Mr. Speaker, I move—

Over the past few weeks there has been much debate, both in this House and outside, about our economic position and prospects. Some have painted a gloomy picture of our economic future; others with more faith and, I believe, more reason, have taken a more optimistic view. All are agreed, however, that prosperity and growth will not be attained without effort; hard work and good judgment will be required from the Government, from our economic leaders, and indeed from all members of the community. The Government is determined to make its contribution, and this Budget is designed to give direction and impetus to the national drive for a more prosperous South Africa.

As is customary, I shall start with a review of our present economic situation. This matter has already been extensively discussed in recent debates, and since I should like to devote a little more time to an evaluation of the problems facing our economy and the measures required to solve them, I shall follow the precept of Polonius in Shakespeare’s “Hamlet” where he said—

General Economic Conditions

The growth rate of the gross domestic product in 1971, after allowing for price changes, was approximately 4 per cent. This relatively low rate (for South Africa) is due principally to a slight decline in mining production (chiefly gold and platinum) and to a relatively small increase of 3 per cent in manufacturing production. It would appear that there was an actual decline in manufacturing production per man-hour between December, 1970 and November, 1971. Agricultural production and transport services, on the other hand, increased more rapidly than in 1970. Activity in the construction industry tended to level off during 1971, but wholesale and retail trade recovered substantially from its relatively low level at the beginning of the year.

On the expenditure side, the anti-inflationary measures of the authorities succeeded in reducing the real rate of increase in gross domestic expenditure from 9 per cent in 1970 to about 4 per cent in 1971— that is, to a rate comparable to that of the gross domestic product.

Private consumption expenditure rose slowly during the first half but more rapidly during the second half of 1971; the real rate of increase over the year was about 4½ per cent.

Salary and wage increases were largely responsible for an increase of 20 per cent in current expenditure by general government during 1971. If the effect of price increases, including salary and wage adjustments, is excluded, the increase was about 9½ per cent.

Fixed investment rose by 15 per cent in 1971 as against 19 per cent in 1970. It is encouraging to note, however, that there was a substantial increase—no less than 34 per cent—in fixed investment by private manufacturing industry. This item has now shown a marked improvement in two successive years, and it is estimated that the capital assets of the private manufacturing sector, measured in constant prices, increased by 10 per cent in the two-year period 1970-’71. There were also large increases in capital investment by the provincial administrations and the South African Railways.

Investment in inventories was still large in 1971, though slightly less than in 1970. Savings continued to fall short of investment requirements and the ratio of gross domestic saving to gross domestic product declined from nearly 24 per cent in 1969 to 22 per cent in 1971.

The slower rate of growth in the economy led to an easing of the tight labour situation; employment increased more slowly and there was a slight rise in registered unemployment—which still remains, however, at a very low level. Despite this easier trend, average salaries and wages of non-agricultural workers were more than 10 per cent higher during the first nine months of 1971 than during the corresponding period of 1970.

Recent trends in prices have been discussed at length in this House, but for the record I shall mention that the index of consumer prices over the year 1971 was 5,7 per cent higher than the corresponding figure for 1970, and that this relatively high rate of increase was largely due to increases in indirect taxes and certain State-administered prices during the early part of 1971. In the fourth quarter of 1971 there were also some increases in the prices of imported goods as a result of upward adjustments in the exchange rates of some of our trading partners. Wholesale prices of imported goods rose, in fact, by 5,8 per cent in 1971 as compared with 3 per cent in 1970.

The latest available figures show that, over the period September, 1971, to January, 1972, the seasonally adjusted consumer price index increased at an annual rate of 5,2 per cent.

Balance of Payments

During 1971 the South African economy was strongly influenced by the balance of payments, which in its turn was much affected by external events, in particular the uncertainty regarding exchange rates which persisted during most of the year and which became acute in the months preceding the general realignment of currencies in December.

As a result of the anti-inflationary measures of the authorities and the consequent slower growth of consumption, imports increased more slowly during the first three quarters of 1971 than in the previous year. Exports showed only a limited improvement, rising by 4 per cent over their 1970 level. The net result was that the balance of payments on current account showed a gradual but steady improvement during the first three quarters of 1971. Since the inflow of foreign capital remained at a high level no special additional measures appeared at that time to be called for in order to rectify the balance of payments.

The accentuation of exchange rate uncertainty after August, 1971, however, significantly changed the situation. Fears of a depreciation in the rand along with the United States dollar gave rise to an increase in imports, a diminution in the inflow of capital, accelerated payments for imports and delays in payment for exports, resulting in a rapid fall in the gold and foreign exchange reserves from R645 million at the end of August to R570 million at the end of November. In these circumstances the Government was forced in November to intensify import restrictions. On 21st December, after the general realignment of major currencies had been announced, the rand was devalued by approximately 12,28 per cent to a new parity equivalent to R28-50 per fine ounce of gold.

The reasons for the devaluation have been explained many times and here it will be sufficient to sum them up very briefly as follows—

1. (1) the need to give an additional measure of protection and stimulus to South African secondary industry, particularly in view of the unused productive capacity and the easier labour situation which developed during 1971;
2. (2) the desirability of placing our export trade in a stronger position to compete on world markets, especially in view of the prospective entry of Britain into the European Economic Community;
3. (3) the necessity of giving an added stimulus to the gold-mining industry;
4. (4) the desirability of giving a general boost to the economy in order to achieve a rapid rate of economic growth; and
5. (5) above all, the need to achieve a substantial and lasting improvement in the balance of payments on current account.

Over the year 1971 as a whole merchandise imports reached the record level of R2 888 million, and the deficit in the balance of payments on current account amounted to no less than R1 005 million. There was a substantial inflow of capital —R564 million to the private sector and R199 million to the central Government and banking sector, a total of R763 million—so that the gold and foreign exchange reserves declined over the year, as a result of balance of payments transactions, by R242 million. If account is taken of the second allocation of Special Drawing Rights (R15 million), the profit of R2 million on the revaluation of the Swiss franc in May, 1971, and the profit of R69 million consequent upon the realignment of currencies in December, the reserves actually declined over the year by only R156 million to a level of R651 million.

Since devaluation the balance of payments appears to have performed moderately well, though the statistical evidence is not yet conclusive. On the one hand, the total gold and foreign exchange reserves (excluding the new allocation of Special Drawing Rights) declined in January by R21 million—the latest available figure. The gold and foreign exchange reserves held by the Reserve Bank, on the other hand, rose from R375 million on 17th December to R539 million on 17th March. Of this increase of R164 million, an amount of R55 million was accounted for by the revaluation of the Reserve Bank’s foreign reserves following upon the devaluation of the rand, and R28 million by a new allocation of Special Drawing Rights, leaving a balance of R81 million due to balance of payments transactions. This compares with a fall of R103 million in the period from the end of September to 17th December, 1971. While the improvement was doubtless due in part to capital inflows and a reversal of leads and lags in payments for imports and exports, it is significant that imports declined from a seasonally adjusted annual rate of R2 933 million in December to R2 792 million in January and R2 675 million in February. Import control will, of course, also have influenced these figures.

Monetary and Banking Conditions

The quantity of money and near-money increased during 1971 at a slower rate than the gross domestic product at current prices, so that the ratio between these two quantities declined from 30,8 per cent in 1970 to 29,7 per cent in 1971. Substantial increases in bank credit to the Government and private sectors were offset to a considerable extent by the deficit in the balance of payments. The increase in bank credit to the private sector was, however, largely the result of increased cash credits extended by the Land Bank for the financing of crops. Apart from a relaxation of 2 per cent in respect of credit for agricultural purposes, the credit ceilings were, in general, strictly applied during 1971. During January 1972 the seasonally adjusted quantity of money and nearmoney declined by R13 million.

