Mr. Speaker, when the House adjourned yesterday, I had raised a number of specific items and asked the hon. the Minister to indicate whether he preferred to debate the Transkei issue now or under the other legislation which is pending. We had no response to that, and therefore I should like to raise certain pertinent points now which relate to this legislation. In the first place, nothing is said in this legislation or in the pending legislation about the national debt. Is it intended that any portion of the national debt is to be transferred to the Transkei together with the assets which are being transferred, or is it the intention of the Government that the assets are to be transferred and that no portion of the debt which is represented by that should be taken over by the Transkei? This becomes pertinent, because clause 8(3) of this Bill deals with the reduction of the loan indebtedness of the Administration of the Cape to the Treasury. The question that needs to be asked, is: How is the loan indebtedness being dealt with in so far as the national debt of the country is concerned, and what are the proposals in regard to this matter? While the hon. the Minister is dealing with that, may I also ask him specifically to explain why it is necessary to provide, in clause 8(3) of this Bill, for the reduction of the loan indebtedness in so far as the Cape is concerned, and to have the identical provision in clause 4 of the Bill which is stil pending, in respect of the financial relations with the Transkei? The same power appears to be given twice in virtually identical terms.

In the one case it pertains to the Administration only, and in the other case it deals with the Administration, the Post Office and the Railways and Harbours. It seems strange that this has to be done in two separate measures.

Secondly, I think it is necessary for us to be told what precisely is being transferred in the way of assets. We have the term used in a general way, but in no way are we told what precisely is being transferred to the State which is to become independent. I should like to ask the hon. the Minister to deal with this particular matter.

There are two further matters I should like to touch on. The first relates to clause 20, which provides for an increase in the excise duty on petrol, kerosene and other substances. I should like to make our attitude in this regard clear. We do not believe that this levy should be increased. We do not believe that this additional burden should be imposed upon the public. Although we can see the necessity of providing money for roads, we believe that there is a time for everything, and we feel that the increase of this levy is a burden which will cause inflation. The extra State expenditure at this moment in time is again inflationary, and it appears that clause 20 will give further impetus to inflation in South Africa.

The last point I want to make relates to the Special Defence Fund. The power which is being given in this regard virtually means that this money can be spent without due account to Parliament. I think that this will place a tremendous responsibility on those who are responsible for administering these funds, and while one recognizes the need for secrecy in so far as defence expenditure is concerned, I believe, together with other hon. members, that there is little doubt that there is a case for a parliamentary committee to sit in on these matters. The case for a parliamentary committee to deal with defence matters in general, and defence expenditure in particular, is one which we certainly support.

Mr. Speaker, as mentioned by the hon. members for Constantia and Yeoville, clause 14 of the Bill introduces a new principle in our tax structure, namely discrimination in the method of taxing employees of the private sector as against employees of the public sector, because it seeks to exempt employees of the public sector from paying tax on housing benefits. By inference, this makes employees of the private sector liable for tax on these benefits. The hon. the Minister, in introducing this Bill, argued that this measure was not a tax measure as such, but rather an administrative measure, thereby giving the impression that a new benefit was going to be extended to a certain classification of employees, a classification which, for all practical purposes, is the public sector. This is misleading, because at present employees of both the public sector and the private sector already enjoy the tax advantages of various housing schemes. Although these tax advantages are not strictly allowable in terms of our tax laws, they have been allowed by custom which has developed over the years. The fact that the Government is now introducing this legislation raises certain questions. The first question I should like to put to the hon. the Minister is this: Does this legislation mean that the Receiver is reconsidering his attitude to schemes of this nature and that the Government is therefore seeking to protect employees of the public sector from the increased tax liability that this will bring about? If the answer is yes, then the real meaning of this legislation is not to grant a new benefit to employees in the Public Service, but to deprive employees of the private sector of an existing benefit. It is then not a measure to make employment in the Public Service more desirable than it is at present, but a measure to make employment in the private sector less desirable than it is at present.

Strictly, in terms of our tax laws, the benefit in respect of a housing loan at the rate of 2½% granted by an employer in favour of his employee is taxable in the hands of the employee as to the difference between the rate of 2½% and the ordinary commercial borrowing rate as it exists from time to time. In the past the Receiver of Revenue has always been generous in his interpretation of what is to be allowed and in fact he has accepted 2½% as a fair commercial rate for transactions of this nature. Housing benefits of this nature are not a major factor in the remuneration of the upper income groups, but they are of great importance to the great majority of middle- and lower-income groups. They are the ones who will, in relative terms, most be affected by the legislation. I should like to give an example. If you take a married man who is earning R8 000 per annum and who enjoys a housing loan from his employer of R20 000 at 2½% per annum, this man enjoys a tax-free benefit on the difference between 2½% and 12½% on R20 000, the 12½% being the present commercial borrowing rate. In other words, he enjoys a tax benefit of some R2 000 per annum. If the Receiver of Revenue should decide to tax him on, say, 60% of this benefit—in other words, on R1 200 per annum—his tax, including loan levy, would increase by 33⅓%—from R1 200 per annum to approximately R1 600 per annum.

Now, Sir, this introduces three questions to which we in this House should apply our minds. Firstly, is it right in these times of inflation and rising taxes, that the man in the street, who is battling anyway to maintain his living standards, should be asked to pay an additional 33⅓% in tax? That is the first question we have to think about. Secondly, is not housing, like pension schemes and medical aid schemes, an essential necessity which should be encouraged and not discouraged? Thirdly, should employees in the Public Service be taxed on a different basis from employees in the private sector? We in these benches are not in favour of increasing the tax liability of many employees in the middle- or lower-income groups by as much as 33⅓%. Secondly, we are not in favour of any legislation which seeks to discourage the provision of housing by employers to employees. Thirdly, we feel that all employees should be taxed on the same basis, irrespective of who they are. For these reasons we will move in the Committee Stage an amendment to ensure that what is presently being enjoyed by way of custom by all employees will in future be entrenched by means of legislation.

Mr. Speaker, I think that quite a number of aspects of this Bill have been mentioned here in the Second Reading debate which it might have been more appropriate to raise in the Committee Stage. I shall now try to reply to just a few of the matters which has been referred to, and I shall then deal with the others in the Committee Stage. I hope hon. members will be satisfied with that.

In the first place, the hon. member for Yeoville referred under clause 1 to the Economic Co-operation Promotion Loan Fund, which now stands at R25 million, and asked whether it was necessary to add something every year. During February 1976, the balance in the fund was approximately R25 million, while loans that had been granted but not yet paid out at that date amounted to approximately R12 million. Applications to an amount exceeding the balance had already been received, but not everyone qualified. It is essential, of course, that when deserving applications are received, funds should be available. Therefore the money in the fund is not lost to the State, because the surplus amounts are invested with the Public Debt Commissioners and are either returned to the Treasury, if they are not used, or made available for the financing of other approved projects. So one could say that the fund stood at that amount, but there are considerable amounts which still have to be paid out. Consequently it is felt that under those circumstances, the fund must be fairly strong.

Now I come to clause 3 and the question of subsidiaries and the guarantees which are being provided for. Those subsidiaries are in fact wholly-owned subsidiaries. That is just a point I should like to correct.

The hon. member for Yeoville also commented on clause 4. I may just mention here briefly that SOF (Proprietary) Limited serves as one of the channels for the financing of Sasol II. It would create an unsatisfactory or one-sided impression if particulars were to be furnished to the House only in regard to appropriations from this fund for the purposes of Sasol II. In so far as it is not in conflict with the national interest, therefore—circumstances not foreseen at the moment may of course develop in the future—the Government will from time to time, on appropriate occasions such as the discussion of the Vote of the hon. the Minister of Economic Affairs, furnish full information to the House concerning the financing pattern and the extent of the Sasol II project, and this will naturally include the provision of funds by SOF (Proprietary) Limited in this connection. However, if the publication of the information, as far as SOF (Proprietary) Limited is concerned, is not in the national interest, the possibility may even be considered of informing hon. members on a confidential basis from time to time.

Now I come to clause 5 and the question of the fund established by the Delvillewood Memorial Committee. I think the hon. member for Yeoville also spoke of this. I should just like to state the standpoint of the Government. The Government has never been opposed, of course, to attempts to ensure in some way that those who laid down their lives for their country receive the honour that is their due. In this case, however, it is simply a financial measure which is being proposed, which will serve to get an investment off the books which serves no practical purpose since it does not produce a large enough return to maintain the existing monument. As the legislation indicates, the money is to be paid into the State Revenue Fund. If a case can be made out for the creation of a living monument—I think this was the hon. member’s point—the Cabinet will have to be approached as usual and the Cabinet will then definitely go into the matter. Therefore I want to ask that this clause should be agreed to as it is. However, if the hon. member feels that he would like to have further discussions on this question of a living monument, I shall be quite willing to discuss the matter with him further.

Now I come to clause 6 and the question of the Film Board. When the National Film Board was established, a loan was granted to the Film Board to enable it to erect buildings. It now appears that if the board is to pay capital redemption and interest on this loan, it can only do so by increasing its prices for the production of films. As it is, the board finds it difficult to receive orders for films from departments, for as soon as money starts running out, this is one of the first items on which departments economize. If the board increases its prices, it will receive even fewer orders. All that is being proposed is that Parliament be requested to convert the loan it has already granted to the board into a capital award, which would relieve the board of the burden of interest and capital redemption.

My hon. colleague, the Minister of Public Works, may have something to say about clause 10 during the Committee Stage. Consequently I shall leave that matter at that.

The hon. member for Randburg has just expressed his opinion on clause 14.

†The hon. members for Constantia and Yeoville also referred to this clause. The questions was posed that this clause does not really concern a tax matter, but more particularly the recruitment of staff. I think it does more particularly concern the recruitment of staff. After all, this is where the Treasury, in a general sense, is involved. We are trying very hard and have been trying for some time to create more favourable conditions for recruiting staff for the Public Service and for retaining staff once we have recruited them. It is a very difficult matter indeed, as hon. members will know, when the Public Service has to compete with private enterprise and finds it very difficult to obtain the requisite qualities of personnel and, once having obtained them, to retain their services. As long ago as 1969 the Cabinet took a decision to grant certain tax concessions in regard to housing benefits for certain categories of staff. This has been a reasonably successful method of achieving the aim to which I have just referred. The alternative is that we must continue to raise salaries. As it is, we find that we have to raise salaries from time to time in the normal sense. Here is one method which the State can adopt. One can say that this method is distinctive to the State because the State has the authority to make such a tax concession. It seems to us that it is not something disruptive and we do not see it as discrimination. I agree that it is a differentiation—there is a difference in approach—but it is for a very specific purpose. In fact, it is not anything like as broad in its application as I think the hon. member for Constantia suggested. I want to draw the hon. member’s attention to clause 14(1)(d)(ii). If he looks at that clause in conjunction with clause 14(1)(d)(i) he will see that it is not as wide as he was perhaps under the impression it was. Subsection (1)(d) provides—

1. (i) the receipts and accruals of which are in terms of any Act of Parliament exempt from the normal tax imposed by the Income Tax Act, 1962; and
2. (ii) the operations or activities of which are proved to the satisfaction of the Secretary to the Treasury …

I think that must be noted.

You may be sure, Sir, that the Treasury looks at these things very carefully. Within the ambit of the clause, this matter is not as wide ranging as might be thought. We believe that this is an important clause. We believe that it is a good thing for the State to use the little power it has in this respect to assist in the all-important task of recruiting and retaining staff of the requisite quality.

Mr. Speaker, may I ask the hon. the Minister whether I am correct in taking him to mean that, in giving this concession by statute to public servants and others, it is now the intention to tax in the private sector those who receive loans at lower rates of interest and those who are housed at rentals that are not economic but lower than that?

There is a differentiation. If the hon. member does not mind, I should prefer to reply to that more specifically in the Committee Stage. I should like to get the full facts on that point before I reply.

I want to be brief, but at the same time I do want to take this opportunity to reply to just some of the points raised. The last point I should like to refer to concerns the rand note about which quite a lot was said. Sir, there are 75 million R1 notes in circulation and they last, on average, just over three months. The point was raised whether, in view of the rapid depreciation of quality of the notes, we should not use more expensive paper. In fact, we use very expensive imported paper, but it is our experience that we are constantly having to print and issue millions and millions of rand notes. The cost of the material involved and also the printing costs generally are very high and they are rising. I can assure the House that this has simply become an economic necessity. We have no doubt that the nickel coin which will replace this piece of paper will last about 20 years which will mean an enormous economy of cost.

It has been said that this will have an inflationary effect. I must say that for the life of me I cannot see that. It is the first time I have heard that doing away with paper money is inflationary. I always thought it was the other way around.

Have a good time!

The hon. member probably thinks I am dealing with this in a somewhat unorthodox manner. The fact remains that paper money is to be taken out of circulation which, in itself, is not a bad thing. A coin is being put in its place. The fact is that this coin will not be such a heavy coin at all. Nickel coins are surprisingly light. The R1 coin will not be all that much bigger than the 50c piece. I think that this change might have a very salutary effect because, while one can so easily put one’s hand in one’s pocket and take out 25 R1 notes or whatever one has … [Interjections.]

We are not Ministers.

I never have anything on me at all. I usually get caught out. I am the worst in this respect because I very seldom have more than a few cents on me. The fact is that if one has to carry that amount in coins, perhaps one will not put quite so much in one’s pocket and therefore one will not spend quite so much. However, in more serious vein, I can assure hon. members that this decision was taken very carefully. We believe that this step is going to save a great deal of money, even within the span of a year, because we have to issue new R1 notes at least three or four times a year and we have to do so on a very big scale—75 million over a period of time. Therefore I would ask the House to bear our problem in mind. Let us see how this works. I believe it will probably work very well.

There are a few other points that have been raised. Reference has also been made to a number of amendments that will be introduced in the Committee Stage. Perhaps hon. members will allow me to leave these matters there as far as the Second Reading is concerned.

Question agreed to.

Bill read a Second Time.

Committee Stage

Clause 1:

Mr. Chairman, I want to come back to the reply which the hon. the Minister gave me in the Second Reading. One of the things he said, on the face of it, impressed me in the sense that he stated that any surplus money would go back into the Exchequer Account. If that was correct, I would be quite happy to agree to have surplus money voted, even though, in the normal course it would result in extracting extra taxation. My difficulty is that it does not happen. If the hon. the Minister would look at the report of the Controller and Auditor-General—part III, page 446—he would see that the amount is kept in this account. It does not go back to the Exchequer. It is true that it is invested with the Public Debt Commissioner, but it does not go back to the Exchequer. What we are really doing here, is, firstly, to overtax by providing extra money which we do not need, and, secondly, we are keeping that money frozen in this account until such time as we need it. It does not go back into the Exchequer Account.

Mr. Chairman, according to my information this money does go back to the State Revenue Account. However, I shall go further into it in order to enable me to inform the hon. member on that. We shall look into this again, very carefully in the light of the points made, but I would like to say that we want to keep this as a reasonably strong fund. Because it is an important strategic fund, we believe that the use this is put to, is serving a very valuable purpose. I am sure the hon. member will agree. He would have some idea of what we do with that money. If we are in fact reaching a point now, where perhaps we can stabilize the amount, I shall look into that too, and we shall act accordingly. I hope the hon. member is now satisfied.

Mr. Chairman, if the hon. the Minister believes it should go back into the Exchequer Account—he says it does not, in terms of the law—is it now apparent from the Controller and Auditor-General’s report? If he will, in due course, amend the law, I shall be quite happy if that money does go back into the Exchequer Account.

Clause agreed to.

Clause 3:

Mr. Chairman, the hon. the Minister said, in his reply during the Second Reading, that this was intended to apply to wholly-owned subsidiaries, and I think he also said that he would be prepared to provide accordingly. If that is so, I would like to move the following two amendments—

1. (1) On page 5, in line 32, after the second “a” to insert “wholly owned”;
2. (2) on page 5, in line 39, after “such” to insert “wholly owned”.

Mr. Chairman, my problem is that at the moment the subsidiary companies are wholly-owned subsidiaries. However, one cannot foresee that the situation may never arise in which there might be a small holding from some other quarter. It might be very much in our own interest. I would not like to rule out that possibility, but I want the hon. member to give me time to look into the implications more carefully. If necessary, I should like to have a word with him. I can take the matter further in the Other Place, but I would not like to commit myself, because it might be found that we are perhaps unduly restricting ourselves for the future, whereas at the moment, it is undoubtedly a wholly-owned subsidiary that is involved. I hope that is a reasonable answer.

