time.

Bill read a Third Time.

Bill read a Third Time.

Report Stage taken without debate.

Third Reading