Short-term interest rates fluctuated appreciably over the year 1971 but showed a general upward trend. The capital markets remained tight and, although the increase in the rate of interest on long-term Government stocks to 8½ per cent per annum (as announced in my previous Budget) enabled the Government to achieve a fair measure of success in its local borrowing operations, it was still unable to obtain all the funds it required from non-bank sources. Since the end of 1971 conditions in the capital market appear to have improved and the Government loan issued last January was more successful than had been expected. In part, however, this must be ascribed to the stricter conditions imposed last year on insurance companies and pension funds regarding minimum holdings of government stocks and other prescribed investments.

While building societies experienced a generally satisfactory inflow of funds during 1971, there was a marked decline in this inflow in January and February 1972. Moreover, the margin between the average interest cost of funds for the societies and the average interest earned on mortgage loans seems to have narrowed to a level which cannot easily be maintained.

Economic Prospects and Policy.

In the economic situation which I have briefly described, the principal aims of government policy are clear.

1. (i) Improvement in the balance of payments.

1. (ii) More rapid rate of growth.

1. (iii) Curbing of inflation.

In present circumstances and in the short run, there is inevitably some conflict between these objectives—for example, between maximum growth on the one hand, and price stability and balance of payments equilibrium on the other. It is therefore necessary to achieve a balance in the application of the various measures required to achieve these aims.

Nevertheless, there are various positive factors which should be of material assistance in our task.

The first is that we have been blessed with a favourable agricultural season, so that production in many branches of farming, both for the local market and for export, should reach high levels this year. This is indeed a cause for thankfulness.

Secondly, there has already been an improvement in the markets for some of our export products, particularly agricultural and mining products. If, as many expect, economic growth in Europe and North America should accelerate, this improvement should continue. It is not always realized how adversely the Republic’s export trade was affected in 1971 by lower prices in world markets, and how much this contributed to the deterioration in our balance of payments. Declines were registered in the world prices of iron ore, platinum, nickel, copper, wool, coal, diamonds and several other products so that the South African exporter must have felt with Shakespeare that—

Now, and of course especially since devaluation, the situation for many of these export products looks distinctly more promising.

Thirdly, the high price of gold on the private market which has now persisted for several weeks is obviously of benefit to the whole economy. It is impossible to predict whether the price will remain at the present level, but the continuance of at least a moderate and steadily increasing premium on the official price seems probable.

Fourthly, the productive capacity of manufacturing industry has been considerably expanded in the past two years, and some portion of this capacity is still underutilized. Moreover, the labour position is definitely easier than it was a year or two ago. It should, therefore, be possible with existing resources to expand production quite appreciably without undue inflationary effects.

A fifth positive factor is that the heavy Government expenditure on infrastructure services during the past few years will enable these services to cope with some expansion of production with reasonable adequacy.

I should also like to question the widelyheld view that the advantages gained by devaluation are necessarily short lived and must be exploited with all possible speed before they disappear. In fact, the advantages disappear only if price increases in South Africa are greater than those of our trading partners. It is therefore of the utmost importance that the expected more rapid growth in the economy should not be stimulated to such an extent as to cause unnecessary pressure on our labour and capital resources. A balanced programme of action is necessary, not a hasty, reckless dash for growth at any cost.

Nevertheless, the time has come to implement such a co-ordinated programme of action without delay. As Brutus said in Shakespeare’s “Julius Caesar”—

Programme of Action

1. (1) Fiscal policy.

The first element in this programme is fiscal action. Details will have to wait until later in this Budget Speech, but broadly it is clear that we must aim at substantially reducing the rate of increase in State expenditure, especially on services which do not contribute directly to the economic infrastructure, and at financing expenditure as far as possible from non-inflationary sources. Furthermore, the tax system must be revised so as to remove unnecessary obstacles to growth and to promote production and export wherever possible.

1. (2) Credit and monetary policy.

Monetary and credit policy is also of great importance. The Governor of the Reserve Bank announced earlier today that the banks will be allowed to exceed the ceiling figures applicable to their discounts and advances by 5 per cent, and those applicable to their investments by 10 per cent, in order to permit a somewhat greater volume of credit for production and export purposes. In this connection I should like to express the hope that sympathetic consideration be given by the banks to credit for the beneficiation of base minerals, a sphere in which our export prospects appear particularly promising.

As the Governor explained, the relaxation of credit control is likely to give rise to keener competition among banking institutions for deposits, which might tend to counteract any tendency towards an easing in the genera] level of interest rates which may develop in the coming months. Such competition might furthermore force the building societies to increase their lending rates on mortgage bonds. It has therefore been deemed advisable to prescribe maximum interest rates payable by banks and building societies on deposits and building society shares. These maximum rates, as announced by the Governor, will take effect tomorrow.

If interest rate control is to operate effectively, however, it must also be applied to certain other types of financial transactions which are similar to, or directly in competition with, deposits with banks and building societies. As from tomorrow, therefore, the rate of interest payable on participation bond schemes may not exceed 8½ per cent per annum. The same maximum rate of interest will apply to loans or deposits received by persons or companies (other than banks and building societies) who act as financial intermediaries, i.e. who lend the money so received to members of the public. This includes debentures issued by subsidiaries of banks. The necessary regulations will be gazetted today. The maximum rates will not affect existing loan or deposit contracts until they expire, but will apply to all new contracts concluded as from tomorrow.

The controls are not designed to force down interest rates to unrealistic levels. If the balance of payments improves and the inflow of foreign capital continues, it is quite possible that internal liquidity will increase to such an extent that interest rates will tend to decline—a softer tendency has already been noted in the capital market. The authorities will therefore review the position from time to time.

Among the institutions which should benefit substantially from these controls are the building societies. The societies have already received exceptionally favourable treatment from the authorities in many ways, and I trust that they will find it possible to fulfil adequately their function of assisting the ordinary man to build or acquire a house. While I am aware of the limitations imposed upon the societies in respect of the granting of large mortgage loans, I wish to appeal to them to devote a greater proportion of their funds to more modest housing for the ordinary man and less to luxury housing for the well-to-do. The Technical Committee on Banks and Building Societies will give further attention to this and other matters affecting the position of the societies in our financial structure.

The same Committee is also considering changes in our credit control methods with a view to the eventual replacement of the credit ceiling by other measures. This study is, however, not yet completed.

Another aspect of credit policy which requires attention is the exchange control restriction on foreign borrowing by private firms. The complete lifting of this control cannot yet be contemplated since this would tend to neutralize the internal control of credit, but the Reserve Bank will continue its recent policy of adopting a somewhat more lenient attitude on a selective basis, towards applications for foreign borrowing for important industrial or mining development. This policy should not only make a significant contribution to the development of the industries concerned, but should also strengthen the balance of payments, relieve the pressure on the domestic capital market and so exert a downward pressure on interest rates.

1. (3) Promotion of saving.

Greater saving is essential if we are to combat inflation effectively and finance the expansion of our economy, and further attention has been given to the channels of saving provided by the State. Measures to streamline the Post Office Savings Bank and make it more attractive to investors must await the computerization of the Savings Bank, which should be completed next year. As regards National Savings Certificates, certain important simplifications and improvements will be introduced. A new series will be issued on 1st August, 1972, carrying a rate of interest of 7,4 per cent per annum if held to maturity, i.e. for five years. Interest will be free of income tax up to a maximum investment in this series of R15 000 per person, irrespective of any other holdings of tax-free investments. Certificates of a value up to R10 may be freely bought and repaid at post offices without the completion of any forms; in other words, these will be bearer certificates and not registered in the name of the depositor. The higher denominations of certificates will, however, as at present, be registered in the name of the holder. Further details will be announced in due course. I feel sure that these investments will prove a convenient and attractive form of investment, especially for the salary– and wageearner.