Mr. Chairman, I do not want to pressurize anybody into doing something quickly. I understood the hon. the Minister to say that the matter would be “put right”—I think those were the words he used. That is why I moved the amendment. I thought the hon. the Minister had conveyed to me that the matter would be put right or that it could be put right. I think those were the words the hon. the Minister used.

No, I meant that I would give an explanation and that I wanted to put the facts straight.

Perhaps I misunderstood the hon. the Minister. If it is, however, intended to give guarantees for companies that are not wholly owned, then we on these benches are against the measure. If the hon. the Minister will not accept the amendment now, I hope that he will consider it before it goes to the Other Place. In these circumstances I am quite happy to withdraw the amendments.

Amendments, with leave, withdrawn. Clause 4:

Mr. Chairman, this clause permits the hon. the Minister of Economic Affairs, in consultation with the hon. the Minister of Finance to guarantee foreign loans made to Sasol or to SOF (Pty.) Ltd. There does not appear to be any limit to the guarantee that may be made in this respect. I would like to ask the hon. the Minister what the policy of the Government is in regard to this placing of limits on guarantees which they give in respect of loans to public corporations. It appears that there is a very large degree of inconsistency in this policy. In clause 3 we dealt with guarantees to subsidiaries of Armscor where a total limit of R100 million has been placed on the aggregate guarantees which may be made to such subsidiaries. When it comes to Armscor itself there is no limit to the guarantee that may be made. When it comes to Iscor there is likewise no limit, but when it comes to the IDC there is a limit of R200 million. It would appear to be desirable to have standard practice and to have a limit in respect of all guarantees given by the Government.

Mr. Chairman, I think the hon. member has raised a valid point. I think that one will eventually have to determine what the total foreign obligations of the State and the corporations are, and then calculate the guarantees as part of those obligations. I think, however, that my colleague did indicate in previous budget debates that the whole question of foreign loans and the priorities in respect of them was a matter to which his department as well as mine was giving very serious consideration. The remarks of the hon. member can therefore be kept in mind.

Clause agreed to.

Clause 5:

Mr. Chairman, I rise to speak on this clause because it is a clause which has some reference to the military history of our country. Although the hon. the Minister did not refer to it in his Second Reading speech, quite obviously it is one of those matters which can be dealt with in the Committee Stage. This clause should not pass without at least some comment in the Committee Stage, and I wish to quote from the White Paper which we have on this matter, for the purposes of the record, as to the purpose of this particular provision in the Bill before us. I quote—

It is interesting to realize that although there are very few survivors these days of that epic battle in the history of the armed forces of South Africa, the memorial which stands in that part of France which is South Africa, at Longueval, has a replica in the Cape Town Gardens. In fact, there is a miniature replica in the Gallery Hall of the building in which this House sits. People who have visited Longueval in recent years have made mention of the tremendous impression they received when visiting that particular memorial at Delville Wood. One of the people who recently was there on a battlefield pilgrimage—unfortunately I have not had the pleasure of visiting it myself—has told me that what was interesting was that the schoolchildren at Longueval accept as a responsibility the care of this particular memorial garden. They place flowers on it and look after it throughout the year. On the occasion of the Delville Wood service which is held, those children from the local school sing the South African anthem, Die Stem, in Afrikaans. It is a tradition in this school that the children learn to sing our anthem in Afrikaans. That is done regularly each year at the memorial on Delville Wood Day. It is also interesting to know that the present prefect of the area is a Black man originally from Algeria. He is a man who shows the greatest courtesy to visitors from South Africa, and I think he does a great deal to cement relations between our two countries. I also want to mention our indebtedness to those people who are concerned with the preservation of historical relics, such as the Delville Wood memorial, the memorial at Castiglione in Italy and the El Alamein memorial. We are greatly indebted to the Public Works Department for their continued interest in the maintenance of these memorials. It is very much appreciated by all those concerned with the military history of this country. I believe the provision in this clause is a reasonable and proper one, namely that the funds should be dealt with as suggested in the Bill. I rise merely to record this history and our appreciation of the work not only of the people of Longueval, but also of those in the Public Works Department.

Mr. Chairman, I merely want to respond to what the hon. the Minister said about this during his Second Reading speech, namely that any proposal in respect of living memorials would in fact be considered on their merits. I think that is welcome, and I believe that the name Delville Wood should remain enshrined in South Africa’s history. I do not believe that it is a contentious issue in the history of South Africa at all. It is that kind of name that it is desirable, perhaps more than any other, to commemorate. When we talk about living memorials, it is quite obvious that we will unfortunately have to deal with such things as rehabilitation centres. I should like to commend to the hon. the Minister that the particular amount of money which is now being drawn back into the Revenue Fund should come out again for the benefit of what perhaps might be called a Delville Wood rehabilitation centre for servicemen or ex-servicemen.

Mr. Chairman, I want to thank the hon. member for Yeoville for his proposal, which we shall certainly look into. I should also like to express the appreciation of the House for the remarks that were made by the hon. member for Green Point.

Clause agreed to.

Clause 6:

Mr. Chairman, in this clause we are being requested to write off a loan of R3 344 000. It is a loan to the National Film Board which is to be written off. The reason which is given in the memorandum, is that the National Film Board is experiencing financial difficulties at the moment. During the Second Reading the hon. the Minister said a further reason was that if the Film Board could get more work from other departments, it would be in a healthier position financially. I am of the opinion, however, that there is an obligation on the hon. the Minister of National Education to inquire into this matter and to establish why this body finds itself in a financial predicament. This has not always been the case. In 1968-’69 it had an operating profit of R118 000. The next year there was an operating profit of R119 000, followed by a further profit of more than R95 000. It is only during the past three or four years, from 1972-’73, that there has been any question of a loss. In 1972-’73 it had an operating loss of R60 000. The next year it was R158 000 and last year, R½ million.

The hon. the Minister of Finance created the impression that the National Film Board was getting too little work from other Government departments. If one has regard to the fact that the function of the Film Board is to render photographic and film services to other Government departments, it seems to me as though the actual fault is to be found in the fact that it does not receive adequate remuneration from the Government departments to which it renders services. It does not receive a realistic remuneration. Furthermore if one has regard to the fact that here one is dealing with a body of which officials such as the Secretary for Information and the Secretary for Tourism are members ex officio, it is indeed a pity for this state of affairs to have arisen. I see the hon. the Minister of National Education is in the House, and I trust that he will be able to explain the position.

Mr. Chairman, the hon. the Minister of Finance dealt in part with the matter I now want to deal with in his reply to the Second Reading debate. The difficulty I have with his reply, however, is that the writing off only applies to part of the loan and not the whole of the loan. In the second place, the writing off of the loan does not solve the financial problem of the National Film Board at all. The deficit, as it appears in the 1975 accounts, is far larger than the amount of interest involved, and the amount of capital repaid during that particular year was only R43 000. The problem is therefore not solved by this at all. That is why one cannot understand why this is being done, because it seems to be fairly clear that the matter has not been gone into fully. The explanation the hon. the Minister gave was that the Film Board was rendering service to other State departments and that if they were going to increase the prices they would not be able to render the services as this was the first thing they would cut down on.

The answer is a very simple one. If the Film Board renders a service to, for example the Department of Information, and if the Department of Information has to be subsidized in respect of that film, that subsidy must come from the Department of Information and not from the Film Board; otherwise we will not really know what the finances of the Department of Information are. The Department of Information should deal with the Film Board on a proper and on an arm’s-length basis as is done between Government departments so that each one pays its way. It seems illogical to say that other departments are actually subsidized and that, therefore, this tremendous amount of capital has to be written off.

There is another matter which I raised and to which I received no answer. On the face of the accounts, the Film Board is solvent and not insolvent. It has assets which can cover this amount. All that is happening is that a set of accounts is being produced in terms of which the Film Board will have a very substantial surplus of assets over liabilities and is relieved of its interest burdens without really solving the financial problems of the Film Board. What needs to be done is that the problems of the board be solved, which is not achieved by this action.

Mr. Chairman, I just want to reply in brief to certain statements and requests which were made here. In the first place I want to point out that a very thorough and careful investigation was conducted into the matter before it was decided to deal with the matter in this way.

†I wish to point out to the hon. member for Yeoville that in the first place the board has never, except for the film institute, received a subsidy nor is it the intention to subsidize the board. I feel that it is a very important fact to realize that right from the beginning. It will be a retrogressive step, I believe, if it should be decided now to subsidize the National Film Board. This is not called for, nor is it the intention to do so.

Is this not a subsidy?

I shall come to that.

*But some of the questions which the hon. member for Yeoville and the hon. member for Durban Central put here are indeed fair questions. In the first place I want to point out that the Film Board, in the first instance, is providing work to the various Government departments. In a condition of inflation, as we have at the moment, it is to be expected—and this is what has happened—that the various departments would cut down on their orders to the Film Board, with the result that the Film Board is getting less work to do and therefore has less income at its disposal. Now I just want to point out to hon. members that the total turnover for the year 1974-’75 was R714 428 less than what had been budgeted for. It was almost R¾ million less than what had been budgeted for. The two most important reasons for that smaller turnover were, firstly, the continually overcast weather at the time. This made outdoor filming impossible, while the studio space was not yet completed either, and the indoor filming therefore also caused major problems. Later on, of course, when the building was completed, things improved in that respect. A considerable increase was experienced in the cost level, inter alia, the general salary increases during 1974 and the price increase in respect of supplies as a result of inflation. The new building complex resulted in a major increase in running expenses in respect of municipal services—as hon. members will understand—such as air-conditioning and transport costs. But in spite of the abovementioned price increases, the general tariffs for services during the past years were not increased in order to keep pace with these circumstances. Price adjustments in order to compete with inflation could in fact have eliminated the cash shortage but problems were experienced which resulted in this not being done. For example, the private sector complained increasingly that the Film Board was now competing with the private sector. They had justifiable objections and therefore after thorough investigation, attention had to be given to the issue of whether the prices should be adjusted or increased. It was then decided that this would not be done, but that they should strive to reduce the prices because further increases in the price level of our services would eventually lead to greater problems. In the first place, it would have resulted in an increase in the pressure on the board to give out work. This was a real danger which the hon. member must not lose sight of. Secondly, the prices were already too high for a large number of potential services. Still higher prices would therefore result in lower turnover, lower utilization of facilities and lower profitability. A third very important factor was the advent of television, the various forms of television presentations—closed circuit, video-tape and public transmissions—which would in various ways, enter the fields previously served by films. Furthermore, this is what happened. It had an inevitable influence on the cost structure of the film production. In connection with the work done in respect of microfilm services, the expenses are ahead of the eventual income by several months. Naturally, this places the Film Board in a very troublesome and difficult position because in the nature of the matter this demands more operating capital. And now hon. members must remember that the only source of income to the National Film Board is the work done for Government bodies. This is the only source of income. If hon. members understand this, they, too, will understand that, since departments have been told to save—on the insistence of the Opposition, too—one of the first fields in which they will save and will have to cut down are those services which may be dropped, and here the film service and the microfilm service immediately come into the picture. This is accompanied by a resultant drop in income. To summarize, therefore, what this amounts to is that when the Government departments make cuts, the National Film Board is the first to suffer. The result is that the Film Board is so hard hit by this that it cannot pay its interest on its loans. These are the facts of the matter. As a result, the Treasury, once all the facts had been laid before it, wrote as follows—

What is now being suggested, is fully supported by the Treasury and hon. members know how careful the Treasury is about spending money. Parliament is now being asked to convert the loan which it granted the board into a capital grant. This will decrease the burden of interest and the capital redemption burden on the board. This is more or less the background. I have many more facts here in connection with the functions of the board and investigations carried out. However, hon. members can take my word for it that we looked into these matters very thoroughly.

I also want to reply to another aspect raised by the hon. member for Yeoville.

†Due to the shortage of income the board could thus far mainly attend to the production of films for the State and the maintenance of the Film Institute. In order to administer its objects, the first thing to which the board gave attention was the erection of this building with the necessary equipment. Therefore this loan of R3,344 million was granted. In addition to this, a further loan of R1 918 750 was granted to the board for equipment. This amounts to a total of over R5 million. Thus far only small capital redemptions were made in respect of these loans while the board could hardly defray the interest of these two loans. The reason is solely that the board could not earn enough revenue, for the reasons which I have explained. The hon. member also referred to the revenue and expenditure account. In this connection I would like to state that according to the revenue and expenditure account for the year ended 31 March 1974, the excess of expenditure over income was R158 453. That has gone up to R576 171 in 1975. The expected deficit on 31 March 1976 is almost R1 million; R908 000 including interest of R320 000. The hon. member must remember that I only became Minister of National Education in February this year. When one is dealing with a situation where the deficit crept up from R158 000 in 1974 to R576 000 in 1975 and now to almost R1 million, then one has no option but to approach the Treasury in this connection as my predecessor has done, of course only after very careful investigation.

Lastly, there is a possibility, due to microfilms and the interest shown in microfilms—also, the general financial situation will certainly not remain as it is now—that this board, if we write this loan off, would move into a better financial position. That is in any event what we will be working towards as best as we possibly can.

I must point out to hon. members that I allowed the hon. the Minister a fairly wide discussion, inter alia, to discuss aspects of policy as well. In fact this was out of order, but I allowed it merely for the convenience of the hon. member for Yeoville and the hon. member for Durban Central. I am aware of the fact that when we are dealing with a measure of this nature, it is difficult for hon. members to confine themselves to the clauses during the Committee Stage, but I do want to ask hon. members to state their case very briefly.

Mr. Chairman, there is just this one point about which I should like to have more certainty. Does the hon. the Minister accept that this Film Board provides services to other Government departments at the moment? The issue here is not one of subsidies, etc. The point is that if they receive a realistic remuneration from those Government departments, there is hope for the future. The whole description which the hon. the Minister gave us, however, simply means that there is going to be a bigger increase once again next year, and the Film Board will eventually go bankrupt. Since this is the case, why is the staff continually being increased? I assume that every member of the staff has less work to do as a result. Therefore, there is something wrong.

Mr. Chairman, interest amounting to R302 000 must, of course, be deducted. Naturally, there is also the possibility that the economic position in the country could improve and that of the income from microfilms, too, could improve in the future. Taking these factors into consideration, it is possible that this board will be put in a position to stand on its own two feet soon and to be in a better financial position. This is what we are trying to do, and we ask for the hon. member’s co-operation in order to do so.

Mr. Chairman, I regret to say that I think the hon. the Minister has made the situation worse, and let me say that it is a very simple situation. I think, however, that this situation is on the verge of giving rise to a scandal. In 1974 there was a loss of R158 000. In 1975 the loss was R576 000, and we are now told that the loss is going to be R1 million. However, his only answer to this situation is to write off the capital. However, that is absolute nonsense! If one looks at the accounts, one sees that the reason for this position is a very simple one. The interest is only R311 000, so even if one takes off the whole of that interest from the amount of R1 million, there is still a deficit of R700 000 which is bigger than the deficit for 1975 which is the last figure that I have, and what is remarkable is that one is not even writing off the whole of the loan; one is then only writing off some of the loan. In 1975 the deficit was R576 000. One is consequently not solving the problem. In the accounts it is alleged that although the volume of business has decreased, salaries, wages and allowances have gone up by almost 50%. That is not an increase in salaries. That is an increase in staff. What we therefore have here is a situation where a smaller volume of work is being done by more personnel with greater concomitant losses. There is another significant factor, however, and I want to ask the hon. the Minister to agree to this now. This matter has never been investigated by the Sessional Committee on Public Accounts, for example. Should this matter not go to the Sessional Committee on Public Accounts for investigation before we write off a sum of money of almost R3½ million?

That is a policy matter.

It may be policy to write it off, but the question is whether there is not something wrong in a policy which simply writes such a sum of money off. Should such an amount simply be written off? I would like to appeal to the hon. the Minister—because I think he is forcing us to vote against this clause—not to proceed with this matter, but to agree that it be referred to the Sessional Committee on Public Accounts for investigation so that the matter can be put right on a long-term basis. The hon. the Minister cannot say he has only become the responsible Minister in February. I think he has a scandal on his hands and consequently he must watch this matter very carefully indeed.

Mr. Chairman, I just want to reply to the point which the hon. member for Yeoville made. He asked that this matter be referred to the Select Committee on Public Accounts. I think it would be irregular and unfitting to refer this matter to that committee, because it is not the task of that committee to formulate policy or aspects of policy. However, what is envisaged with this legislation is solely the formulation of proposed policy. For this reason, therefore, it would in my opinion be entirely inappropriate to refer this matter to the Select Committee.

Mr. Chairman, what we are dealing with here is a matter of essential budgeting policy and discipline. We have a service here which is providing to other Government departments on a sub-economic basis a certain set of facilities. If these services are run on behalf of other departments on a basis that leads to a loss in these services and the National Film Board then comes to Parliament—to get the losses written off—losses in whatever respect, be it capital, costs or whatever—it is in fact being subsidized by Parliament to run a sub-economic service on behalf of other departments. This is basically what we are dealing with here.

Is this good budgeting policy? After all, other departments come to this Parliament. They state their anticipated expenditure over the year, they budget accordingly and Parliament then votes moneys to them. These amounts are calculated on an economic basis. If other departments can go to special subsidized sub-economic Government services and buy their services from those subsidized sub-departments, then we defeat the entire object of budgetary control. It means that any department can budget for a certain amount, it can spend a certain amount and it can in addition obtain subsidized services from another Government department which enable it to exceed the expenditure. That excess in expenditure then gets passed off to the National Film Board, for example, and that over-expenditure is then covered by a special amount voted by Parliament. This is a very undisciplined way of budgeting and a very undisciplined fashion of control of Government departments. I feel it is fundamentally unsound.

Let us suppose that this principle is extended more widely. Let us suppose that there is a range of services like the National Film Board, and that all departments can draw for their transport, their films, their staff requirements or whatever it is on a specially subsidized sub-economic series of services. Having drawn on those services and having spent the money allocated by Parliament, the hidden over-expenditure will then be passed to the books of that sub-economic service which will then, in the last resort, come back to Parliament to ask for its expenditure to be covered. This will simply mean that all departments are over-spending beyond the amounts allocated to them by Parliament, and that that over-expenditure is then put right by Parliament by simply passing a special Bill making good the amount overspent. This is not control, this is not discipline; this means budgeting gone mad. I believe there is fundamental unsoundness about this principle which needs to be looked at very seriously.

Mr. Chairman, I really do not think it is necessary for us to debate this matter as if it is an incorrect budgeting method which is being applied. The matter is by no means so involved. The fact is simply that the National Film Board provides a service to South Africa and the various departments. When the National Film Board needed buildings, the Government granted the board a loan so that the buildings could be erected. The board has a heavy burden of interest as a result of the loan. In the meantime, the whole economic situation in South Africa became difficult and other circumstances, which I stated very clearly a moment ago, for the benefit of the hon. member for Durban Central, came to the fore.

We are faced with the situation in which we must make a choice. On the one hand we could have decided to subsidize the National Film Board, but if we were to do this, we would be setting out on a path leading to a budgeting policy which could have far-reaching results far into the future. On the other hand we could decide to take the steps upon which we agreed with the Treasury. We decided to afford relief where relief was necessary. We are therefore relieving them of the burden of interest. It must also be borne in mind that the microfilm technique is still a young one. At the same time it is something which has possibilities for the future. The National Film Board has the expertise to make microfilms available and this may be of great value for South Africa in various spheres. We should like the National Film Board to remain an autonomous body. In any event, the National Film Board did not request subsidization. With a view to all these factors, I think that the procedure as laid down in the Bill constitutes a very sensible policy because in this way we can help to afford relief where necessary. Furthermore, we expect that in time microfilms will bring in more income for the board, which will place the board on an autonomous footing. We do not, therefore, want to adopt the approach that we have to subsidize the National Film Board.

In future we shall keep a close watch on the situation. This is a fine body, and I honestly think that we need have no hesitation to ask the House, without a division, to agree to the loan being dealt with in terms of this provision. This will give the Film Board a chance to get into its stride. It will enable it to become an autonomous body so as to be able to carry out this task, which has great potential, in the interests of South Africa. I therefore appeal to hon. members to display understanding in this connection.

Clause put and the Committee divided:

Tellers: J. M. Henning, S. F. Kotzé, J. P. C. le Roux and A. van Breda.

Tellers: A. L. Boraine and R. J. Lorimer.

Clause agreed to.

Clause 8:

Mr. Chairman, I raised a number of points with the hon. the Minister during the Second Reading. I do not want to waste his time. If he would reply to them now, I shall not repeat them.

The hon. member asked a number of questions. He wanted to know, amongst other things, which assets were being transferred to the Transkei from the province. These are all the assets still held by the province of the Cape of Good Hope in the districts mentioned in the Transkei Constitution. All the assets of the province in those districts are to be transferred to the Transkei. The assets include schools, dwelling houses for staff of the Provincial Administration, as well as the doctors’ quarter of the hospital at Butterworth.

Do they include movable assets?

Yes, they include movable assets connected with the services rendered by the province. They also include the furniture and other facilities at the hospital.

Other articles, such as road-graders, etc., were transferred from the province as far back as 1963. The Bill also provides for the province’s loan debt to be reduced so as to keep it in line with the abovementioned assets.

Could the hon. the Deputy Minister furnish the amount?

No, the precise amount is not known. These matters are being investigated at the moment. A comprehensive list is being drawn up of all the assets. This is being done by the inspectors of the province. As far as the public debt is concerned—the national debt—the amount remains unchanged. The assets are reduced, but the national position remains unchanged.

Mr. Chairman, I should just like to reply to one point which was raised by the hon. member. The hon. member for Yeoville pointed out that in addition to the clause in this Bill, there is a similar clause in the other Bill on the financial relations of the Transkei, which is still to come before the House. The transfer referred to in clause 8 of this Bill will take place before independence, while the transfer in terms of the Transkei Bill will take place after independence. This is really the difference, and I shall be able to say a little more on this subject when the other Bill comes up for discussion.

Mr. Chairman, I was waiting for this answer because if everything is being given now in terms of this clause—and that is what the hon. the Deputy Minister said—there is nothing left to transfer in terms of the other clause. We cannot have it both ways. As far as the national debt is concerned, I think this is a matter for the hon. the Minister of Finance. If I understood correctly what the hon. the Deputy Minister said, as far as the Transkei is concerned, it is not being expected to accept any portion of the national debt which relates to the assets which it is getting. It is therefore getting the assets but it is not assuming any portion of the national debt. I take it that that is the position.

That is correct.

The hon. the Minister says that is correct. A further point is that we are actually being asked to agree to the transfer of assets which cannot be completely specified because we do not know yet what they are. We are furthermore asked to agree to the extension of a loan debt, the amount of which we also do not know. We are therefore giving a blank cheque to the hon. the Minister once again and it is for him to decide what the assets are. Parliament is merely being asked to abdicate its functions to the hon. the Minister.

Mr. Chairman, I would not like to agree with that because these things are not simple. This is something rather new in our experience and we are doing the best we can, in consultation with the other Government, to reach effective and amicable conclusions on all these matters. As far as the assets are concerned, to which my hon. colleague has referred, it is a question of, at the most, R5 million. That is the order of things. If the hon. member feels that he would like to discuss it further, we can do so when we come to the other Bill. If I can give more information at that stage, I shall certainly try to do so.

Clause agreed to.

Clause 10:

Mr. Chairman, in clause 10 the hon. the Minister is asking for permission to pay to a firm known as Sanso Properties Pretoria (Pty.) Ltd., an ex gratia amount not exceeding R70 000 “in respect of costs incurred by that company before the commencement of the said Act in connection with the development and planning” of a certain property. The hon. the Minister knows that an Act was passed by this House in 1972 which provided for the control and re-planning of the area around Church Square in Pretoria. According to the explanatory memorandum it appears that this firm, Sanso Properties, Pretoria (Pty.) Ltd., has laid a claim against the Government for what can be termed fruitless expenditure to the extent of something approaching R70 000. The basis of their claim is the fact that they received an approval from the City Council, Pretoria, which I can only assume was before the introduction of the Church Square, Pretoria, Act of 1972. As a result of that approval the company proceeded to plan a certain building. Then came the 1972 Act in which it was provided that only certain buildings would be approved and that the final approval would be given by the committee which was appointed in terms of that Act. It would appear that that committee gave a partial approval to the firm concerned to proceed with building operations. Notwithstanding that partial approval, that firm proceeded to plan a complete building, and not just the first phase, as is stated in the explanatory memorandum. The whole building, the second phase included, was planned at that stage. It is a bit difficult to understand what the basis of the claim can be when only a partial approval was given anyway.

It might appear per se that a claim could perhaps rest with the Pretoria City Council who, it would appear, gave its unconditional approval. I wonder if the hon. the Minister could tell us how it came about that the Government could consider this claim to be binding on the State and that the State should in fact make this ex gratia payment. The questions that arise from this are, firstly, whether the R70 000 which is claimed, is expenditure that was incurred prior to the provisions of the 1972 Act, or whether it is expenditure which is based on the partial approval that was given after 1972. The whole question is complicated by the final paragraph in the explanatory memorandum, which reads as follows—

If the claim is based on the fact that they had to plan a whole building instead of half a building, I would say that this Committee would not be in order in allowing the State to pay this amount. If this claim is based on other facts, then I want to suggest that this Committee should consider it favourably. I wonder whether the hon. the Minister can give us an explanation on those points so that we can come to a conclusion.

Mr. Chairman, the hon. member is quite correct in his assumption that the permission was granted before the Church Square Development Act was actually promulgated. On 30 September 1970, the City Council of Pretoria granted permission, in terms of its town planning scheme of 1944, to Sanso Properties Pretoria (Pty.) Ltd., to erect a building with a height of 270 feet. On 26 April 1971, the Minister of Community Development approved a permit for the construction of only the first part of this project, i.e. for the basements and the shops on ground level. But—and this is the essence of the hon. member’s question—my department is satisfied that these people incurred justified costs in planning the second part of the project together with the first part. It is quite reasonable for people, in planning a first part, to plan the second part as well in the process. In addition, I want to say that this building was approved for a height of 270 feet. The Church Square Committee eventually approved a maximum height of only 170 feet. The change in the height of the building has a decisive effect on the whole planning of such a building, for if the building is higher, it occupies a smaller area of land. If the building is lower—the way it was eventually approved—it is allowed to occupy a greater area of land. I hope I have replied to the hon. member’s questions. I am prepared to go into much greater detail, but I do not want to waste the time of the House unnecessarily.

Mr. Chairman, I thank the hon. the Minister for the information he has given us. I believe, however, that the kernel of the matter is this: Was this fruitless expenditure incurred before it was necessary to get the approval of the Department of Community Development and the Church Square Committee? If this expenditure was incurred before that, then I believe it would be justified to ask us to approve the amount. However, if we find—and the hon. the Minister will reply to this in a moment—that what in fact happened here was that a conditional approval was given and that the firm for practical reasons, or for whatever reasons, found that it had to plan beyond the conditional approval which had been given, then I should say the firm proceeded at its own risk and that the State should not be required to reimburse them for what amounts to fruitless expenditure. I believe the whole issue rests on who gave what approval and when, when the planning was undertaken and when the fruitless expenditure was incurred. If the fruitless expenditure was incurred before the promulgation of the Church Square Pretoria Act, then I should say that the firm has a case. If the expenditure was incurred after that, then I believe we would be setting a very dangerous precedent by approving this, because then it is going to apply to not only the State, but also to provincial and local government authorities as well. Where a conditional and/or limited approval is given and the firm or person concerned then continues and incurs fruitless expenditure, it creates a dangerous precedent for the State or the local authority to reimburse them. Being in business myself, I believe that a person who proceeds to plan as a result of a conditional or a partial approval only, does so at his own risk. As a businessman who has to get approval before I build any premises, I know that if I start to build before I get a final approval for a building plan, before the last detail is approved by the last authority, I proceed at my own risk. I do not believe that the State should be held liable or should in any way make any ex gratia payment if the fruitless expenditure was incurred by the firm after having received merely a conditional approval.

Mr. Chairman, the fruitless expenditure was not only incurred before the promulgation of the Church Square Development Act—the Church Square Development Act was promulgated on 2 June 1972—but the fruitless expenditure was also incurred before the Minister concerned, my predecessor, had issued a public statement in which he froze this area. On 14 September 1971 the hon. the Minister issued a statement, arising from the recommendation of the Church Square Committee, in terms of which the area was frozen in anticipation of future legislation. By that time, these people had their plans and specifications ready and were about to call for tenders. I also want to point out that my predecessor …

Order! I do not think the hon. the Minister need say any more. I think the matter has been explained adequately.

Clause agreed to.

Clause 11:

Mr. Chairman, I want to raise a matter with the intent of seeking clarification and not to oppose the clause at this stage.

This clause authorizes the Treasury to pay certain moneys to the International Monetary Fund and to the International Bank for Reconstruction and Development. It is normal budgeting practice in this House that, where payments are due to international organizations, those payments are budgeted for in the ordinary way. They are anticipated in advance, and the payments, when due, are made out of the State Revenue Account. This is the normal practice. Now, in the case of the IMF and IBRD it appears that the payments are not necessarily to be made at any given time, but they remain there as a credit in favour of those institutions and may be drawn upon as and when the need arises. From this point of view it is highly reasonable, as provided in clause 11(1)(a), that the money, the credit, should be held by way of promissory notes, so that the assurance is given that the money is available and that these moneys may be drawn upon as required by the IMF; it is also reasonable, as provided in 11(1)(b), to issue from time to time from the State Revenue Account to the Accountant-General credits which do not exceed the face value of these promissory notes. The only doubt which arises here is that these credits presumably are money credits. In other words, the credits which are passed by the State from the State Revenue Account to the Accountant-General are then moneys taken from State revenue designed to replace the promissory notes. If that is so, that also would be entirely acceptable, as is clause 11(1)(c) which empowers him to accept for the credit of the State Revenue Account any refund by the IMF or the IBRD. Doubt seems to arise in subsection (2). There it says that notwithstanding anything to the contrary in the Exchequer and Audit Act of 1975, the Minister of Finance may raise in a manner, and subject to conditions determined by him in terms of section 19 of that Act, the sums of money which may be required. Now section 19 of the Audit Act provides that the Minister may borrow by agreement with Governments or with banks, either at home or abroad, or by issuing public stock or bonds or Treasury bills, etc. The question which arises, therefore, is how are we actually going to pay the IMF and IBRD. If it is in fact the intention to issue promissory notes to the Reserve Bank to be held against the claims of these institutions, there obviously is an advantage in this, and in this respect we go along with the provisions of this Bill, in that the demands on our balance of payments or the demands on our reserves are deferred by holding promissory notes, instead of making the payments before they are due. This is what I am in favour of.

The question then is: When do you replace these promissory notes? The promissory notes are held there and there is a provision in 11(1)(b) that these promissory notes can be replaced by payments out of Revenue Account to the Accountant-General. In this case we are producing cash, I presume, in order to pay our dues to the IMF and the IBRD. But then, curiously, in subsection (2) it is provided alternatively, i.e. by way of departure from these provisions, that the Minister may avail himself of the provisions of section 19 of the Audit Act and can actually raise money abroad or at home or issue public stock, bonds or Treasury bills in order to pay our dues to these two bodies. Now, this is my question: How in fact do we propose to pay our dues to the IMF and the IBRD? Will they be paid out of Revenue Account, when payments are made in redemption of the promissory notes, as appears to be provided by 11(1)(b), or will they in fact be paid by raising loans? Because if we are going to pay our dues to an international organization, like the UN or any of the other international organizations, not out of Revenue Account, but by raising loans or issuing bills or borrowing money abroad, this surely is a departure from regular practice. There appears to be this contradiction between 11(1) and 11(2). It is not clear to me why it should be there, whether the intention is either to pay these dues out of Revenue Account, as is apparently intended in 11(1)(b), or whether they should come out of loans, promissory notes, bills, etc., public stock or bonds or Treasury bills, as appears to be the intention in 11(2). I should be glad if the Minister would clear this matter up for us, because there are now two distinct ways in which this can be done, one of which I believe is good public accounting and the other not so good.

Mr. Chairman, I would like to say in the first instance that this clause is really a reenactment of an already existing one. This is so where we are now dealing with the latest Exchequer and Audit Act. We want to bring some of these clauses up to date and we want to have as soon as possible a consolidated Bill. That is just a matter of procedure. As far as the questions of the hon. member are concerned, I would like to mention to the hon. member that in clause 11(2) it states—

What I would like to do is to pursue this matter fully and I shall give the hon. member a more detailed reply in the Third Reading. I would first like to examine the full implications of his point.