As a further incentive to saving, the Government has decided to launch a home-owners’ saving scheme. The scheme is designed to encourage middle- and lower-income groups to save so as to acquire a house for their own occupation, and the Government will help by contributing 2 per cent interest on such savings annually. All persons who earn not more than R5 000 per annum will be able to join the scheme by opening a special State-assisted home-owners’ savings account with a building society. Savings in such an account can accumulate up to R4 000, and will bear interest at the current building society rate (at present 6½ per cent) plus 2 per cent payable by the State. The interest will be tax-free. The savings may be withdrawn at any time after 18 months for the erection or purchase of a dwelling, but withdrawals for any other purpose will entail loss of the subsidy. The value of the dwelling erected or purchased, including the cost of the site, may not exceed R16 000 and the building society loan may not exceed R12 000. Details of the scheme will be announced by my colleague, the Minister of Community Development. I am convinced that this scheme will not only encourage saving but will be of real assistance to our young people in acquiring a home. It should also strengthen the position of the building societies and place them in a better position to resist upward pressure on their lending rates.

1. (4) Labour policy.

Although the labour position has eased, skilled labour remains a scarce factor and, if the economy should resume a rapid rate of growth, shortages of labour may again appear. This problem therefore requires continued attention.

To a large extent the improvement of productivity is a task for private enterprise. Productivity can be increased by the private sector through the full utilization of the opportunities already created by the Government. For example, the Industrial Conciliation Act was amended to provide for a levy on employers in a particular industry out of which compensation could be paid to those firms which train labour; this amendment was designed to encourage the training of labour by the private sector itself, and is effectively used in certain industries such as the engineering, building and clothing industries. Much greater use can, however, still be made of this scheme. Productivity can also be increased by the further use of those recommendations of the Geyser Committee which were accepted by the Government and announced in the White Paper on the Decentralization of Industries. Much can be achieved, as the Railways Administration has shown, where the employers’ organizations can obtain the co-operation of the trade unions for the reclassification of work categories so as to permit of the more effective use of both skilled and unskilled workers.

Within our basic social structure the Government’s attitude towards labour problems remains flexible. In present circumstances, for example, a concession may be justified where additional Bantu labour is required to permit greater use of unutilized productive capacity. The authorities will, therefore, be prepared to consider allowing industry in the Pretoria-Witwatersrand-Vereeniging and other urban areas to employ additional Bantu labour in order to work multiple shifts, even where the ratio of Bantu to White labour exceeds 2,5 to 1. Naturally this concession can only be granted on a selective basis (particularly for export industries) and with due regard to factors such as the availability of housing and transport, but nevertheless it can make a significant contribution to the better use of productive capacity.

The authorities will furthermore be prepared to allow a company or group of companies which wishes to move one or more of its activities to the decentralized areas, to retain its total quota of Bantu labour in the White metropolitan areas. This concession should encourage the creation of new job opportunities for Bantu in the Bantu or border areas.

I wish to emphasize that the Government is always prepared to consider adjustments of labour policy within the basic framework of our society, in order to promote efficiency and productivity. The rigidity of our labour laws is, in fact, often exaggerated. Work reservation, for example, is in certain cases essential for the protection of the White or Coloured worker and the preservation of industrial peace, but it is applied with great flexibility and exemptions are granted where justified. The Government has done and will do its part, but private enterprise must also make its contribution to increased productivity. It can do much, for example, by the in-service training of Bantu labour as well as by the fuller use of the facilities which I have mentioned.

Immigration is another field where the State and the private sector can work together to increase our productive labour force. Although the number of immigrants entering the country tended to decline during the earlier part of last year, there was a noticeable increase during the last quarter of 1971, probably on account of less favourable economic conditions in European countries. Judging by the number of applications received this year, this trend is continuing. The prospects for 1972 thus appear favourable and, as in the past, continued efforts will be made—without, however, sacrificing principles or standards—to extract the maximum benefit for the Republic from this situation in order to strengthen further our skilled labour force.

1. (5) Wage policy.

In order to make the best use of devaluation, it is of the greatest importance that cost increases should be kept to a minimum, and in this regard the Government is confident that, as in the past, organized labour will exercise moderation and responsibility in wage negotiations. It should be borne in mind that, in the past five years, total real wages and salaries have increased at an average annual rate of 7 per cent, whereas the real net operating surplus (i.e. mainly profits) of all sectors excluding agriculture increased over the same period at an average rate of only 2 per cent per annum. Average wages and salaries have certainly risen more rapidly than consumer prices, while total remuneration of employees, expressed as a percentage of gross domestic product, has increased from 56 per cent in 1967 to about 62 per cent in 1971.

It should not be assumed that steep price increases are inevitable in the coming months and consequently justify sharp increases in wages and salaries. Careful estimates have shown that the devaluation of the rand should not in itself involve an increase of more than 2.7 per cent in the consumer price index—1,3 per cent directly as a result of a rise in the prices of imported consumer goods and 1,4 per cent indirectly in consequence of the higher cost of production goods. This makes no allowance for a possible increase in the domestic price of goods which are also exported at world prices, but the influence of this factor is likely to be small in the aggregate.

Taking into account also its anti-inflationary and price control policies, therefore, the Government feels that moderation in wage demands is fully justified in the national interest and in the long-term interest of the workers themselves. Increases in wages without a corresponding increase in productivity must strengthen the upward pressure on costs and prices to the detriment of the community as a whole and without lasting benefit to the wage-earners.

1. (6) Price control.

The extension of price control after the intensification of import restrictions and the devaluation of the rand helped to protect the public against excessive price increases not justified by increased costs flowing from these events. The indefinite continuation of the additional price control measures would, however, be harmful to the economy and would tend to restrain production, while it would involve a heavy administrative burden for the State and the private sector.

When, therefore, devaluation has exerted its full once-for-all effect on prices, the Government will give consideration to the replacement of these price control measures by a system of continuing consultation with organized commerce and industry, with the object of preventing unjustified price increases.

1. (7) Import control.

Although the intensification of import control last November was designed to relieve the pressure on the balance of payments and was not intended as a permanent instrument of protection for local industry, the Government has already stated that South African industrialists will not be left unprotected against foreign competition. Adequate protection is essential to promote confidence and growth in the economy.

The customs tariff must remain the principal instrument of protection, and my colleague the Minister of Economic Affairs has already announced measures to grant adequate protection by this means in the changed international environment which has been created during the past year or two. In those cases where the Government’s commitments under the General Agreement on Tariffs and Trade prevent it from extending effective tariff protection to industry, import restrictions will have to be retained until such time as the Government can succeed in obtaining the necessary freedom under the GATT to carry out its policy.

As regards the intensified restrictions imposed on 25th November, the Government is giving consideration to possible relaxations which can be introduced when the current balance of payments shows a significant improvement. These import control relaxations will, however, be carried out in such a way as not to cause disruption to local industry.

1. (8) Export promotion.

It is of paramount importance that our exports should be increased. Here again this is primarily a matter for the private sector, but the Government will do all in its power to assist. The whole question of South Africa’s export trade is at present being considered by a Commission of Inquiry under the Chairmanship of Professor H. J. J. Reynders, and this Commission has recently submitted an interim report containing certain urgent recommendations for the promotion of exports. The recommendations relate to tax concessions, which I shall deal with later, and export financing, which is still receiving attention. I can say here, however, that in all its policies the Government will give the utmost consideration to the encouragement of exports.

1. (9) Credit restrictions on the sale of motor-cars.