Mr. Chairman, I thank the hon. the Minister for his reply. I believe this is quite an important point and needs to be pursued. Are we, in fact, going to meet our commitments of this kind out of our ordinary Revenue Account or are we going to issue promissory notes and then redeem these promissory notes by making loans abroad or at home? This seems to me to be a departure from ordinary budgeting practice and I would be very grateful if the hon. the Minister would look into this matter.

I shall give the hon. member a full reply.

Clause agreed to.

Clause 14:

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

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

I do not wish to go through the whole motivation again which I gave in the Second Reading, but would like to put a few questions to the hon. the Minister because I think there is some misunderstanding between him and us on these benches.

The first question that I would like to ask is whether the hon. the Minister accepts that traditionally all employees have enjoyed the benefit which the hon. the Minister is trying to establish for the Public Service by means of this legislation.

All employees?

Yes, those who have traditionally enjoyed it in the past.

Could you be more specific?

Employees of the Public Service and the private sector in the past have had the benefit of tax-free housing benefits up until now. If that is accepted, the question is: Why is this legislation introduced just for the benefit of the public sector? Does this in fact mean that the Receiver of Revenue is changing his attitude towards these benefits, which in the past have been allowed more by custom than they have by a strict adherence to the tax laws? If it is the intention of the Receiver of Revenue to change his attitude in regard to this and if that is the reason why the hon. the Minister has introduced this legislation, is it not fair to interpret it not as giving the Public Service a benefit which they have not enjoyed in the past, but in fact as depriving the private sector of a benefit which they have enjoyed in the past? In other words, something new is not being given to the public sector. All that is being done, is that something is being taken away from the private sector.

Your interpretation is totally incorrect.

If the answer to all those questions is in the positive, does the hon. the Minister realize what impact this is going to have on the middle and lower-income person—say, for example, a person earning plus-minus R8 000 per year with a housing bond of R20 000? Does the hon. the Minister realize that if his benefit on that was assessed at R1 200 per annum, this will push the man’s tax up by 33⅓?

Mr. Chairman, I should like to reinforce what the hon. member for Randburg has said. The hon. the Minister will be quite aware that in the past certain enterprises, including Iscor, Escom, the banks and a number of the larger companies, have established housing loan schemes for their employees. The hon. the Minister was very careful to draw a distinction in clause 12(2), but what I want to know is whether this benefit will be given to the employees of Iscor, for example. These schemes have been established, they have been put to shareholders, have been approved by the shareholders, have been embodied in public documents and have therefore been tacitly and explicitly approved by the tax authorities. Is it the hon. the Minister’s intention to say now that all the benefits given in terms of such schemes—such benefits in effect being at a subsidized interest rate of, say, between 2% and 6% to employees—will now be subject to tax? That would be extremely inequitable in view of the past history of these schemes. The tax authorities are perfectly well aware of these schemes which have been established and, indeed—though I would have to confirm this with the people concerned—have specifically approved these schemes. Is it now the intention to tax those schemes even though in the past approval was given, and to differentiate between those who work for the Public Service and those who work in the private enterprise sector? I do not quite understand the rationale underlying this whole question.

Let us take Escom and Iscor, which both have schemes of this nature. Let us say, for example, that Iscor had advanced an amount of R14 million to its employees. Let us say they gave an interest subsidy to their employees on that amount for housing purposes, the subsidy being of the order of 6%. That would give an amount of about R840 000. All the revenue people are losing in such a case is the tax on that amount of R840 000, which is an amount of about R420 000 at the current rate of taxation. Come to think of it, the amount would be rather less than R400 000. If such schemes were taxable, one would be reneging on what has been established by custom and has been approved, as I have said, in the sense that it is public knowledge and is part and parcel of the reason why people join a particular business. What I am asking is whether the game is worth the candle? That is the question I would really like the hon. the Minister to answer.

Mr. Chairman, I do not quite know how the question arises which the hon. member for Randburg put to me. Housing benefits in the private sector are not, and never have been, exempted from tax. That is the present position and this will continue to be the position. Since 1969, however, there has been a policy of differentiating between housing benefits for various classes of employees in the public sector. In actual fact we are now regularizing that position by this legislation which we are seeking to have approved. I think that is really all there is to the matter. It does mean a differentiation. However, as I said earlier, the Government feels strongly that there is a very good reason to continue with this policy which in fact has been in operation for seven years. We are merely putting it into more careful form. As I say, this is the one way which we feel we have in the Public Service of granting some sort of benefit to the Public Service staff. We feel that we can use this benefit vis-á-vis the private sector which has certain other ways of beating us to it when it comes to the recruitment of staff. It is a differentiation and I readily accept that. However, as I say, we do regard this as important and in practice it is of assistance. It is not of all that assistance, but it is one positive factor in the conditions of service of public servants. I was asked by an hon. member if the staff of Iscor would be included. Yes, they will be included.

Mr. Chairman, I do not think the hon. the Minister has really answered this question properly. No one is denying that as the tax laws stand at present all employees are subject to tax on housing benefits. However, as far as I know the general practice of Receivers of Revenue is not to tax housing benefits. If there is going to be any benefit from what the hon. the Minister says, any benefit to the Public Service in being able to recruit staff because of this tax concession, that benefit is only going to arise if the practice which has been followed by Receivers of Revenue is changed and employees in the private sector are in future taxed on housing benefits. Will the hon. the Minister answer the question whether there is going to be this change of policy by Receivers of Revenue as far as employees in the private sector are concerned?

Mr. Chairman, just in case the hon. the Minister does not understand what we are getting at, can we give a specific example which has been proved by the revenue and tax authorities? A man who is employed by a public corporation in either Johannesburg or Cape Town is lent R20 000 for the purposes of owning a house. Normally if anybody borrows R20 000, it will cost him 12%. However, the company lends that amount to an employee at 6%. What I am saying is that the difference of 6%—a difference worth R1 200 per year—is given to the employee tax free as the laws are now interpreted. This interpretation has been approved by the relevant authorities and it is a matter of public knowledge. All we are asking is whether, in so far as the public sector is concerned, the effect of what the hon. the Minister introduces here is that the amount of R1 200 will be taxed. Up to now that amount has been tax free. This is one specific example and I am sure the hon. the Minister can simply answer “yes” or “no”. Are people now going to be taxed on that imputed benefit which is really in effect the rate of interest at which they can get money from a company? The benefit which they enjoy is merely the difference in interest that they normally would have to pay and the special interest they are paying by virtue of the loan being granted to them for housing purposes.

The second aspect is that the hon. the Minister bases his whole justification on the fact—this has been the tenor of his reply so far—that private corporations are now going to be taxed. He bases his argument on the position as it existed in 1969. He says that it is a form of differentiation and that it is important with a view to being able to recruit and retain people in the Public Service. We have no fault to find with the Government for wanting to improve the benefits offered as a package to the Public Servant, but to say that this is a particular case is, in one sense, absurd, because most employees in the modern world are quite capable of working out what their after-tax package is. They are quite capable of quantifying the elements in it. If the hon. the Minister wants to attract people to the Public Service, what is important is that he should simply look at the after-tax benefits offered to the Public Servant, viz. immediate benefits and also future benefits such as pension, and that he should compare them with the benefits offered by private enterprise. To try to distinguish on the basis that Public Servants should get housing loans which are exempt from tax while housing loans in the private sector are treated on the basis I have described, is actually not going to solve the problem at all. This is inherently bad because it differentiates and discriminates in favour of the Public Servant. What is naturally going to happen in practice is that, where private enterprise can afford to do so, it will simply increase the salaries of its staff to re-establish the position as it was before the Minister brought in this Bill.

To conclude, we want to put a very simple question to the hon. the Minister. Up to now the private sector, as I have said, has been able to make money available to its employees by way of housing loans at less than the prevailing rate of interest. Whichever way one looks at it, that has been a benefit to those employees which in the past has been tax-free. We simply want to know whether the hon. the Minister is now proposing to tax that benefit.

Mr. Chairman, I should just like to correct myself. I said Iscor would be included but I am informed that the staff of Iscor and Sasol, being commercial undertakings, will in fact not qualify. I want to put that straight.

Mr. Chairman, I understand the point of the hon. members for Constantia and Johannesburg North to be that in practice receivers of revenue have in fact not taxed these housing benefits. I am informed that this is not the case but that, in fact, the law makes it clear that all benefits flowing from employment are taxable and that where low-interest loans are made available, this benefit has not been taxed up till now whereas any cash allowance has in fact been taxed. That is the position as it has been given to me by the authority on the matter.

Are you going to change that?

No, I do not think I am going to change the law on that point.

But are you going to change the practice?

I shall have to consult the Secretary of Inland Revenue, but I do not think that that is involved at the moment. I have outlined what the practice is at the moment. Therefore it is not as if all these housing benefits are exempted. The benefit applies only in respect of the low-interest loans.

But that is the main one.

Mr. Chairman, it is a matter of some regret to me, but I think we cannot leave the matter here. I want to ask the hon. the Minister a specific question. Let us take the example of a mineworker who gets a house form the mines—this happens in thousands of cases in South Africa—at a rental which is not the economic rental but which is obviously a lower rental in order to encourage the mineworker to live in a particular place. Is that practice of providing housing at a lower rental than the economic rental going to be changed?

Order! I must point out that that very point has been raised by the hon. member for Johannesburg North.

Yes, Sir, but I want the hon. the Minister to deal with it. I am coming to what the important issue is. He cannot now leave the community in South Africa in the air by saying: “I am not going to commit myself on whether the practice is going to be changed or not.” The hon. the Minister conceded a moment ago that the benefits resulting from the interest differential is not being taxed at present—nobody is suggesting that a sum of money given as a housing allowance should not be taxed—but if that benefit resulting from the interest differential is now going to be taxed, South Africa is entitled to know about it. The hon. the Minister cannot simply say: “I am not saying a word.” This is a matter of public importance. We are entitled to know what is in the Minister’s mind in this connection. With great respect, Sir, the whole of this clause would be utterly unnecessary if in fact it is not the intention to change the current practice. That is how we see it. If we are wrong in this, let the hon. the Minister say so. We have no objection to this clause because it is the existing practice and should be allowed to continue. The only difference is that, whereas in the private sector, where a man may be given money as a housing allowance, it may be open to abuse, in the case of the State, it obviously is not, and in so far as the interest differential is concerned and in so far as housing at a non-economic rental is concerned, those are factors which cannot be abused. Those are the ones which exist. Therefore, the whole purpose of introducing this clause—perhaps we have suspicious minds—is that there is an intention to change the practice in the case of the private sector. If there is, the hon. the Minister should say so here and now, so that we can take a stand on this clause. If he does not tell us that, he is leaving the whole country in the dark. With respect, Sir, I believe he is obliged to answer this.

Mr. Chairman, I should like to ask the two hon. members a question. Perhaps this will help us. They ask whether, if a loan is made available to an employee at a low interest rate, the difference of, say, between 6% and 12% will be exempted. The two hon. members could be of assistance to the Committee, the hon. the Minister, the Receiver of Revenue and all of us by replying to the following question: What do they consider to be a fair and reasonable interest rate? From what premise should the Receiver of Revenue proceed? As legislator, this House must give him an indication. When money is lent by an employer to an employee at an interest rate of 8%, for example, can this be called a fair interest rate? Would an interest rate of 12% therefore be unfair? Exactly what is their opinion? I should be glad if they could give the Committee an indication.

Mr. Chairman, as I understand it, the Receiver of Revenue has accepted in the past that a contract at 2½% is a fair commercial contract for a transaction of this particular nature. Quite clearly, that is very much a subsidized contract. Therefore, I am of the opinion that where there is a difference—for instance, the difference between 2½% and a commercial rate of 12½% is one of 10%—it is possible that the Receiver of Revenue will not tax the whole 10%. He might decide to tax only 60% of it; in other words, R1 200 on a loan of R20 000. The point is that even that 60% or R1 200—if one takes a married man earning R8 000—is going to involve an increased tax liability within only one year, of 33⅓. There are not only a few people involved. Many people in the middle and lower income groups are involved.

What will then be a fair rate?

The Receiver of Revenue himself has accepted that 2½% is a fair commercial rate for this particular transaction where an employer lends his employee money on a bond for a house. We all know that is not a fair commercial rate, but the Receiver of Revenue has accepted it as such. Therefore, this can have tremendous ramifications for many lower and middle income people. That is why, as the hon. member for Yeoville has said, we must know from the hon. the Minister whether it is the intention of the Receiver of Revenue to re-assess the whole attitude that he has had to this matter in the past.

Mr. Chairman, I would like to be quite specific. I really believe this matter is being clouded over very badly. What does this Bill deal with? In clause 14(1) it is stated that—

Various categories of employment are then listed. Broadly speaking, one might say the categories mentioned here are the Public Service. That is exactly all. All these other flights of fancy are in the minds of hon. members. Nothing else is being changed. What then is the hon. member worrying about? What am I supposed to say? I am dealing with this specific enactment, and with nothing else. As far as I am concerned, the practice for the rest continues as it is. As far as low-rental housing is concerned, the test is, and has been, whether there is a saving or a gain to the taxpayer. If there is not a benefit, there cannot be a tax. I am given the assurance by the Secretary of the Department that as far as low-rental housing benefits for ordinary workers are concerned, this has not, is not and will not be taxed. I am not prepared to go any further than that.

It seems to me that this is a case where hon. members must agree to disagree.

Mr. Chairman, the hon. the Minister seems to regard us as chasing rainbows. But let me quote to him what one of the recognized textbooks in South Africa states in regard to this matter. The book is entitled Silk on Income Tax and I quote from the 8th edition on page 108—

The paragraph 1, a subparagraph, which is referred to is the one that taxes any benefit or advantage granted in respect of employment. Whereas, in terms of the law, a benefit or advantage is taxable, the practice has adequately been set out in this tax-book as three hon. members have said before me. The question to which I have tried to get an answer is whether this practice will be continued.

What have I just said?

You said in respect of workers, in respect of low-cost housing for workers. If it is agreed and if the hon. the Minister intended to convey that the practice which I have just quoted is to continue for the private sector, then we have understood each other. All the hon. the Minister needs to say is “Yes”.

I think we understand each other.

So that means “yes”.

Amendment moved by Mr. R. E. Enthoven (’t Hooft) negatived (Progressive Reform Party dissenting).

Amendment moved by the Minister of Finance agreed to.

Clause, as amended, agreed to.

Clause 16:

Mr. Chairman, during his reply to the Second Reading debate on this Bill the Minister stated that the issue of the R1 nickel coin was going to save the country a lot of money. During the Second Reading I made it clear that we on this side of the House would be very sorry to see the demise of the R1 note. However, if it is going to save the country a lot of money, then obviously we will go along with the step. But before we go along with that step I would like to ask the hon. the Minister what sort of figures he is talking about when he talks about savings. What is the relative cost of a R1 note and a R1 coin when the length of life of the two are taken into account?

Mr. Chairman, the hon. member is asking me a very difficult question …

Why?

If the hon. member will give me an opportunity I will try to say why. The Mint does not only mint one coin; in fact, the S.A. Mint does not only mint coins. It does many other things. I have before me a very interesting report which the Director of the Mint sent me the other day, and it will interest hon. members to know that, at the moment, the Mint is minting 200 million new coins per year and is issuing a number of bank notes at the rate of many hundreds of millions, 75 million in one denomination alone.

This is not done as a separate operation each time; it is done as an integrated operation, using the same staff, overheads and everything else. I certainly do not have that figure, but I am prepared to ask the Director of the Mint if he can give us any kind of estimate of what amount is involved. It will be an extremely difficult costing operation, because labour is a very big factor. The cost of the material, in other words the paper, will be easy to find out, but the labour cost would be very difficult to apportion. According to the Mint, the saving will run into very substantial figures a year. That is as far as I can go. I am quite prepared to do my best to get a figure for the hon. member, but I do not have it with me now.

Mr. Chairman, the hon. the Minister has come to this House with the proposition that the R1 note should be replaced by a R1 nickel coin. He has substantiated his reasons for coming to the House with that recommendation by saying that the R1 coin in place of the R1 note will save the country a lot of money. Surely, before the hon. the Minister reached that decision and before he could come to the House with any recommendation, he must have made some calculation, otherwise he could not have made that statement. To say that because one spreads the labour over various products one cannot come to a costing, is nonsense. Almost all factories produce more than one product and have to spread their overheads over different products. There are costing techniques which take care of these things, and the hon. the Minister must not tell me that he cannot cost the cost of a coin and that he cannot cost the cost of a R1 note. I think it is very pertinent to this House, to enable it to make up its mind as to whether it agrees to this clause, to have that information.