The motor-car industry has been going through a difficult period, with sales at a comparatively low level just at the time when considerable investments in connection with the programme for local manufacture had been made. I believe that some relaxation in the credit restrictions on the sale of passenger motor-cars is justified and will assist this important industry to recover its prosperity. The minimum down payment on such sales will therefore be reduced from 40 per cent to 33 1/3 per cent, with immediate effect. This applies only to passenger cars and not to commercial vehicles.

1. (10) Relaxation of Building Control.

Building control was instituted in order to channel as much building activity as possible into the erection of dwellings and flats. The position has now changed and the housing position can be satisfactorily dealt with without such control. In order to give greater freedom to the industry, the Government has decided to suspend building control. From the end of this month, therefore, it will no longer be necessary to submit applications for building permits to the Department of Community Development.

The plan of action which I have outlined is designed as a balanced programme to promote the three major aims which I mentioned earlier, namely, improvement of the balance of payments, more rapid economic growth, and price stability. Not everyone will agree with the emphasis placed on the different measures, and indeed the programme is capable of adaptation in the light of experience. I believe, however, that if we proceed on these lines, we shall reap the maximum benefit from, and minimize the adverse effects of, the devaluation of the rand. We shall then have cause to say, with the Duke in Shakespeare’s “As You Like It”—

The Financial Year 1971-’72

I turn now to the State’s accounts and I deal first with the financial year which is now drawing to a close.

Inland Revenue receipts for the year are expected to amount to R1 682,8 million, which is close to the original estimate. Receipts from customs, excise and sales duties will, however probably show a shortfall of R60 million, and are now estimated at R760,4 million. This is principally due to lower receipts in respect of import duties and of excise duty on liquor and motorcars, arising from consumer resistance to the higher duties imposed last year and from the general cooling down of the economy. Expenditure, on the other hand, is expected to amount to R2 520 million, or R32 million above the original estimate, chiefly as a result of higher expenditure on food subsidies (R7 million), the subsidy on fertilizer (R5 million), soil conservation and pest control (R9 million), contributions to pension and provident funds (R6 million), and additional provision for the Coloured Representative Council (R6 million).

In my previous Budget Speech I provided for the transfer of an amount of R39.1 million from Revenue to Loan Account. This is no longer necessary and steps will be taken to cancel the transfer. If account is also taken of the opening balance of R72.5 million, the Revenue Account should show a small deficit of R4,3 million at the close of this financial year.

On Loan Account, expenditure is estimated at R875 million, or R14,6 million more than the original figure, due principally to increased provision for telecommunications, public works and the Community Development Fund. As I mentioned earlier, however, our domestic issues of Government stock have been more successful than anticipated and the Loan Account should end the year with a surplus of R26,1 million.

I propose that the usual contribution of R5 million be made to the Loan Fund for the Promotion of Economic Co-operation, and that on this occasion the payment be made from the surplus on Loan Account, leaving a balance of R21,1 million in the Account.

On Revenue and Loan Accounts combined, there is therefore a net surplus of R16,8 million.

On the South-West Africa Account, both revenue and expenditure are expected to be slightly below the original estimate and the Account will end the year with a deficit of approximately R14,7 million, which will have to be met from Revenue Account.

The Financial Year 1972-’73

Expenditure

The Estimates of Expenditure from Revenue and Loan Account together provide for a sum of R3 545,4 million, which is R197,2 million or 5,9 per cent above the corresponding figure for 1971-’72. In my earlier remarks I said that we must aim at substantially reducing the rate of increase in State expenditure, and clearly we have succeeded in this objective. This success was, however, only achieved at the cost of great sacrifices by my colleagues, and I wish to pay tribute to their loyal co-operation in this endeavour.

Revenue Account

The printed estimates which I shall lay upon the Table make provision for expenditure of R2 745,5 million on Revenue Account, which is R225.5 million or 9 per cent above the revised estimates for the current year. The increase would have been substantially lower were it not for a number of items which are virtually unavoidable, such as the subsidy on Bantu passenger transport, interest and management charges on public debt, payments to neighbouring countries under the Customs Union Agreement, payments to farmers under the stock reduction scheme, food subsidies, subsidies to Universities, provision for the Coloured Persons Representative Council, and pensions—increases in respect of these services account for R93 million. There is also a substantial increase of R51 million under the Bantu Administration and Development Vote, but this is partly due to the fact that certain services previously performed by the Bantu Trust with funds provided under Loan and Bantu Education Accounts are now entrusted to the recently established governments of the Bantu areas which obtain funds from the Revenue Vote.

Provincial subsidies under the formula introduced last year show an increase of R63 million or 8,8 per cent above the revised estimate for 1971-’72.

Social Pensions

Although I have had to turn a deaf ear to nearly all requests for increased expenditure, I think that an exception must be made in the case of social pensions. As was said by Portia in Shakespeare’s “Merchant of Venice”—

Our means are limited, but we must do what we can for the aged and others who, through circumstances, are facing financial hardship.

I propose that the basic social pensions and allowances for White persons be increased by R3 per month. Settlers’ allowances will be adjusted accordingly.

The war veterans’ pension consists of a basic old age pension plus an amount of R8 per month for war service. The latter amount has remained unchanged for many years and I think an increase to R10 is justified. War veterans will thus receive a total increase of R5 per month.

For war pensioners, I propose an increase in the bonus payable by 7½ per cent, i.e. to 25 per cent.

I also feel that beneficiaries under the Children’s Act are entitled to some relief in respect of their schoolgoing children. It has accordingly been decided to increase the additional social benefits specially payable in respect of such children by R1 per month per child.

Furthermore, a thorough investigation into the whole question of maintenance grants payable under the Children’s Act would appear to be appropriate at this stage. The Government has accordingly decided to have the whole matter of the payment of such grants to all the population groups properly investigated, with particular reference to the possible abuse of this grant in respect of illegitimate children. The necessary arrangements in this connection are at present being made.

In order to simplify administration it is further proposed to introduce a uniform consolidated scale for the calculation of income and assets in the application of the means test to all pensioners. Details will be announced by the Department of Social Welfare and Pensions. In general, the changes will be of considerable benefit to those pensioners who do not at present receive the maximum pension, while a number of persons previously excluded by the means test will now qualify for a pension. For example, a person with an income of R984 can now qualify for the minimum pension. “Free” assets not taken into account for determining the pension are increased from R4 800 to R9 800.

It is furthermore proposed to increase the per capita allowance to children’s homes and foster parents by R5 per month.

These concessions make it necessary to increase the minimum pensions payable to civil and railway pensioners by R6 per month for married and R3 per month for unmarried persons.

Similar concessions, at the applicable scales, are proposed for non-White pensioners.

In order to give the Department time to make the necessary arrangements, all these concessions will take effect from 1st October, 1972.

Chronically Sick Aged

The Department of Social Welfare and Pensions at present grants special additional subsidies to institutions for the aged in respect of chronically sick and infirm aged persons in their care. These subsidies are, however, inadequate to cover the additional cost involved and it is proposed to increase the subsidy in respect of chronically sick aged by R20 per person per month and for infirm aged (who do not require quite so much attention) by R5 per month. These increases will take effect from 1st April, 1972.

Pneumoconiosis Pensions

Several increases in pension benefits payable under the pneumoconiosis legislation have been granted in recent years. Widows of deceased mine-workers received an increase last year. The Government has nevertheless decided to grant a further increase this year, with effect from 1st October, 1972, to all mineworkers and widows entitled to monthly pensions. Details will be announced later by the Minister of Mines.

Mentally Retarded Children

I think that an increase is justified in the allowance paid by the Department of Health in respect of mentally retarded children in day centres, and I propose an increase of 75 cents per child per school day, i.e. to R1 instead of the present allowance of 25 cents. This will take effect from 1st April, 1972.

The total cost to the Exchequer in 1972-’73 of all these social concessions is estimated at R12 million.

Contribution to Civil Service Medical Benefit Association

Membership of this Association is now a condition of service and the Government contributes to the Association at the rate of R1,50 for every R1 subscription paid. In view of increasing medical costs it is likely that the Association will shortly have to increase its subscriptions and provision for an additional contribution by the State will then be necessary. The cost in 1972-’73 will be R1,3 million.

Total expenditure on Revenue Account, including all the concessions which I have mentioned, will amount to R2 758,8 million.

Revenue, 1972-’73

It is always a difficult task to estimate revenue, and this year the task is exceptionally difficult because of the many uncertainties involved. Indeed, I wish that the Treasury had at its disposal the services of the witches in Shakespeare’s “Macbeth,” who could—

Customs revenue is almost certain to be below the level of the current year because of lower imports. Revenue from excise duties fell considerably short of expectations in 1971-’72 because of lower sales of excisable goods, but experience has shown that consumer resistance to increased duties and higher prices tends to wear off after a time, and the expected revival of economic activity should also help to increase sales and revenue. After a detailed study of each item I estimate the revenue from customs, excise and sales duties at R760,7 million, which is approximately the same as the revised estimate for the current year.

Inland revenue is equally difficult to estimate. Premium gold sales should increase the receipts from gold mining taxation, but to some extent this will be counteracted by increased costs and by a reduction in the grade of ore mined. If economic activity shows the expected revival, the incomes of companies and self-employed persons as well as of employees may increase appreciably, but income tax revenue from the first two categories need not rise proportionately; this is because provisional tax payments can be based on the income of the previous year and the additional tax liability need only be met on assessment, which will in very many cases only be made in the following year. Taking all these factors into account, and perhaps erring slightly on the conservative side, I estimate the receipts from Inland Revenue at R1 800,9 million, or 7 per cent above the revised estimate for 1971-’72.

Until a few years ago the revenue from transfer duty was credited to Revenue Account. In 1966, however, in order to strengthen the Loan Account, it was decided to transfer the proceeds of this duty to that Account. There is no compelling reason for this to he continued and, in view of the present need of the Revenue Account, I propose that transfer duty be restored to the latter account. The estimated revenue from this source in 1972-’73 is R45 million.

The total revenue from customs, excise and sales duties and inland revenue (including transfer duty) is then R2 606,6 million, as against the estimated expenditure of R2 758,8 million. After making provision for the deficit on Revenue Account for 1971-’72 (R4,3 million) and the amounts required to meet the deficits on the South-West Africa Account for 1971-’72 and 1972-73 (R14,7 million and R22,4 million respectively), there is therefore a shortfall of R193,6 million.

Loan Account, 1972-’73

The printed estimates show the estimated expenditure on Loan Account as R799,9 million, which is R75,l million or 8,6 per cent less than the revised estimates for the current year. This remarkable achievement required almost heroic sacrifices by my colleagues, some of whom must have been moved to exclaim with Mark Antony in Shakespeare’s “Julius Caesar”—

No doubt they would have preferred me to say, with Antonio in “The Merchant of Venice”—

Notable reductions have been made in the Votes Water Affairs (R9,6 million) and Community Development (R11,6 million). The provision for Bantu Administration and Development has been reduced by no less than R47,7 million, but to some extent this is offset by greater provision on Revenue Account, as I explained earlier.

On the other hand, I have tried, as far as resources permit, to make adequate provision for essential infra-structure services. For the Railways Administration, for instance, an increase of R14 million has been allowed. It would also be short-sighted to cut back too much on the programme of industrial decentralization, which is so important for our future economic and social development and which is now acquiring considerable momentum; an increase of R13,5 million has been provided for this purpose.

In addition, provision is required for the repayment or amortization of foreign loans to an amount of R109,3 million, and of internal loans and sundry items amounting to R487,0 million. The latter amount includes R30 million for the repayment of the loan levy first imposed seven years ago. By law this levy must be refunded not later than 28th February, 1973, and I have decided that the date of refund (including tax-free interest at 5 per cent per annum) will be 31st January, 1973.

In order to simplify administration and to remove a source of irritation, I propose further that the levy paid by certain categories of taxpayers will also be repaid, with interest, during the 1972-’73 financial year. The categories are—

1. (a) women who marry,
2. (b) persons who leave the country permanently, and
3. (c) persons—usually those who are aged or are in ill health—whose financial position has so altered that they will not in the near future again be liable for normal tax.

In future, the last assessment issued to women who marry or to persons who leave the country permanently, will also not include the loan levy.

The additional amount required for such repayments is estimated at R1,5 million.

I have also reconsidered the position of the Land Bank, for which R15 million is provided in the printed Estimates. Because of a slight improvement in the position of the Loan Account since the Estimates were drawn up, and because I am fully aware of the vital role played by the Land Bank in our farming industry, I have decided to increase the provision to R18 million, of which R8 million is for the erection of bulk storage capacity by co-operative societies and R10 million for normal loans to farmers—the latter amount being provided at the special interest rate of 2 per cent per annum.

The total amount needed for the Loan Account is therefore R1400,7 million.

It is estimated that the following amounts will be available:

With the prospect of greater liquidity in the economy and some easing of the local capital market, I feel that we can hope to raise slightly more by the issue of local stock than the net amount of R178 million raised in the current year. I put the figure at R180 million.

Foreign loans are also at present more readily available, though I have not yet found anyone like Antonio in “The Merchant of Venice”, of whom Shylock said—

Although I do not wish to rely too heavily on external loans, I think we can reasonably budget for an amount of R180 million.

A total of R1 452,4 million is therefore available to meet the estimated requirement of R1 400,7 million. Further consideration will be given to the position after some tax changes have been announced. To complete the picture, however, I must first deal briefly with the South-West Africa Account.

South-West Africa Account, 1972-’73

Here again strict economy has been exercised and the estimated expenditure, R63,7 million is 3,5 per cent less than the revised figure for the current year. Receipts are estimated at R69 million, which is very close to the 1971-’72 level. Approximately R27,7 million will, however, have to be transferred to the South-West Africa Administration, leaving only R41,3 million available for the Account. The shortfall of R22,4 million will, as already mentioned, have to be met from Revenue Account.

Our principal problem is clearly the Revenue Account, where we face a shortfall of R193.6 million. If I were to deal with this problem on a narrow fiscal basis, then I should have to tell the House, as Mark Antony told the Roman populace in Shakespeare’s “Julius Caesar”—

I believe, however, that we must view this problem in the wider context of South Africa’s economic position. While the objective of price stability makes it impossible, in the present budgetary situation, to contemplate any substantial reduction of taxation, the need for more rapid growth makes it equally impossible to impose considerable new burdens upon the community—especially where the shortfall on our Revenue Account can be ascribed, in some measure, to fortuitous factors such as the sluggish response of company income tax receipts to increased economic activity.

We have in previous years prudently set aside a reserve in the form of the Stabilization Account, which now stands at R161,5 million. Before considering what use should be made of this nest-egg, I wish to propose some tax changes, and I shall first announce some adjustments and concessions which have become necessary.

In this connection I should mention that the Government has appointed a Standing Commission of Inquiry into Taxation Policy, on which the private sector is represented. The Commission’s task is to keep the tax system under constant review and to advise the Government on desirable changes and adaptations. Some of the changes which I shall introduce today arise out of the recommendations of the Commission.

Dividends on Building Society Shares

The first change was, in fact, announced last August, namely the concession whereby dividends on building society shares will in future be treated for tax purposes as company dividends, so that only a portion of these dividends, varying with income, is subject to income tax. This concession will cost approximately R5 million per annum and has already been allowed for in my estimates of revenue.