I want to say three things in respect of this matter. In the first place, the Mint also does commercial work, and if it does commercial work, a costing must be done in the Mint. I think it should be possible to present the costing of these coins. The second point is that it is quite clear that the whole purpose is to save money and, therefore, one must have a motivated case in order to save money. The third point I should like to make is that if we are going to have a coin—which presumably the hon. the Minister will insist on—then I should like to suggest that instead of the coin having on it the profiles of either living or deceased persons, it is an appropriate time in South Africa to issue a coin which will have the profiles of youth, that of a young South African girl and a young South African boy, of no specific identity, in order to project what is required from South Africa, namely the profile of youth.

Clause agreed to.

Clause 21:

Mr. Chairman, I regret that the hon. the Minister of Defence is not able to be present for the discussion of this clause, because it is a matter which peculiarly affects his department. I do not want to deal with the merits of the clause itself. We recognize that there are circumstances in which one cannot discuss defence expenditure in detail in public, and that there are circumstances in which it cannot be reflected in budgets or in accounting. When this situation arises, where hundreds of millions of rand are involved—this year’s budget involves R1 350 million—then we on this side of the House believe that Parliament has a particular responsibility in this regard.

We believe that a Select Committee should be appointed—obviously the appointment should be made by Mr. Speaker and cannot be done by way of an amendment to this clause—which could meet in camera, which need not record evidence led or any matters which would affect security, but which would be able to examine expenditure which is not detailed in the budget itself, expenditure which is appropriated as a globular sum, and then spent either through the Special Defence Account or through the Armaments Board. This clause takes it much further, because in addition to the globular sum which is appropriated, it is now possible to take money out of the normal appropriation, appropriated for other purposes, and transfer it to the Special Defence Account. There is, therefore, no knowledge whatsoever in this House of what amounts are transferred, or for what purpose such a transfer takes place. I should like to put it to the hon. the Minister of Finance, who is responsible for financial control and for budgeting, that it would be in the interests of Parliament and in the interests of better financial control were there to be such a Select Committee. Without speaking any further I should like to ask the hon. the Minister what his attitude in regard to this matter is and whether he would be prepared to press this matter with his colleagues so that we could have an appropriate standing committee which could act as watchdog over the expenditure which this clause now removes from normal budgeting.

Mr. Chairman, I should just like to explain that the hon. the Minister of Defence apologized for not being able to be here this afternoon. I can assure the hon. member for Durban Point that the absence of the hon. the Minister from the House this afternoon is really unavoidable.

I should now like to deal with the points of concern raised by the hon. member for Durban Point. The hon. the Minister of Defence and I discuss the question of the financing of defence expenditure fairly regularly. There is, indeed, a committee which was set up approximately 18 months ago, if my memory is correct, consisting of the Minister of Defence, the Minister of Finance, the head of Armscor and other senior officers. In addition, it is attended by the top officials of Finance and the Treasury. If I may, I should just like to read this reference in Hansard of last year which the hon. the Minister gave me and which he asked me to bring to the attention of the Committee—

This machinery is, of course, used regularly, and I would like to say that I have mentioned this also to the Auditor-General, as the hon. the Minister of Defence has, and the Auditor-General has expressed himself as being satisfied with the position as it obtains at the moment in so far as the control over this large expenditure is concerned. I think that under the conditions we live in today it has become imperative that we have this further discretion. One votes an amount for defence for the year ahead, and conditions can change very rapidly and very substantially, as we have seen in the last year particularly. Where one has amounts voted for certain purposes, on the strength of one’s forecast of what is likely to happen, and circumstances suddenly change and one finds that one wants to make better use of that money, it is felt that there ought to be provision in terms of which money voted generally by Parliament can be allocated to the Special Defence Fund. I am not sure whether the hon. member has difficulty with that, but I want to say that that will only be done where we consider it absolutely necessary.

No, I have no problem with that.

The other point is the establishment of some sort of joint committee of Parliament, which the hon. member for Constantia also referred to before. What we have amounts to a Cabinet committee consisting of two members of the Cabinet plus other senior officers.

That is not Parliament.

Correct. I have discussed this with the hon. the Minister, because I wanted to know exactly how he felt in view of the fact that he could not be here. He says he feels strongly that as things are at the moment, the system is working well, and he does not feel that he has good reason to change it. I look upon it more from the point of view of financial control, and I think we have the necessary machinery. If the hon. the Minister of Defence feels that the present system vis-à-vis Parliament is satisfactory, I think that is as far as I can take it at the moment. I am quite prepared, in the light of what the hon. member has said, to bring that specifically again to the attention of the hon. the Minister of Defence, but he has made it quite plain to me in writing what he thinks. He must have anticipated this because he said that as things are he feels that he cannot accede to that request.

I do not want to delay the House, Sir. We obviously cannot and will not vote against this clause since these powers are necessary, but I want to put it on record that we have had these assurances before from the hon. the Minister of Defence. This is camouflage. What we have been told by the hon. the Minister of Finance is that there is executive control, and not parliamentary control. The Cabinet should not consider that they are the beginning and the end of everything. Parliament has a function and what we are asking for is parliamentary control. We are not prepared to swop parliamentary control for assurances. Assurances are just words. What we want is parliamentary control, and no matter how nice or honest or decent a Minister may be, assurances are just words in the air. What we are asking for is parliamentary control. Whilst, in seeking to achieve it, we are not going to oppose this clause, we want it put on record that the explanation given by the hon. the Minister is not satisfactory and is not acceptable to us since it evades the whole issue which we raised of a form of parliamentary control over expenditure which is not otherwise able to be controlled by Parliament itself.

Clause agreed to.

House Resumed:

Bill reported with an amendment.

Third Reading

Mr. Speaker, I move subject to Standing Order No. 56—

In doing so, may I endeavour to clear up one point which I undertook to do for the hon. member for Von Brandis. It was a point which he raised with me during the Committee Stage regarding the IMF and the World Bank. The position, as I understand it, is that these two bodies may require that promissory notes issued under clause 11(1)(a) be cashed as and when required. I think the hon. member made that point, too. When this is necessary, the money may be paid out of the State Revenue Fund in the same way as in the case of the repayment of loans, etc., in terms of other statutory provisions. This clause merely repeats a provision which already exists under the Finance Act, 1947. All these old provisions are being brought up to date with a view to eventual consolidation. Apparently there is nothing new in the procedure here at all.

Why clause 11(2)?

It is merely a neater formulation, a re-enactment which we want to carry into the consolidated measure. We have already been doing this in a number of cases, in fact in other financial Bills, too. We have re-enacted in a better form certain sections of certain financial measures. Had we had the time, I would have liked to introduce a consolidating measure this session, but I am afraid we have just not had the time.

Mr. Speaker, a measure like this is really not one which calls for much discussion at Third Reading. It is a measure which covers such a wide variety of subjects that one obviously cannot cover them again at this stage. I do feel, however, that during our discussion in the Committee Stage there were certain questions that were left unsatisfactorily answered. I refer in the first place to the answer given in respect of clause 6, which deals with the operations of the National Film Board. Unfortunately the hon. the Minister of National Education is not still present in the House, but I do feel that it should be recorded that the operations of this board are not satisfactory. The Government should look into these operations. First of all, they should look into the need for incurring expenses at the steeply increasing rate that expenses are being incurred by the National Film Board. They should also look into the question of whether other departments than the Department of National Education are reimbursing the National Film Board sufficiently for the services that it is rendering to them. I think the hon. the Minister of Finance has a direct interest in this matter, even though it does not fall under his department, to see that this operation is conducted properly and efficiently.

The next clause in respect of which we are not satisfied with the answer is clause 11. I would ask the hon. the Minister to carefully look at the case made by the hon. member for Von Brandis in the Committee Stage. We feel that the Minister has not answered the points which he has raised. If he needs further time to consider them, he could possibly raise the matter at a later stage, possibly at the Third Reading of the Appropriation Bill.

As far as clause 14 is concerned, which deals with housing benefits, here again we are not satisfied that after a long debate on this particular issue we received a satisfactory answer from the hon. the Minister. I hope that the hon. the Minister will look at the Hansard of this debate and at some stage give us a clear answer as to what the future policy of the Department of Inland Revenue is going to be as far as taxing housing benefits of employees in the private sector are concerned. He answered our queries as far as housing benefits in respect of low-cost loans are concerned, but he has not replied to our queries in respect of houses leased at sub-economic rates.

Finally there is the question of the rand note. We asked the hon. the Minister a specific question and we needed a reply to that question in order to be able to judge whether the recommendation before this House is justified or not, but we have not yet had the answer to that question. I realize that the hon. the Minister cannot give us the answer off the cuff, but I hope that in due course he will make that information known.

Mr. Speaker, I want to be very brief because I think we have exhausted this subject in the Committee Stage and the Second Reading debate. I merely want to make one appeal to the hon. the Minister arising out of the taxation on housing benefits and benefits that may arise by virtue of mortgages which are given at rates lower than the prevailing rates. Whichever way one looks at the matter, I think it would be very unsatisfactory if the confusion existing in this House were perpetuated amongst members of the public. I therefore want to appeal to the hon. the Minister to ask his department—if he is not ready to do so now—to issue a statement to the public setting out what the attitude of the department is and, in particular, to indicate whether it is the intention of the Secretary for Inland Revenue to disturb any existing departmental practice either in regard to mortgages at rates which are below the prevailing rates or in respect of the provision of housing at rentals which are below the economic rate. I think this matter should be put unequivocally to the public so that there is no question of confusion as a result of the debates that have taken place here.

Mr. Speaker, I do not see how I can agree with hon. members opposite who say that satisfactory answers to these issues have not been given. Let us take as an example clause 14 which we have discussed at length. The hon. member for Yeoville himself said in his opening remarks that we had exhausted the matters contained in the Bill. I think we have. If there is any confusion about clause 14, for example, it is not of my doing, because I have come with a specific clause in this Bill seeking the enactment of a proposal which is absolutely clear. Hon. members of the Opposition, on the other hand, raised certain issues and then talked themselves into a state of considerable confusion, and now they seem to want to blame me.

Oh, come off it!

No, I will not; I am being absolutely fair. This issue is absolutely clear-cut. The hon. member who talks like that must have been nodding or was perhaps not in the House. I do not know what his contribution to this debate was. The question of the present practice was not raised by me at all. There is no question of our changing the existing practice. This is simply a little bit of politicking which some hon. members like to throw into the debate. They now want to make out that there is some confusion. I suggest that hon. members do a little homework. They will then find that the position is exactly as it is. We now merely want to give legal effect to the position which has existed since 1969. That is the position in a nutshell.

I am not at all sure that I understand the hon. member for Constantia’s remark that the position in respect of clause 11 is not satisfactory. We have changed absolutely nothing. The position is exactly as it was. I can therefore hardly be blamed if the hon. member has questions that crop up. I have not changed anything. We are only trying to improve the exposition of the relevant section. The practice that has been in operation remains exactly the same.

You have provided two methods for doing the same thing.

No, we have not changed the position at all. With those few remarks I wish to conclude because I think we have had a very thorough discussion. I thank hon. members for their support.

Question agreed to.

Bill read a Third Time.

Mr. Speaker, I move—

As is customary, copies of the draft Bill and explanatory memorandum were made available to hon. members of all parties some weeks ago and I trust that the provisions contained in the Bill are clear and do not need a great deal of further elucidation.

The first object of the Bill is to give effect to my taxation proposals regarding normal income tax, and as they were discussed during the debate on the Second Reading of the Appropriation Bill, I do not wish to dwell at length on them. Suffice is to say that it is regretted that circumstances are such that it is necessary to impose the additional surcharge on loan levy. No one, least of all this Government, relishes imposing taxes but it will be grossly irresponsible if, in order to curry favour with those who measure their patriotism by means of rand and cents, it shirks its duty to strengthen security and thereby endangers the country and all its people or, despite its endeavours to contain inflation, it uses less painful but more inflationary means of financing its commitments which are, as has been shown in another debate, the absolute minimum required for the running of the State machinery needed to provide necessary services.

I wish to assure hon. members that both my department and the Standing Taxation Commission are constantly searching for ways and means of improving the tax structure with a view to spreading the tax burden more evenly but this is a delicately balanced exercise to ensure equity on the one hand and sufficient funds on the other and I wish them success in their endeavours.

I should now like to dwell on a few matters which may, notwithstanding the explanations in the explanatory memorandum, require a little more background.

The provision in clause 5, which amends section 5 of the principal Act, whereby I am empowered to increase or reduce the rate of loan levy while Parliament is not in session has been viewed with misgivings in certain quarters and sinister motives have been imputed to it. I motivated the necessity for this measure in my budget speech and I do not intend dwelling on it at great length except to say that the provision does not only empower the increase in the loan levy but also the decrease thereof should circumstances warrant such action. Furthermore, I wish to give the assurance that I am well aware what this new power entails and I will use it with the greatest care and circumspection. Hon. members will also observe that I am not seeking unlimited powers of variation of tax rates. The only years of assessment for which a variation of rates may be made are those referred to in the latest Income Tax Act and not earlier years of assessment. The powers are really temporary in their effect and will be subject to parliamentary approval, because if they are used, the variation they effect will have to be confirmed by Parliament after a comparatively short interval, otherwise the amendment of the rates will lapse. Moreover, as only the loan levy is affected the powers should rather be regarded as a short-term economic regulator than as a means of raising or reducing taxes permanently.

Clause 7 makes the provisions of section 7A of the principal Act regarding the spreading of antedated salary and pension awards retrospective from the 1975 year of assessment. Those provisions refer also to the gratuities payable to national servicemen and members of the commandos who bind themselves to serve for a minimum period of at least 18 months instead of rendering service at periodical intervals over a number of years. It has now come to light that some of these gratuities actually became payable during the 1975 year of assessment and not later as was at first thought. At this stage I should mention that the daily allowances and other benefits paid to these men during the first period of service are being formally exempted from tax in terms of clause 9(e) because there is some doubt whether those allowances should truly be regarded as being income or as pocket money. Most of the men serving their first training period have but lately left school and in all fairness a concession is justified. The allowances paid during subsequent annual camps fall in a different category, because by then the men have become more adult and are usually taxpayers by virtue of their civil earnings. The gratuities paid on the completion of the 18 months’ training period are in reality income which should be taxed, albeit on the favourable basis provided for in section 7A of the Income Tax Act. While on the subject of the allowances paid to members of the forces, I think I should mention the exemption in respect of allowances for uniforms, rations and lodgings, which exemption, in terms of clause 9(f), will apply in time of peace as well as in time of war. This exemption does not affect members of the permanent force, who do not receive such allowances. It will, however, benefit volunteer members of the Citizen Force and Commandos and also national servicemen during periods of service subsequent to the first period.

Consideration has been given to taxation problems that might arise when the Transkei becomes independent. Hon. members will know that income tax in this country is basically leviable upon income derived from sources within the Republic. Income from sources in the Transkei after independence will not be taxable in the Republic except in certain circumstances—these need not be considered now—such as in the case of dividends derived by residents of this country from Transkeian companies. As an independent country, the Transkei will for taxation purposes not be different from other foreign countries and income flowing to that country in the form of dividends or interest will be subject to non-resident shareholders tax or to non-residents tax on interest in the appropriate circumstances. Problems of double taxation will, it is anticipated, to be dealt with under a double taxation agreement to be concluded by the two countries. The Bill contains four provisions relative to the Transkei. Clause 4(b) amends the definition of “South African company” to exclude Transkeian companies—this concerns mainly royalties, non-resident shareholders tax and non-residents tax on interest. Clause 8 deals with interest derived from building societies. The effect thereof is to exempt a person not ordinarily resident in the Republic from normal tax on interest derived from a deposit made in a branch of a building society outside the Republic. If, however, the deposit is made by the non-resident in a branch within the Republic, the interest will, under the ordinary source rules, be taxable in the Republic. Bank interest will be treated in the same way under existing provisions of the Income Tax Act.

Clause 10(1)(a) amends the definition of “export country”. The exporters’ allowance will not apply in respect of exports to the Transkei. Clause 14(1)(j) concerns the development allowance and will be dealt with presently. Taxpayers, who are taxable under the Income Tax Act and who derive income in the Transkei before 26 October 1976, will be liable for normal tax thereon in the Republic. Income derived in the Transkei on or after 26 October 1976 will fall within the tax jurisdiction of the Transkei. The taxation authorities of the two countries will consult with each other in regard to the transitional problems that may be encountered. I am confident that any such problems will be solved without undue difficulty.