Stamp Duty. Transfers of Marketable Securities

A stamp duty of 1 per cent is at present payable in respect of the registration of transfer of marketable securities where the securities are sold or disposed of otherwise than on the Stock Exchange. The Stamp Duties Act provides for an exemption where a security is transferred from a nominee to a principal or vice versa or from one nominee to another nominee. This exemption was originally intended as a concession in cases where registration of transfer was affected without a change of beneficial ownership. It has come to my attention that schemes have been worked out to circumvent, or attempt to circumvent the underlying intention of the exemption and, by the use of nominees, to transfer the ownership in securities without the necessity for a registration of transfer. A number of schemes of this nature, involving the avoidance of considerable amounts of stamp duty, have come to the attention of the Secretary for Inland Revenue. A bill will be introduced to state more clearly the circumstances in which the exemption will apply and to impose stamp duty in cases where the registration of transfer of securities is avoided by the use of nominees. It is not the intention to interfere with the normal operations of stockbrokers and banks who make use of nominee companies for the convenience of clients, without avoidance of duty.

It is proposed to exempt from stamp duty the registration of transfer of securities where transfers are effected in order to give effect to arbitrage transactions put through on the local market and the stock market of a foreign country. Such transactions are already exempt from marketable securities tax and the proposed stamp duty exemption will make the local market more attractive to arbitrageurs and so result in a greater flow of foreign exchange to this country. The exemption in respect of arbitrage will apply to registrations effected in respect of transactions concluded after today.

The proposed amendments to the Stamp Duties Act in regard to nominees are of a somewhat technical nature and will come into operation on a date still to be fixed. It is estimated that there will be an overall increase in stamp duty collections of about R0,5 million per annum.

Single Premium Insurance Policies

It has come to my notice that during 1969 insurance companies commenced marketing certain single premium insurance policies on such terms that they are in effect no more than ordinary fixed deposits. The generous provisions contained in the Income Tax Act in respect of traditional insurance policies are being exploited by means of these so called insurance policies, in order to grant tax-free benefits to a small group of wealthy taxpayers. Lately the movement has gained momentum and not only is large scale tax avoidance now taking place but funds, estimated to be in excess of R50 million, have been drained from other financial sectors, especially building societies.

Legislation will be introduced to plug the loophole in the Income Tax Act as from the current tax year. This should bring in some extra tax and should also restore balance in the financial sector. Those who wish to avoid paying tax should rather make use of the tax-free investments offered by the Government.

Investment Allowances

The present investment allowances expire on 30th June, 1973. Since it takes time to erect factory buildings and install machinery, and since it is important that fixed investment in manufacturing industry should continue to expand, the deadline will be extended for two years and the allowances will apply to machinery, plant and factory buildings brought into use up to 30th June, 1975.

Exporters’ Allowance

I have already referred to the Interim Report submitted by the Reynders Commission of Inquiry into the Export Trade. The Commission feels that much greater emphasis should be placed on export promotion, and that the opportunities created by the devaluation of the rand and the revaluation of certain other currencies make this the right time to increase the incentives to exporters, in order to enable them to entrench their positions in existing markets and to penetrate and conquer new markets. As an urgent interim measure, the Commission recommends that the exporters’ allowance be increased, that the definition of “marketing development expenditure” qualifying for the allowance be broadened, and that the scope of the scheme should be modified, e.g. to cover service establishments.

The subject is a complicated one and there are several aspects relating to the nature and scope of this tax incentive which seem to me to call for further study. I certainly agree with the urgency of promoting our export trade, however, and I therefore propose that the rate of allowance be increased as recommended by the Commission, that is, that the basic additional deduction in respect of allowable expenditure on the development of export markets be increased from 50 per cent to 75 per cent, and that this additional deduction be increased to 100 per cent where an increase in basic export turnover of 10 per cent or more is achieved. Furthermore, the basic turnover will be determined as the average of the three poorest export sales years during the preceding five years. The definition of allowable expenditure and the scope of the scheme must, however, stand over for further consideration.

I feel that the importance of this concession is not always fully understood by potential exporters. On the basis of the standard 40 per cent rate of company income tax, the concession means in effect that the State will now bear 70 per cent of allowable market development expenses, which include costs of marketing research, advertising expenses, costs of soliciting orders, participating in trade fairs, cost of providing free samples and technical information, cost of bringing prospective buyers to the Republic, tender and quotation preparation costs, and commissions or other remuneration in respect of export sales. If export turnover is increased by only 10 per cent, the State will in effect bear 80 per cent of these expenses. This should be a powerful incentive to a more aggressive selling effort in our export markets.

This concession is estimated to cost R9 million in a full year, but the loss in 1972-’73 will be negligible.

Married Women

The present allowance of R500 deductible from the earnings of a married woman tapers off after the combined income of husband and wife exceeds R8 000, so that the professional woman or the woman who can command a fairly high salary has little incentive to go out to work. This militates against our objective of higher productivity and growth, and I therefore propose that the deduction of R500 should not taper off but should remain at R500 irrespective of income. The loss of revenue in 1972-’73 is estimated at R300 000.

Sales Duty

Representations have been made to the Government that the present sales duty be replaced by a duty levied at the point of sale to the consumer or by a tax on retail turnover. The matter is complicated and is being studied by the Standing Commission of Inquiry on Taxation Policy, which is expected to report to the Government later in the year.

Meanwhile it has been found possible to make concessions in respect of certain sales duty goods. Soap and washing preparations are being exempted from the payment of sales duty. In the case of knitting machines for domestic purposes and domestic sewing machines the rate of sales duty is being reduced from 15 per cent to 10 per cent, whilst the sales duty on watches and clocks is being reduced from 30 per cent to 25 per cent.

As a result of the devaluation of the rand the prices of imported components used in the manufacture of motor vehicles have increased. These increases in prices resulted in increased values for sales duty purposes and in order to maintain the position which applied before devaluation, it was decided to increase the maximum value for sales duty purposes from R2 050 to R2 150 in respect of motor vehicles which are subject to a sales duty of 10 per cent.

These concessions will be implemented by means of a Government Notice which will be published to-morrow and will result in a loss of revenue of approximately R2,5 million.

It is trusted that importers and manufacturers will pass the benefit of these concessions on to the consumer public.

A considerable number of representations were received in respect of sales duty goods which are not only sold as such but are also used as intermediate material in the manufacture of other goods, especially where such final products are exported. This matter is being investigated by an interdepartmental committee in co-operation with representatives of commerce and industry.

Interim proposals which have been submitted include, inter alia, recommendations that certain intermediate sales duty goods in packings used mainly in industry, should be exempted from the payment of sales duty. These proposals, which have been accepted by me in principle, will not only result in the elimination of a considerable amount of administrative problems for industry but will also have the effect that manufacturers of the final products in which such sales duty goods are used as material, will be able to utilize this advantage and, it is hoped, also pass it on to the consumer. For the Republic’s export effort this concession will naturally be of great importance as it will make the South African product more competitive.

A further concession, which has also been accepted in principle, is that where sales duty goods are exported by persons other than the manufacturers, the sales duty, subject to certain conditions, may be refunded to the exporter.

The concessions mentioned will be implemented as soon as possible by means of a Government Notice.

Representations have further been received that exemption from the payment of sales duty should be granted in respect of certain goods for use in registered old age homes and schools. Provided the necessary machinery therefor can be established, the representations will be favourably considered.

The loss of revenue as a result of these concessions will depend upon when they can be implemented, but should not exceed R2 million in 1972-73.

I come now to the more important changes which I wish to propose. The problem, it will be recalled, is that we have in prospect a large deficit on Revenue Account and a surplus (though a smaller one) on Loan Account.

Quite apart from this particular set of circumstances, the Standing Commission of Inquiry into Taxation has given some thought to the question of loan levies and has come to the general conclusion that they have little justification under normal conditions. Although they are in fact a compulsory investment bearing interest at 5 per cent tax-free, they are still generally regarded as little different from a tax. Furthermore, if they are used to finance expenditure of a continuing nature (rather than large temporary increases in expenditure) then a problem must always arise when the time comes for their repayment. They also give rise to administrative problems. The general view was that the levies should be phased out.

In these circumstances it seems necessary to place more emphasis on taxation and less on the loan levies, and I propose to do this in the following way:

Company Income Tax

At present there is a loan levy of 7½ per cent on the income tax payable by companies. To convert this levy at one stroke to a tax surcharge would have too drastic an effect on company balance sheets, and I propose therefore that one-third of the present levy should be converted to a surcharge of 2½ per cent on company income tax, leaving a loan levy of 5 per cent on tax. This applies to all companies except gold and diamond mining companies, where the position will remain unchanged.

The special loan levy of 7½ per cent of the dividend receipts of companies is difficult to justify as a permanent measure and gives rise to anomalies and to administrative difficulties. I cannot afford to abolish it entirely this year, but I propose that the rate be reduced to 3 per cent.

The net result of all these changes in company taxation should be a gain of R14,5 million to the Revenue Account (through the 2½ per cent surcharge on company tax) and a loss of R26,2 million to the Loan Account (through the reduction in loan levies). In terms of cash, therefore, companies as a whole should be considerably better off than during the current year.

Income Tax on Individuals

The high marginal rates of income tax and loan levy applicable to those in the higher income brackets have caused some dissatisfaction and undoubtedly have a detrimental effect on productivity and the incentive to work. It is imperative to remove barriers to productivity as far as possible and I agree that marginal rates are too high. It would, unfortunately, involve too great a cost to reduce marginal rates to the maximum level recommended by the Franzsen Commission, but at least we can make a start in that direction.

I propose, therefore, that the loan levy on individuals be abolished completely and replaced by a 10 per cent surcharge on income tax, i.e. in addition to the present surcharge.

The result will be that the maximum marginal rate will be reduced from 78 per cent to 72 per cent. There will be small increases in the take-home pay of salary– and wage-earners who previously paid loan levy, while those who did not will not be affected.

At present taxpayers over the age of 65 and with a taxable income not exceeding R5 000 are not liable for loan levy. In order to ensure that no taxpayer will pay more in tax on a given income than he now pays in tax plus loan levy, the same exemption will apply to the new 10 per cent surcharge, except that the concession will be somewhat more generous and will apply to taxpayers over the age of sixty with incomes not exceeding R5 000.

If account is taken of the considerable amounts of loan levy which will be repaid to taxpayers on 31st January next, it is clear that, in cash terms, nearly all taxpayers should be better off than in the current year.

The net effect of these changes in individual income tax will be a gain of R46,1million to the Revenue Account and a loss of R77 million to the Loan Account.

Conclusion

The net additional revenue available for the Revenue Account from all the tax changes which I have mentioned should amount to R56,3 million, so that the shortfall on this Account is reduced from R193,6 million to R137,3 million. This can be met by a transfer of, say, R140 million from the Stabilization Account, leaving a balance of R2,7 million in the Revenue Account.

The changes in loan levy will, however, cause the receipts of the Loan Account to fall by R103,2 million, thus converting the surplus of R51,7 million in that Account into a deficit of R51,5 million. An amount of R21,5 million can be met from the Stabilization Account, and the balance by the issue of Treasury Bills.

As is customary, a summary of the public accounts on the conventional and cash basis is subjoined here in the printed version of the Budget Speech.

Conventional Basis

Revenue:

Cash Basis

Cash Basis

Financing

Mr. Speaker, the taxation proposals which I have presented are not the only, or even the most important, element in this Budget. The main features of this Budget, as I see them, may be summarized as follows :

1. (1) The relaxation of credit restrictions in order to promote production and export.
2. (2) The promotion of saving, particularly through the new home-owners saving scheme.
3. (3) The flexible application of labour policy.
4. (4) The substantial curbing of the rate of growth of State expenditure.
5. (5) The increase in social pensions.
6. (6) The increased tax incentives for exporters.
7. (7) The reduction in the sales duty on certain items.
8. (8) The improvement in the cash position of companies through the reduction in the loan levy on dividends received.
9. (9) The abolition of loan levy on individuals and consequently (a) the reduction in the maximum marginal rate payable, and (b) the increase in the take-home pay of all those persons who formerly paid loan levy.

Most of these measures should contribute directly to the attainment of one or more of the three objectives which I mentioned early in my speech, namely, the improvement of the balance of payments, the achievement of a more rapid rate of growth, and the curbing of inflation.

Basically, however, the achievement of these objectives depend not so much on the Government’s action as on the efforts of the whole community—the industrialists, the workers, the farmers, the merchants, the professional men, and, let me add, the housewives. The housewife can, by judicious buying, play a most important role in curbing inflation and keeping down the cost of living.

In the first Budget which I presented to this House five years ago, I suggested that our watchword should be “Work and save”. This is equally applicable today, for no nation ever grew rich and strong without hard work and thrift. In the circumstances of 1972, however, I think our watchword can be elaborated and broadened.

Work is of little avail unless it is wisely directed and organized so as to be as productive as possible. I have already referred to the apparent decline in productivity, i.e. in production per man-hour, in manufacturing industry during 1971. This is a disturbing trend. The Productivity Advisory Council and the National Productivity Institute of the Bureau of Standards have done and are doing very useful work in this field, but it is primarily the task of private enterprise—both employers and employees—to increase efficiency. Higher productivity benefits all concerned and is essential for our economic progress.

Thrift, on the other hand, is of little avail unless the savings are wisely invested. The State does its best to protect the investor, particularly the small saver who puts his money in banks, building societies, insurance companies or pension funds, or of course with the Government itself through the Post Office Savings Bank or National Savings Certificates. The State cannot, however, guarantee the safety of all investments, and it is a wise rule to remember that an unusually high rate of return often involves a high risk.

In present circumstances, however, productive work and judicious saving are not enough. We need also dynamic enterprise to grasp the opportunities which lie before us, to develop our rich resources—particularly our mineral resources—and to open up new markets for our products. Some South Africans have already done this with great success, and others can do the same.

The Budget has not been easy to prepare, for it has been necessary to seek a delicate balance between growth and stability. Given reasonable immunity from externally-induced shocks, I believe that the budget proposals furnish a sound basis for stable growth.

We shall not necessarily see dramatic results in a matter of months, and we should not be disappointed if our three objectives cannot all be achieved immediately. Our economy is broadly based and resilient, however, and our policy measures can be adapted from time to time as conditions demand. With work, thrift and enterprise, the ultimate attainment of our goal is assured.

Mr. Speaker, I now lay upon the Table:

1. (1) Estimates of Expenditure to be defrayed from—
   1. (a) Revenue Account [R.P. 2—’72];
   2. (b) Loan Account [R.P. 3—’72]; and
   3. (c) South-West Africa Account [R.P. 4—’72]

1. (2) Estimate of the Revenue to be received during the year ending 31st March, 1973 [R.P. 5—’72];
2. (3) Statistical Survey—Budget, 1972-’73 [W.P. B—’72];
3. (4) Comparative figures of Revenue for 1971-’72 and 1972-73; and
4. (5) Taxation proposals.