Clause 10(1)(b) amends section 11bis (4)(g) of the Income Tax Act so as to restrict the deduction in respect of premiums on export credit guarantee insurance policies allowed for purposes of the exporters’ allowance, to policies issued by the Credit Guarantee Insurance Corporation of Africa Limited. This company is in fact a consortium of leading South African banks, insurance companies and finance houses, which in turn re-insures the political and transfer risks with the Government. The deduction was originally provided for on the recommendation of the Reynders Commission, and it is clear from the commission’s report that the only policies it had in mind were the policies issued by the company I have just mentioned. The commercial risks mentioned are the insolvency of a buyer or his inability to pay an undisputed debt within six months after due date. The political risks are war, strikes and like occurrences, the restrictions of the goods and payments traffic, including boycotts, imposed in a foreign country and preventing the delivery of goods or services or preventing the proceeds from being transferred to South Africa.

Clause 14 amends section 21ter of the Income Tax Act so as to make certain further concessions to industrialists who establish or extend industrial undertakings in economic development areas. The allowance at present provided for is known as the “development allowance”. In most cases it is quantified by the amount of tax involved. Applications for the allowance are investigated by the Decentralization Board before they are submitted to me. The basis which the board originally followed, in making its recommendations in accordance with Government policy, was somewhat narrower than it is now. In 1972 a new schedule of concessions was introduced, which was more generous than those previously granted. Those industrialists who had already decentralized were at a disadvantage compared with their competitors who followed after the pioneering work had been done. The whole question has already been dealt with by my colleague, the Minister of Economic Affairs, and I do not propose to elaborate thereon now beyond saying that the new allowance now provided for, to be called the “supplementary allowance”, gives effect to the decision by the Government to assist the pioneer industrialists. In some cases the full anticipated benefit of the development allowance, expressed in terms of the saving in tax, has not been enjoyed. If in any such case the Secretary for Industries has made a cash grant to the industrialist in lieu of the development allowance, the industrialist will be regarded as having enjoyed the development allowance pro tanto and the grant will be exempt from tax.

The allowances under section 21ter of the Income Tax Act are in practice authorized for a number of future years of assessment and where the industrialist is a wholly-owned subsidiary of a parent company, the parent company may participate in the allowance to the extent that the subsidiary has not been able to enjoy it, for example where the subsidiary suffers trading losses or does not make sufficient profits to take advantage of the allowances. Where the industrial undertaking is in the Transkei, it will not be possible to grant the allowances to the industrialist under the Income Tax Act in respect of periods after 25 October 1976. The new subsection (8) being added to section 21ter by clause 14(1)(j), however, provides for the continuance of the allowance to the parent company if such company is a domestic company under the Income Tax Act. Any similar allowance granted by Transkei to the subsidiary will, however, be taken into account, so that the total tax value of all the allowances to both companies granted by both Transkei and South Africa do not exceed the maximum tax value of the allowances originally authorized.

Clause 18:

*The basic underlying principle of non-resident shareholders’ tax is that dividends from South Africa accruing to non-resident shareholders ought to be liable to tax. A non-resident shareholder may be a person other than a company, or may be a company. If the shareholder is a person other than a company and he is carrying on a business in the Republic, he is liable to normal tax on his dividend income. Because the dividend income is liable to normal tax it is necessary to exempt that income from tax on non-resident shareholders, otherwise double taxation would arise. However, this argument does not apply when the shareholder is a company, since companies are usually exempted from normal tax on dividends, regardless of whether they are carrying on a business in the Republic or not. In the case of a company there is no question of double taxation and granting an exemption on the grounds that it is carrying on a business in the Republic is therefore anomalous. Apparently the exemption in the case of companies was originally based on the assumption that the source of a dividend had to be established by considering the source of the profits of the company paying the dividend and that the fiscus was entitled to tax in the hands of the ultimate individual shareholders, whether in the form of normal tax or in the form of a tax on non-resident shareholders. However, this approach cannot be continued in the light of several court decisions, and in any event it is not possible to enforce the tax laws of one country in another country. There is no doubt that a country is entitled to tax company profits in the hands of the source company by way of normal income tax, and also to tax that part of those profits which distributed to shareholders, by way of normal income tax—in the case of inhabitants of the country—or by way of a withholding tax—in the case of non-residents. When profits are distributed to company shareholders and it is not possible to exercise any control—from a taxation point of view—over the company shareholders concerned, the profits have to be taxed when the profits are distributed to them. This is the object of the amendment to section 42(1)(iii) of the Income Tax Act.

I may mention that the present provisions are easily circumvented by making arrangements in terms of which a business, however small, is carried on in the Republic by a foreign company shareholder solely for the purpose of qualifying for the exemption. I could also mention a further anomaly. As hon. members know there are tax provisions which are aimed at encouraging a foreign company which has a business undertaking in the Republic to transfer such an undertaking to a South African subsidiary of the overseas company. If it does so and the overseas company has investments in other South African companies, the dividends on those investments will be subject to non-resident shareholders’ tax. If it does not do so, however, the dividends on those investments, as the Act now reads, are not liable to non-resident shareholders’ tax. Actually this situation is in conflict with the policy of the Government of encouraging the forming of subsidiaries, and the amendments will eliminate this anomaly as well.

Clause 19 raises the scale of tax on undistributed profits from 25% to 33⅓% of the distributable balance. This follows upon the raising of the scales of normal tax. This really pertains to investment companies, since source companies, as a result of the raising of the scales of normal tax for companies, will in general be exempted from tax on undistributed profits. Normal tax of 49%, plus the plough-back of 55%, amounts to 104% of net profits. There is of course a minor benefit for the company which has source profits, profits which are liable to normal tax, as well as investment income in the form of dividends—which is not liable to normal tax. In view of the fact that the entire question of the tax structure of companies and their shareholders is still under consideration and the fact that the present scales of normal tax should be regarded as temporary, it was decided not to effect any adjustment in the Act for the present.

In clause 24 a new procedure is being prescribed for appeals to the Supreme Court against decisions of the income tax special courts. The primary object of the amendments is to expedite the hearing of such appeals. The present procedure, whereby the special court has to state a case and the appellant may then appeal only on legal questions is time-consuming. Although the Act requires the case to be stated by the special court, the case is in practice drawn up by legal officers of the Department of Internal Revenue and submitted to the taxpayer in order to achieve unaminity as to its terms. A distinction must be drawn between factual findings and legal decisions. However, the dividing line is not always clear, and as a result of the highly technical nature of the subject, a correspondence then follows. It is at this stage that the delays occur. The new procedure eliminates this part of the procedure. According to the new procedure the record of the evidence and other documents will be typed and submitted to the appeal court. It will be a simple procedure and it will usually be possible to dispose of a case within a few weeks. Consideration is being given to the possibility of simply applying the appeal procedure followed in ordinary civil cases. However, regard must be had to certain practical problems. The special courts are in reality not courts of law in the normal sense. The registrar and his staff consist of three persons who serve all the special courts—there are seven altogether—in the Republic and South West Africa. They have to travel between the centres where court sessions are being held, and most of the work takes place by correspondence prior to and after the session. A taxpayer who has lodged an appeal corresponds with the registrar at his headquarters in Pretoria. In view of the practical problems which may be experienced, particularly when a taxpayer lives in a distant place, and the fact that a prospective appellant who wished to appeal to the Appeal Division of the Supreme Court, cannot do so before the leave of the chairman of the special court has been obtained, it was decided to prescribe a special preliminary procedure in terms of which a notice of intent to appeal shall be submitted before the formal appeal may be submitted. This will also enable the registrar to prepare the record of evidence in good time. Hon. members will know that a taxpayer is at liberty to appear before the special court himself or to appoint his accountant or any other person to appear on his behalf. If an appeal is subsequently lodged against the decision of the special court, the taxpayer usually has to consult his attorney since the appeal will be heard in the Supreme Court. The preliminary procedure will in such a case be very useful for the taxpayer as well as his advisers.

Clause 26:

In the course of the debate in this House last year on the provisions of section 106(3), members of the official Opposition indicated that they were not satisfied with the presumption in that section, the presumption to the effect that a document sent to a person by ordinary post is deemed to have been received by him when it would have reached him in the ordinary course of post. The objection which was raised was that drastic steps should not be taken against any person unless a demand has first been sent to him by registered or certified post. The assurance was given that this does happen in practice. Nevertheless the provisions of section 106(3) were reconsidered during the recess. I think the amendment which is being affected by clause 26 will eliminate the principal objection. It ensures that no person may be convinced of failure, refusal or neglect to do anything unless the necessary demand is despatched to him per registered or certified post. Last year I dealt with the position in regard to demands for tax in detail, and hon. members will know why it is unnecessary to make special provision for that as well.

Clauses 28 and 29:

Hon. members know that persons engaged in farming operations have to calculate the values of livestock on hand at the beginning of each year of assessment as though it were trading stock. However, the ordinary rules for the valuation of trading stock are not applied. Special rules are laid down in paragraphs 5 and 6 of the First Schedule to the Income Tax Act. An ordinary farmer, i.e. a natural person in contrast to a company has to apply standard values to all his livestock, except livestock purchased for breeding purposes at prices in excess of amounts determined in the Act. Such purchased breeding stock is assessed at cost price, less a depreciation allowance of 25% per annum. The amounts determined in the Act were laid down in 1963. They were of course intended for the more valuable kind of livestock such as stud animals. Since 1963 livestock values have increased considerably. As a result of representations received from the farming sector it has been decided to increase the specific amounts by 50% in respect of purchased breeding stock, as defined, which were acquired during the 1977 assessment year and ensuing years.

However, certain problems have arisen in regard to the assessment of the livestock of companies. The basis of valuation applicable in the case of natural persons does not apply to companies. The Act provides that a company shall value its livestock at purchase price or the price which, in the opinion of the Secretary, is the current market price of such livestock. This provision has been in operation since 1943. At the time there was little difference between market prices and standard values. Since then, market prices have increased considerably, with the result that if the provisions of the Act are strictly complied with, it could be said that companies are to a certain extent being discriminated against because a company, merely as a result of the increase in market values, has to add unrealized profits to its income. As a result of representations that have been received, it has been decided, with effect from the 1977 assessment year, to apply the existing rules with regard to ordinary farmers to companies and deceased estates as well. A company or deceased estate must apply these rules to the valuation of its livestock on hand at the end of the 1977 assessment year. The value of the livestock at the beginning of that year shall be the value thereof at the end of the 1976 assessment year as accepted in the assessment for that year.

Clause 31 amends the provisions of paragraph of the First Schedule to the principal Act. The concession in regard to excess farming profits derived as a result of the acquisition of a farm by the S.A. Bantu Trust is being extended to make provision for cases in which farms are acquired by other Government departments, or by local authorities or certain juristic persons or bodies referred to in the Expropriation Act, 1975. Hon. members will recall that during the debate on the Second Reading of the Income Tax Bill of 1975 an appeal was made for relief for companies, or the shareholders of companies, where companies’ farms were expropriated. After careful consideration it has been concluded that the concession cannot be extended to companies. The concession is intended for the envisaged cases where the exceptionally high marginal scales of taxation are paid on excess farming profits. This happens only in the case of persons other than companies. A person who prefers the company form, does so for several reasons and it is frequently found that the income which is then taxed in the hands of the company, is already calculated at a lower rate than the individual rate. All that happens in the case of a company is that it has to pay its tax earlier, particularly in the case of a plantation company. The company does not pay additional tax. The position of the shareholders of such a company has also been considered. The appeal for tax relief in respect of dividend distributions is apparently based on the idea that the profit from sales or expropriation are distributed in full and immediately by way of dividend, and in that way raises the marginal rates of taxation of the shareholder.

It is not necessarily the case that the profits will be distributed in one amount or that the company will be liquidated.

By distributing dividends equally, the company itself effects a levelling off in regard to the income of its shareholders from dividends, of which not more than two-thirds is taxed in any event.

All in all therefore I do not think that any further relief measures are justified.

The increase in the interest rate on the recently announced Special Tax-free Building Society Shares, requires amendments to sections 10(1)(i) and 64C(fA) of the Income Tax Act. Since these amendments will essentially be necessary only when the 1977 assessments are levied next year, the necessary statutory amendment will be effected with retrospective effect next year rather than to propose an amendment of the Bill at this late stage of the session. Investors in these tax-free shares are assured that they will not be prejudiced in any way.

Mr. Speaker, first of all I should like to thank the hon. the Minister for providing us with such a clear explanatory memorandum on this Bill. This Bill is not an easy one for the layman to understand. We are extremely limited in the time that we have to debate it, and it is therefore very important to us that we do have the explanations provided in the explanatory memorandum.

Sir, this is a Bill which provides for the raising of a huge sum of money, to wit R5 326 million. In terms of anybody’s language, that is a huge amount. In terms of the South African scene, it represents approximately 18% of what is likely to be the national income this year, and it represents two-thirds of the total amount of money that is going to be raised to run the country. Clearly, therefore, this is a very important financial measure, a measure which has major implications as far as the country’s economy is concerned. This is the Bill which spells out the prescription for much of the medicine which the hon. the Minister announced in his budget on 31 March, the medicine which the taxpayer would have to swallow in order to restore the economy to health. Let there be no doubt about the bitterness of this medicine, and let there be no doubt that the medicine which we are going to have to swallow, will have harmful side-effects. The medicine in this Bill consists primarily of three pills. The first is the personal income tax pill which, including the loan levy, raises the top marginal rate of income tax to 72%, a rate which for the past ten years—possibly going back further. I have not gone back further than 10 years—is the highest marginal rate, except for 1971, when the top marginal rate was 78%.

The second pill is the company tax pill which raises company tax on non-mining companies to the all high level of 49%, including the loan levy.

The third bitter pill which we shall have to swallow is the undistributed profits tax, which is raised from 25% to 33⅓%; 33⅓% is a penal rate. It is only mitigated by the fact that after paying company tax, there is so little left that it is unlikely that much will be paid by way of undistributed profits tax.

Mr. Speaker, as I have already indicated, let there be no mistake about the harmful side-effects of taxation at these levels. Personal income tax, even before the increase brought about by this Bill, was at a level which was providing a disincentive to work and a disincentive to productivity. Many people were not finding it worthwhile to put the additional effort into earning the additional rand, because they were left with so little of that additional rand.

That is not true.

What was needed before this Bill, was an upward revision of income tax brackets to take care of the diminishing value of money. Other countries have done that—other countries have taken inflation into account—and Canada has even introduced a system of indexation of income tax brackets. Instead, in this budget, we get no relief whatsoever from the impact of tax progression; in fact, the position is considerably exacerbated by the increase in the tax rate.

The position with regard to companies is just as harsh as the position with regard to individuals. The main problem facing companies is the maintenance of an adequate cash flow, a cash flow to finance the replacement of assets, both current and fixed at the higher costs that they cost in inflationary times.

Now you are right.

Between 1974 and 1975 the total amount which companies were able to save actually went down from R1 389 million to R1 250 million, so that there was already then less left over to finance expansion and replacements. Now an increased slice of the cash available to the companies is being taken by the company tax, which makes the problem of maintaining a cash flow and replacing assets all that more serious and difficult.

This House and the country at large should have no illusions that they are having to swallow this unpalatable medicine because of the past mistakes of this Government in managing the economy. Put in a nutshell, what we are paying for, in this Bill we are discussing now, is the wasteful adherence of Government to costly, unproductive, obstructionist and economically untenable ideological policies … [Interjections.] … which are totally irreconcilable with the country’s best interests. What we are also paying for, in this Bill which we are discussing, is the spending spree of the ’seventies when the Government expenditure was right out of line with the productive capacity of the country and right out of line with the real capacity of the country to pay.

Having said that, I would like to say in contrast that there are some welcome features in this Bill. In particular I would like to mention the concessions in respect of retirement annuity funds, which enable better retirement benefits to be built up, the concessions—small as they are—to persons over 60 years of age, the concessions to servicemen which are particularly welcome and the improvement in the appeal procedure which, I am advised, is a very considerable improvement in that it enables appeals to be made on questions of fact in addition to questions of law.

I am also very pleased to see that the hon. the Minister has taken the advice of this side of the House about the concession on excess profits arising from the expropriation of farms. This Bill, to all intents and purposes, introduces the amendment which was moved by my colleague, the hon. member for Wynberg, last year. I have said before in this House, and I say again today, that the hon. the Minister would save himself a lot of time and trouble if he listened to persons who know what they are talking about.