REVENUE 1971/72

R1 000

REVENUE 1972/73

(On existing basis of taxation)

R1 000

Mr. Speaker, if brevity is the soul of wit, then this is a very funny Budget. I want to congratulate the hon. the Minister on a marathon performance. I think a detailed study of the Budget is going to show a lot of words, words, words. The hon. the Minister has become something of a Jack-in-the-box. He jumps from Revenue to Loan Account and from Loan Account to Revenue as if financial figures and financial policies mean nothing. Last year we had the problem of the Loan Account, so he robbed Revenue Account to take care of Loan Account. Now he has problems with his Revenue Account, so he is robbing the Loan Account to take care of the Revenue Account. What is worse, the hon. the Minister is taking an awful gamble, because between the Minister of Finance and the Minister of Transport, we have depleted all our reserves. Our Stabilization Account is practically nil; the hon. the Minister of Transport’s Rates Equalization Fund is gone and all this is predicated on what hon. Ministers think is going to happen.

The hon. the Minister, despite the picture he gave to the contrary, added his deficit to those of the hon. the Minister of Transport and the hon. the Minister of Posts and Telegraphs. Sir, today we have completed a trilogy of the “Year of the Deficits”!—the sad story of three unwise men. These deficits were not intended by these Ministers, Mr. Speaker. In fact, they planned for exactly the opposite; they planned for surpluses. The hon. the Minister of Transport budgeted for a small deficit, it is true, of R6,9 million, but he managed to achieve a deficit of R38,9 million. The hon. the Minister of Posts and Telegraphs budgeted for a modest surplus of R2,5 million; he managed to achieve a deficit of R29,5 million. The hon. the Minister of Finance outshone his colleagues both in estimates and in deficits. He budgeted for a surplus on Revenue Account of R39,l million and he managed to achieve—I have had to work this out very quickly because I did not have the figures—a deficit of something of the order of R91,5 million. It is no good the hon. the Minister coming to us and saying: “I have taken R72,5 million of my opening balance; I have a deficit of R14,7 million on the South-West Africa account and I will end up with a deficit of R4,3 million”, and then working around with figures in the Loan Account to give an impression that he has a surplus. In fact, he has a deficit on Revenue Account of at least R90 million.

We are not surprised at these deficits; we have been expecting them, because they merely mirror the economic conditions that exist in South Africa today. They also mirror the deficit in the ability of this Cabinet to get a job done properly. The Cabinet did not realize that the economy was on a downward trend. We have warned them often enough but what effect did our warnings have? The hon. the Minister of Finance called us every name possible, Jeremiahs, Prophets of Doom, exaggerated depressionists, and many others. Now the hon. the Minister has changed his tune. Now he has suddenly discovered that this is the most difficult period our economy has ever gone through; now he is a worried man. If he had had the interests of the country at heart and if he had had the remotest idea of what has been going on over the past few years, we would not have had the position we did have during the last year or two, and he would have got down to solving some of these problems that are always with us.

The Government has now decided on a wide range of changes in many areas. I want to congratulate the hon. the Minister. It is not often that I do so, but I want to do so today because at long last he has taken the advice which has been showered upon him year after year. [Interjections.]. Mr. Speaker, I have learnt that when my hon. friends opposite laugh, it is when they are most embarrassed; let any single member on that side of the House, when he enters this debate, show me one single thing the hon. the Minister has done this afternoon, which is beneficial, and which has not been offered from this side of the House, from industry, from commerce and from every knowledgeable economist in the country. [Interjections]. Now that is a challenge. We shall wait for the answer.

The hon. the Minister has reduced the increase in his overall capital expenditure on Revenue and Loan Account to 5,9 per cent. I use his figures and not my own calculations, which differ considerably. This figure compares with a figure last year of plus or minus 20 per cent. I find this very strange indeed. After all, we have in the past demanded year after year from the hon. the Minister that he should cut his expenditure. What has his reply been? His reply, chorused by every other member of the Cabinet, was:“It is impossible to do so; you tell us where we can cut expenditure.”

You could never tell us.

We told you it could be done; you said it could not be done. This year, however, the hon. the Minister has managed to cut the increase in his expenditure from 20 per cent to 5,9 per cent. This is very interesting; the hon. the Minister is starting to do his homework at last. He is beginning to see what can be done if you really give your attention to the job you are supposed to perform.

On Revenue Account he has cut his increase in expenditure to 9 per cent. We agree with this, Sir. For years we have been saying that he must cut his expenditure. On Loan Account he has performed a minor miracle in a major disaster. He has reduced his loan expenditure by 7 per cent—the Minister makes it 8,6 per cent. We accept this, Sir, under the present circumstances, but we accept it for two reasons: The first reason is that it has always been our policy that Government expenditure must be cut. We accept it for a very important second reason because the hon. the Minister has learnt a very important lesson the hard way. If you look at the Loan Estimates, you will find that there are two major cutbacks which have resulted in the R60 million cut which the Minister has achieved. One is an amount of R23 million in respect of miscellaneous services—I do not know what they are, because we do not have the details—and the other is a cut in the grant-in-aid to the Bantu Trust Fund of R47 million. The hon. the Minister says this is partially adjusted by the Revenue Account but the adjustment, as he knows, is negligible. So we have had a drop from R86 million to R38 million this year, a drop of some 55 per cent, in respect of the grant to the South African Bantu Trust Account.

Are you not going to leave some of your speech for next time?

No, there is plenty more. Sir, I can understand the hon. the Minister’s agitation. [Interjections.] The hon. the Minister has at last learnt one of the economic lessons of life, that you can dream whatever dreams you like and you can base your policies on idealistic philosophies; but you cannot bend the economy to suit your own purposes. And so he has had to cut back sharply on his contributions to the homelands. Soon he is going to take the next step: He is going to ask for White capital in the homelands without this nonsense of an agency basis; I call it short-term investment. If this huge drop in the contribution to the South African Bantu Trust means anything, Sir—it is 5 per cent of the entire Vote—it should mean this to the hon. the Minister, that it is the industrial strength and the prosperity of our industries in the metropolitan areas on which the future policies of any Government have got to be based if they are to have any chance of success, and that our basic task is to see that we have expansion and prosperity and progress in the metropolitan areas as fast as we can, and that any Government that does not accept this principle, is doomed to failure.

Mr.Speaker, there is much in this Budget that requires examination. But I still do not believe that we have had the blueprint from the hon. the Minister that we hoped for, because once again we have had no clarity on the question of labour. The hon. the Minister’s own words are so vague and embarrassing that they are really meaningless, and there is a much more important problem. Mr. Speaker: For whom does the hon. the Minister speak? Does he speak for himself; does he speak for half his Cabinet, or does he speak for his whole Cabinet? You will remember what happened last year, Sir. The hon. the Minister last year dealt with certain aspects of the Government’s policy, particularly in the relation to the expansion of industries in the metropolitan areas, and he held out hope for the urban industries. But what happened? The hon. the Minister of Social Welfare repudiated the hon. the Minister of Finance before his words were cold, and he was immediately joined by the hon. the Minister of Labour, and what he said in the Other Place a day or two ago does not give us any confidence in what the Minister of Finance said today. And, Sir, what did the hon. the Prime Minister do? He confused the issue further by sitting on the fence and saying nothing. If we are going to see the new policies which the hon. the Minister enunciated today, really being put into effect, we have got to know that the Cabinet is speaking with one voice. I want to let the matter rest here.

Yes, we want to get away.

I want the hon. the Minister of Sport and Recreation to wait in anticipation to hear what I am going to say to him on Monday the 10th. I would also like to get away if I were in his boots. Sir, the hon. the Minister in his unfinished symphony mentioned many changes. The prime change that we still require after listening to the speech of the hon. the Minister this afternoon is a change in Government, and I give him Claudius, King of Denmark, from Hamlet—

Mr. Speaker, although the hon. the Minister has mentioned many so-called concessions to many people, there is another quotation from Hamlet which might be appropriate—

Therefore, Sir, I move—

Agreed to.