There are not many of them on that side.

Now I want to come to what I regard as the most important and radical aspect of this Bill, and that is the fact that it introduces a completely new principle into our system of taxation by giving the hon. the Minister the power to vary the rate of taxation by way of varying the loan levy to the extent of 10% of the basic tax rate between sessions, and only having to refer the changes he makes in the tax rate to Parliament during the following session.

That is an exaggeration.

We on this side of the House would have had difficulty in supporting this Bill even without this clause because of the adverse side-effects of the high rate of taxation which it introduces. However, this clause introduces a principle which we cannot accept and therefore we cannot support this measure at Second Reading.

I am well aware that the Franzsen Commission recommended that the Minister should have power to adjust certain taxes and loan levies between budgets as a means of achieving economic stability in the short term. In other words, the Franzsen Commission recommended the principle of increasing taxes and thereby withdrawing money from circulation in the economy when the economy needed damping down and, vice versa, reducing tax rates and thereby putting more money into circulation when the economy needed stimulation. The Franzsen Commission further recommended that use should be made mainly of indirect taxes—that is, customs, excise and sales taxes—as the fiscal instruments for achieving the stability that they had in mind. Changes in the rate of the loan levy or of income tax appeared, as far as one can judge from the Franzsen Commission’s recommendations, to be regarded by that commission as their second line of attack and not their first line of attack for maintaining fiscal stability. However, the Franzsen Commission also circumscribed their recommendations with two main conditions. The first one was that adjustments in taxes along the lines recommended between budgets should be subject to maximum percentage limits, which of course is included in the Bill. The second one—the more important one—was that additional receipts derived from increased taxes made by adjusting the tax rate upwards between sessions should be sterilized in the Stabilization Account at the S.A. Reserve Bank.

I should like to say emphatically that this side of the House is opposed to the principle of the Minister having power to increase taxes without the prior approval of Parliament. I will give my reasons for making that statement. The first one, the most important one, raises the whole question of parliamentary practice and organization. It is a basic and fundamental responsibility of Parliament, and Parliament only, to be the taxing authority and to be the authority which decides how the money which is derived from taxation should be spent.

We all know what you are going to say now.

This is fundamental to the democratic way of life. It is a responsibility of Parliament that cannot be shelved and cannot be delegated. I know that there are other countries which have delegated powers to vary tax between sessions, but those countries are very few in number and the powers delegated are very, very closely circumscribed. They are mainly directed to the power to vary indirect taxes and not direct taxes as is the case in this Bill. I believe that if taxes have to be increased in any circumstances of urgency, it should be Parliament that decides on such an increase and if necessary, if the urgency is such, a special session of Parliament should be called—otherwise the whole practice of having only one session of Parliament in a year in its present form should be reconsidered and reviewed.

I think you have a point there.

Apart from this reason, the most important reason, there are also practical and economic reasons for not granting the hon. the Minister the power which he seeks in terms of clause 5. The first of the practical reasons is that, if the taxpayer has the possibility of increased loan levies hanging over his head, this can only create uncertainty, particularly amongst businessmen and companies. The last thing we want in the South African economy at the present time is a further dose of uncertainty. This can only be damaging to business confidence which has already taken a pretty big battering in recent months.

The second economic reason for not accepting this concept is that the whole concept of using increased taxes to achieve economic stability is invalidated unless the conditions laid down in the Franzsen Commission report are observed. One of those conditions was that additional receipts must be sterilized in the Stabilization Account at the South African Reserve Bank. In practice that does not happen and it is not likely to happen. The Stabilization Account is anything but sterile. It is a very important element in active financing, especially in active financing of the National Supplies Procurement Fund. There can be no doubt whatsoever that, if the loan levy is increased after this session, as the hon. the Minister will have the power to do if this Bill is passed, the proceeds of any increased loan levy will certainly not be sterilized, but will be used to finance the deficit of R240 million for which the hon. the Minister is already budgeting, a deficit that has in fact already been swollen by additional expenditure commitments which have been announced since the introduction of the budget.

Mr. Speaker, for the reasons I have advanced and, particularly, for the reason that the power the Minister is requesting will fundamentally affect the rights of this House, we on this side will oppose the Second Reading of this Bill.

Mr. Speaker, the hon. member for Constantia advanced a whole series of reasons for not wanting to support this legislation. One of the most important matters he opposes is the power which the hon. the Minister is asking for to increase the loan levy by 10%. The hon. member is making a terrible blunder. Throughout his argument he said that the tax was being increased to such an extent, but he did not tell the House or the general public that what was at issue was a loan levy and not tax. The 10% which will be imposed in terms of this Bill is not tax. The taxpayer gets it back.

The hon. member said that the hon. the Minister should not be given this power. However, the Franzsen Commission recommended that the Minister should in fact be given it. Last year there was a deputation from the International Monetary Fund in South Africa and they specifically stated that the Minister should be given that power. That mighty world organization, the IMF, has so much confidence in the hon. the Minister and in the Government that they pleaded that the Minister be given that power. This will result in even more confidence in South Africa. The hon. member for Constantia did not give all the facts. Could I please have the hon. member’s attention? He stated here that there were a few countries in the world which had the power to impose indirect tax. But then the hon. member said that the Minister should not have that power in regard to loan levies. There is a vast difference. This hon. Minister is not getting the power in regard to tax which the State will seize and appropriate. There is a big difference if it is a loan levy. After all, the public gets it back again. This is not money which the Government is taking and paying out. The public gets it back and that is a very big difference. This is not nearly as far as those countries go. If it had been a surcharge of 10%, if it had been a tax, what would be the difference between a direct personal tax and an indirect tax? The hon. member does not clarify this for us.

I believe that the hon. the Minister is not going as far as the Franzsen Commission recommended, nor as far as the International Monetary Fund people recommended. The hon. the Minister only gets the power until Parliament convenes again. Then it has to be agreed to by this Parliament and if it is not agreed to … Apart from that, those people still get that money. The hon. member states that the Franzsen Commission imposed the condition that this money must be sterilized. However, this year, when he received more loans than South Africa needed, the hon. the Minister went so far as to sterilize the proceeds of those loans himself and place them in that Stabilization Fund. This hon. Minister is not asking for the power to spend recklessly in South Africa, but for the power to bring stability to the country, to maintain our economy in a healthy state and develop it and, if necessary, this Government will place that money in the Stabilization Fund. You need not be afraid on that score. Why do we want the power? The hon. member states that at present a state of uncertainty prevails among the public. He states that the public is now uncertain about what is going to happen to them, that there is a sword over their heads. It is specifically in order to introduce stability here that this power is being asked for. Our economy must be preserved in all respects. If we have an excessive amount of money in the country, then surely that recess money can be withdrawn by means of this measure. If there is an excessive amount of money in the country, then, through the power granted to him to impose a tax or a loan levy, the Minister may sterilize the superfluous money.

The Government goes even further. This hon. member states that the Government is paying for its mistakes today. He refers to the “spending spree” the Government went on in the past, to its unproductive and ideological legislation. I think we should take a brief look at this. Can the hon. members who will reply to my speech—and they are going to reply to it; the hon. member for Yeoville—tell me now in what respect this Government has spent money on ideological legislation? How has it been wasted? In South Africa there are four population groups: Whites, Coloureds, Bantu and Indians. The Government budgets separately for each of those groups. This is not in order to cheat them; it is not to cheat the world, but to tell the world and the public clearly that so much is being spent on each. The Government has given all of them schools, educational institutions, universities, recreation facilities and other facilities. These are things they would never have received under the policy of any of the Opposition parties. Now they can say that the Government has spent too much money in the homelands.

The Government is spending money in the Bantu homelands in order to uplift and develop them. Does the hon. member for Simonstown, who is sitting there laughing so cynically, want to tell me that the schools and all the facilities the Government has given the homelands are not to the advantage of those Bantu? Are they to their disadvantage?

They can tell the Government that the land it has purchased in the Bantu homelands—the land which the Government has purchased from Whites in order to put it at the disposal of the Bantu homelands, is wrong. Surely that money has not been thrown away. The White farmers received that money and this is to the benefit of those non-Whites. In no respect and in no way has any money been wasted and spent in a way not to the benefit of the inhabitants of South Africa. The hon. members can in fact advance another complaint and could perhaps devote their attention to that. Allow me to mention just one example in case they say that we in South Africa pay high taxes. I can point out to hon. members what is paid in Sweden. In Die Burger of Wednesday, 16 June the example of the major authoress, Astrid Lindgren, is mentioned. She provided the following details—

That is far more than her whole income; that is what is paid in Sweden. The position in other countries is far worse even than that. However, I do not have the time now to quote all the tables to hon. members in order to indicate how little we in South Africa pay in tax. However, I want to touch on one matter, and that is that the marginal scale in South Africa has risen steeply, not in respect of tax alone but in conjunction with the 10% loan levy which is added to it. This levy is paid back but nevertheless the tax scale in South Africa is high. The question occurs as to why this is so. It is because only 8% of our total population pays income tax. I am referring only to direct income tax. In other developed countries one finds that between 30% and 40% of the inhabitants of that country pay income tax. I think that we in our country could take another look at this issue. The hon. the Minister said that the Standing Committee on Income Tax was doing this, and I want to ask the hon. the Minister to tell us how far the committee has progressed in regard to this matter of bringing down the marginal scale. It would be helpful to hear that the commission is giving this matter its constant attention and it would be as well if it could be reconsidered. However, there is another alternative, too, that could be adopted, and that is to switch over from a purchase duty to a sales duty. I have not made any calculations, but the figures with which I have been provided indicate that if we were to switch to a sales duty—in other words, tax at the terminal point—the money collected in this way would be about four times as much as in the case of a purchase duty. This could be done without causing an escalation of prices. However, if such a scheme were to be introduced, we should have to have a three month taxfree period so that available supplies could be exhausted. If this could be brought into effect in South Africa, more revenue could be collected from taxes, a broader section of the public would pay them, and this would be to the benefit of South Africa.

I want to conclude by saying that we in this country must be more positive, and here I include the Opposition. This revenue from taxes is not thrown away. We are living in a land of milk and honey; we are living in a land of prosperity, and I think that every person must be prepared to play his part when it is expected of him—as is the case now with the greater demands set as regards defence expenditure. The public is prepared and is doing so. It is only the Opposition that does not want to do so.

Mr. Speaker, the hon. member for Sunnyside has actually broken a record today, because he has said something which we on this side of the House can agree with, and that is that as far as the concept of sales tax is concerned, the tax should be imposed on the point of sale and it should not be imposed in the manner in which it is done now. The only difficulty is that the hon. member cannot be completely right at any time. This is actually a subject for discussion during the debate on the Customs and Excise Bill and not on the Income Tax Bill. Subject to that, I am happy that the hon. member has raised this question, because it is something that we on these benches have pleaded for for some time. The hon. member has, however, issued some other challenges. He issued a challenge specifically to me and said that I had to defend the hon. member for Constantia. He is big and old enough to defend himself, but I am nevertheless very happy to do so. He asked me to say where money had been spent on ideological expenditure in South Africa.

Where it has been wasted.

I will tell hon. members where it has been wasted. The hon. the Minister for Public Works in answer to a question yesterday said that as far as the courts were concerned, from now on we were not going to have separate entrances and that we were not going to have separate facilities inside the courts, but that for economic reasons we were not going to make changes where separate entrances had been built. Is that no a waste of money, because from now on we are not going to use them? Let us talk about ideological expenditure when it comes to the moving of people and the pulling down of houses when other people are screaming for houses. One can talk about ideological expenditure when you move people around for ideological reasons and for no other reasons.

Those houses were slums.

Nobody in this House can say that the only house that has been pulled down was a slum. That is not so. The hon. member who alleges that is telling an untruth.

You are the liar, not I!

Order! The hon. member for Sunnyside must withdraw the word “liar”.

Mr. Speaker, the hon. member said I had told a lie and I then said that he was a liar. But I withdraw it, Sir.

I did not understand it in that way. What did the hon. member for Yeoville say?

Mr. Speaker, I said that if an hon. member alleges that only slum houses have been pulled down, that member was telling an untruth. That is parliamentary. [Interjections.] The whole machinery of apartheid, from an ideological expenditure. For instance, there is the creation of jobs for ideological reasons, whereas they can be created much more cheaply on economic grounds elsewhere. Is that not wasteful expenditure? There are many examples of this being done. However, when the hon. the Minister introduced this measure, he used a phrase which I want to take him up on. The hon. Minister said: “It will be grossly irresponsible if, in order to curry favour with those who measure their patriotism by means of rands and cents, it shirks its duty…” The hon. the Minister has the habit of continually referring to patriotism when he is in difficulty. Dr. Johnson had a word for it, and I think the hon. the Minister will remember it. I should rather like to say that it seems as if patriotism is the last refuge of the hon. the Minister of Finance.

What did you say yesterday?

I want to say to the hon. the Minister now that I think it is more unpatriotic to be inefficient, to overspend, to overtax, to impose burdens which the people find difficulty in bearing and it is more unpatriotic to assist the encouragement of inflation in South Africa by introducing forms of taxation which, in fact, add to inflation. These are unpatriotic actions. It is perfectly proper, and not a question of currying favour with people who measure their patriotism in rands and cents, to demonstrate that it is not in the interests of South Africa to raise taxation in a particular manner. I believe the duty of a revenue raising authority is to raise the taxation fairly, to spread the burden evenly and not to kill incentive. The difficulty which exists in regard to these proposals, is that they do not spread the burden evenly and that they kill incentive. At the moment we have the situation that everyone knows that we have an inflation spiral and that people on their earnings are finding it more difficult to maintain their standard of living, and when taxes go up, the remaining income is even less in order to maintain a standard of living. When we take this into account together with the anti-inflation programme, in terms of which one is not to get salary increases to keep pace with inflation, and one adds the taxation to that, then one is imposing an unfair burden on the working man to bear at this time. It is also clear that people who live on fixed interest, who saved for their old age, are finding it more and more difficult to maintain living standards, but the hon. the Minister does nothing whatsoever to assist these people. These people have saved for their old age; they have made provision for it, but they receive no assistance whatsoever from the hon. the Minister.

Have you looked at the Act?

Yes, I have looked at it very carefully. The only provision the hon. the Minister has made is in respect of people over 60 and even then there is only a concession. It is not a concession to fixed interest earners at all, but a concession which applies to everybody. That is the only provision that is made in this regard. If there is another one, I wish the Minister would point it out to me. Let me give another example.

Anyone can see that you will still be in opposition in 20 years’ time.

Anyone can see that the hon. member does not understand the legislation. That is clear.

†I shall go another point, and the hon. member for Langlaagte can tell me whether or not he agrees with me. The burden is falling very heavily on people who occupy rented premises, particularly the elderly tenants. If one owns a property and if one has a mortgage bond, there are certain provisions in order to get certain concessions. However, there is nothing whatsoever for the poor man who does not even have the money to buy his own house in order to get the same concession he would get if he had a mortgage bond. The hon. the Minister is not prepared to make any concessions to tenants. I should like to hear what the hon. member for Langlaagte has to say now. I should like to hear what he says now about the tenants in Langlaagte, who are struggling to make ends meet.

Why should I help the hon. member out of his confusion?

Because he cannot concede that he wants to do his own tenants, his own voters, in his constituency harm. For him that is not important. Tax increases are being imposed when in fact the situation at present is difficult for the worker, the pensioner and the people who saved for their old, age, and the tenant. A burden is being imposed on all these people.

Let me ask the hon. the Minister another question. Where in this budget is there any meaningful encouragement to productivity? We are all told that in order to fight inflation, we have to work harder. Indeed, we have to work harder. However, where is the encouragement to productivity in this budget? Where is it? It certainly cannot be seen by anybody who reads the Bill. There is no incentive in the Bill to work. On the contrary, with the marginal rates of taxation which exist at all sorts of levels, we find that there is a disincentive to work when in fact there should be an incentive. This is the main criticism of this budget.

I should also like to deal with the savings levy and the fact that the hon. the Minister now takes the power to increase and re-increase the savings levy. The hon. member for Sunnyside says that people will get their money back. However, what does one get back after a period of seven years? One gets back in purchasing power less than half of what one gave the Exchequer. What the Government is doing, is to take real money and to give back Mickey Mouse money. That is what will be happening after seven years. The rate of interest is not enough to compensate for it. There is therefore no doubt that the savings levy is of a taxation nature and that one will get back money with less purchasing power. The hon. member for Sunnyside said that the IMF came along and said we had to do this. With great respect to the hon. member for Sunnyside, if he had listened to the hon. the Minister during the Budget debate—I cannot account for the fact that he did not listen to the hon. the Minister—he would have discovered that the IMF came here to tell us to put our house in order before we could get certain facilities.

Complete nonsense!

Of course, this is true. It was said that we could get the facilities only if we gave certain undertakings.

Nonsense.

It is a fact. It was said that we could only get these facilities if we put one’s house in order. That is the whole point. With great respect, to now seek …

Mr. Chairman, may I ask the hon. member if he is aware that the IMF visits member countries to carry out an inspection and that the report on South Africa has always been favourable?

It is quite clear, that as far as the IMF is concerned, we drew certain facilities and that we had to give certain undertakings in order to get those facilities. It is a fact. What is more, it is public knowledge, because everybody knows it. The truth of the matter is that the power sought in respect of the savings levy creates uncertainty for reasons which the hon. member for Constantia has put very well, and I do not want to enlarge on them, except to endorse them. I think it creates uncertainty and removes parliamentary control.

Sir, I want to deal, if I may, with some other matters very briefly. There are the changes which have been made in respect of appeals. I want to tell the hon. the Minister that I think these are welcomed by the people concerned in these matters, because I think it removes a problem which has existed for a long time. In respect of defence service, I should like to say to the hon. the Minister that whereas one welcomes that payment for national service is not to be liable to tax, the actual amount involved in the normal course would not make a young man, who has no other income, liable for tax. In my view it is the bonus which should in fact also be exempt from tax, not only because that is what really brings him into the taxable range, but the Government should encourage people to render the extra service. The bonus therefore should be exempt from tax.

In so far as UPT is concerned, I endorse what the hon. member for Constantia has said. It is not necessary to repeat that. But with regard to the Transkei I see very real problems, problems which I hope will be solved in double taxation agreements, of which we do not have the details, because the problem of the company which is registered in South Africa and which does part of its business in the Transkei, gets certain concessions in the Transkei and which is entitled to have these concessions transferred in some respects to the holding company in the Republic of South Africa, is likely, I believe, to cause considerable difficulty unless it is adequately covered in the double taxation agreements. If I may also, in connection with the question of dividends, just ask in relation to the double taxation agreements between South Africa and the United Kingdom as to how far we are in respect of the renegotiation of this agreement and also whether this will again contain an anti-discrimination clause which then would become relevant in so far as the position of dividends is concerned on shares which are held by branches and are owned by branches of non-resident concerns. I should like to hear what the hon. the Minister is going to say in respect of this matter. Sir, as far as we are concerned, we cannot support this measure in its present form and I would therefore like to move as an amendment—

1. (1) it imposes an increased burden of taxation upon sections of the working population at a time when the ravages of inflation are already making serious inroads upon reasonable living standards; and
2. (2) it damps the incentive to work and fails to encourage productivity.”.

Mr. Speaker, I want to thank the hon. member for Sunnyside for the well-balanced opinion we have had from him in this debate in contrast with what we had from the opposite side of this House this afternoon, among other things the statement made by the hon. member for Yeoville with regard to the visit of the IMF. The hon. member for Sunnyside is quite right and the hon. member for Yeoville is quite wrong. But I shall deal with the object of this visit and I shall refer to it briefly in a moment. Sir, I am unable in this reply to furnish answers to all the matters which have been raised. Therefore, I shall be brief. We can deal with some of the matters when we come to the Committee Stage.

†I want to deal with one or two more general points now. The hon. member for Constantia used a new phrase and spoke about the “side-effects” of income tax. Perhaps he will be a little more specific and tell us precisely what he means by side-effects. He spoke about the high marginal rates of tax and asked why we did not index tax rates as they did in Canada. I would like to remind the hon. member that the indexing of tax rates in Canada has led to an enormous budget deficit This is worrying the authorities very much. This is exactly what would happen here if we were to follow the same system. In fact, one can spell out the reasons for that with a good deal of clarity. But we can deal with that perhaps on another occasion.

Furthermore, the hon. member for Constantia spoke about company savings having declined. I would like to know how he defines savings. Has he kept a constant notion of savings over the years? What precisely is company savings? After what payments have been made does he want to save? He says that if we give this power to the Minister to make this very limited adjustment to the loan levy—not to tax rates, but to the loan levy—we are going to create uncertainty in the minds of taxpayers. However, it is only a matter of time. The taxpayer does not know from one year to the other what the tax rates are going to be. There is always a measure of uncertainty. We certainly do not intend using the powers which we are now seeking, except when, in our view they are absolutely essential. That is the only time we shall try to use them and then, as I say, we are limited to 10% of the loan levy. That is all there is to it. There is, as the hon. member for Sunnyside said, a very substantial difference between a tax and a loan levy. The loan levy is a loan and is repayable in seven years at a rate of interest of 5%. This interest is tax free. For a man who earns a substantial income, that means a very big return, as I have argued before in this House. So, for many people it is a very good investment. It is a compulsory loan; with that I will agree, but it is a loan and not a tax and we are restricting ourselves to that.

In talking about tax rates, it might interest the hon. member for Constantia to know that if one looks at the increases in tax in the last budget, including the loan levy, and take them as a percentage of income, what does that increase mean in relation to the income earned? In other words, what is the effective rate per cent? If one takes the case of a man with an income of R3 000, there is no increase in the effective rate. He is not hit. In the case of a man earning R4 000 it is 0,6% increased tax, including the loan levy. For the man earning R5 000, it is 0,8%. It is only when one reaches an income of R6 000 that it becomes 1%. It is only when one gets to an income of R12 000 that the increase is 2%. When the figure is as high as R50 000, it is still only 6%. That is the order of these increases and I do think the hon. member greatly exaggerated the matter.

What is the percentage with regard to companies?

I do have the figures, though not with me here, and they are nothing to worry about at all. I gave them in the Other Place not long ago. I shall give these figures to the hon. member in Third Reading or during the Committee Stage. With regard to the high marginal rate I would like to say, first of all, that the 72% includes a loan levy increase of 6%. It rose from 63% to 72% as a result of this budget. Six percent of this is loan levy. However, the 72% is not the rate at which the man at the top pays tax. His tax rates, as the hon. member knows, is calculated according to the rates applying to the successive categories or classes of income; so in fact he is not paying 72% on his whole income; he is paying an average. If one looks at the latest tax rates, on an income of R30 000 a married man will pay R11 000 or 36% of his income by way of income tax, which leaves him R19 000 after tax. Although the top R2 000 of his income is taxed at 72%, his income as a whole is taxed at 36%. This is a very common point of confusion in the minds of the public. They often maintain that the man at the top is paying income tax at the rate of 72%. He is not.

He is paying it on any additional income.

He is only paying 72% on the last R2 000. A man earning R50 000 is taxed R24 200, or 48%, leaving him R25 800 after tax. Again it is only at the top that he pays 72%. There is a progressive rate, and each of those income categories attracts the rate applying to it. It is therefore only on the last R2 000 that he pays 72%. I think that is important to note because it seems to me it is something which is generally misunderstood.

Since I am talking about tax, let me just refer to something I notice has not been raised here today. It seems to have been forgotten, although it was a great bone of contention last year. I am referring to the tax on married women. Hon. members will remember that at the time of my budget speech I tabled the report of the Taxation Commission which had, in conjunction with the Department of Inland Revenue, made a careful study of this. It is interesting that an authoritative publication like the Income Tax Reporter should talk in the most glowing terms of this Report on the Taxation of Married Women. I should like to quote just a very short section. The article reads as follows—

The article goes on to state that understaffed and undertrained as they are, those public servants nevertheless maintain that high standard. I quote further—

The article goes on to state—

I hope hon. members will bear this in mind. The hon. member for Constantia has not been listening, but he was one of those who criticized us on this issue. He might like to look at this report in The Taxpayer because Dr. Silke’s name was mentioned, and that is the authority that was involved.

I think the hon. member for Yeoville has made one of the most unfortunate speeches that he has made for some time. He started off with a rather emotional reference to the ideology of this Government. He said it is something that has caused us to adopt all kinds of wrong policies. He did not give any proof, however, except for citing one absolutely trivial “example”, as he put it, and then he taxed me for using the word “patriotic”. He seems to be very sensitive about that. Yesterday when I referred to his remarks on the defence bonds which he made in public the day after they were announced, he taxed me because he said I had not, in fact, referred to his remarks about people being patriotic. He used that very word. So he may use that word, but if I use it it is apparently quite wrong. Of course I shall use the word “patriotic” if I think it should be used. It is a very good word. In regard to the loan levy he said that one gets back less than half after seven years. That is what I wrote down.

In purchasing power.

In purchasing power. He said “less than half”. I should like to query that, however. It all depends what one’s earnings are. The 5% interest one gets on the loan levy payment is a very substantial return. One has to take it, of course, at different rates of income. I therefore certainly think that was a really gross exaggeration.

I do not know why, but the hon. member also thought this was the occasion to make derogatory remarks about the South African economy in relation to the International Monetary Fund. Let me put the record straight, however. From time to time, as the hon. member for Sunnyside correctly said, the IMF sends missions to member countries. This is a routine procedure. Those missions are sent from time to time to look at the economic developments that are taking place and at the state of the economy. In about October or November of last year the IMF sent a three-man mission. The chairman was a most eminent economist who impressed all of us who had long discussions with him, not only with his qualifications, ability and insight, but also with his absolute objectivity. Let the hon. member for Yeoville know that the report which that mission submitted is something of which this country can be enormously proud. It is one of the finest authoritative documents I have seen on the South African economy for many years. It is something one would hope might be more widely read, although such documents have a restricted circulation and use. In that report the commission made, inter alia, a firm recommendation that it would be in the interests of the South African economy, and of its financial management, for the Minister of Finance to be given a certain measure of discretion to vary tax rates. They pointed to the system that particularly affects us where we have an administration in Pretoria and a legislative authority in Cape Town. Our system is that we sit for perhaps five months in Parliament and then we have a long break of perhaps seven months. They pointed out that in several countries in the world today, even if they do not have that problem, they nevertheless have empowered their Ministers of Finance to have fairly considerable discretion to change tax rates. We have none. The only discretion that the Minister of Finance has is to reduce sales tax. That is the position. This was a firm recommendation very clearly motivated. They went much further than this, because they recommended that the Minister of Finance should take early powers to be able to increase or to reduce tax rates. They set this out, as I say, in a very carefully and clearly motivated passage which is relevant to what we are doing here. I should like to put that record straight. That was the position and that was the quality of that mission. It is not as if they came here, as I almost got the impression the hon. member was saying, to spy on our economy and to lay down all sorts of conditions with which we would have to comply.

That is rubbish.

That was not the purpose of that mission. Their recommendations are contained in the report which is absolutely clear.

Are you suggesting…

The hon. member has had his chance to speak and he must not go on with a running commentary when I am trying to state the facts. What I am saying is completely factual. I am pleased to be able to put the record straight. The hon. member will obviously continue to adopt this negative, derogatory attitude which he has displayed again today but which is a matter of great regret to me. The South African economy is too great to be trifled with by the hon. member for Yeoville and his party in debate after debate in this House. Our economy means more to South Africa than that.

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

As the hon. the Minister has already resumed his seat, I cannot allow the hon. member the opportunity of putting a question.

Question put: That all the words after “That” stand part of the Question,

Upon which the House divided:

AYES—91: Albertyn, J. T.; Badenhorst, P. J.; Ballot, G. C.; Barnard, S. P.; Bodenstein, P.; Botha, G. F.; Botha, J. C. G.; Botha, L. J.; Botha, P. W.; Botma, M. C.; Clase, P. J.; Coetsee, H. J.; Coetzee, S. F.; Cronje, P.; Cruywagen, W. A.; De Beer, S. J.; De Jager, A. M. van A.; Du Plessis, G. F. C.; Du Plessis, G. C.; Du Plessis, P. T. C.; Du Toit, J. P.; Engelbrecht, J. J.; Greef, J. W.; Greyling, J. C.; Grobler, M. S. F.; Grobler, W. S. J.; Hartzenberg, F.; Hayward, S. A. S.; Hefer, W. J.; Henning, J. M.; Herman, F.; Heunis, J. C.; Hoon, J. H.; Janson, J.; Koornhof, P. G. J.; Kotzé, G. J.; Kotzé, W. D.; Krijnauw, P. H. J.; Langley, T.; Le Roux, F. J. (Brakpan); Le Roux, F. J. (Hercules); Le Roux, Z. P.; Ligthelm, C. J.; Ligthelm, N. W.; Louw, E.; Malan, J. J.; Marais, P. S.; Maree, G. de K.; McLachlan, R.; Meyer, P. H.; Morrison, G. de V.; Mouton, C. J.; Muller, H.; Muller, S. L.; Niemann, J. J.; Potgieter, S. P.; Reyneke, J. P. A.; Rossouw, W. J. C.; Roux, P. C.; Schlebusch, A. L.; Schoeman, J. C. B.; Scott, D. B.; Simkin, C. H. W.; Smit, H. H.; Snyman, W. J.; Steyn, D. W.; Steyn, S. J. M.; Swanepoel, K. D.; Terblanche, G. P. D.; Uys, C.; Van den Berg, J. C.; Van der Merwe, P. S.; Van der Spuy, S. J. H.; Van der Walt, A. T.; Van der Walt, H. J. D.; Van der Watt, L.; Van Heerden, R. F.; Van Rensburg, H. M. J.; Van Tonder, J. A.; Van Wyk, A. C.; Van Zyl, J. J. B.; Venter, A. A.; Vilonel, J. J.; Vlok, A. J.; Vorster, B. J.; Vosloo, W. L.; Wentzel, J. J. G.

Tellers: S. F. Kotzé, J. P. C. le Roux, A. van Breda and C. V. van der Merwe.

NOES—36: Bartlett, G. S.; Basson, J. D. du P.; Baxter, D. D.; Cadman, R. M.; Deacon, W. H. D.; De Villiers, I. F. A.; De Villiers, J. I.; De Villiers, R. M.; Eglin, C. W.; Enthoven (’t Hooft), R. E.; Fisher, E. L.; Hickman, T.; Hughes, T. G.; Kingwill, W. G.; Miller, H.; Mills, G. W.; Murray, L. G.; Oldfield, G. N.; Page, B. W. B.; Pitman, S. A.; Pyper, P. A.; Raw, W. V.; Schwarz, H. H.; Slabbert, F. van Z.; Sutton, W. M.; Van Coller, C. A.; Van den Heever, S. A.; Van Eck, H. J.; Van Hoogstraten, H. A.; Van Rensburg, H. E. J.; Waddell, G. H.; Wainwright, C. J. S.; Webber, W. T.; Wood, L. F.

Tellers: A. L. Boraine, and R. J. Lorimer.

Question affirmed and amendment dropped.

Bill accordingly read a Second Time.

Business Suspended at 18h30 and Resumed at 20h00.

Evening Sitting Committee Stage

Clause 1:

Mr. Chairman, this is the clause that fixes the rates of income tax, loan levy and tax on companies for the current financial year. It is one of the two clauses we find most objectionable in the Bill When I spoke during the Second Reading debate on this Bill, I think I made it clear that we regard the rates of taxation that are being fixed for this year as being at such a level that they will have harmful side-effects. The hon. the Minister in his reply to the Second Reading debate said he did not understand what I meant by side-effects. Let me explain what I do mean by side-effects. As far as personal tax is concerned, the marginal maximum rate, including loan levy, is now 72%. This means that of every additional rand one earns when one is on that level of taxation, one keeps 28 cents. It does not matter to the person at that level of taxation what percentage of his overall income is taken away by tax. What does matter is how much he will be left with out of any additional money he could earn by putting in an extra effort to earn more. This is where this level of taxation is harmful to productivity and to the incentive to work.

I do not think the hon. the Minister really appreciates the effect the escalating scale of taxation has on the incentive to work. Does he realize that a person who in 1969 earned R15 000 per year will now have to earn R40 000 per year to have the same standard of living? This effect is brought about by two things. It is brought about by the depreciation of the rand and by the effect getting into higher tax brackets has on what is left to such a taxpayer to spend. Let there be no doubt: This rate of taxation has harmful side-effects, and the sooner we get down to the more reasonable levels recommended by the Franzsen Commission, the better. The same applies to companies. Companies are now left with 51% of their profits. They have to use that 51% to pay dividends and for any reserves or expansion they want, and Lord alone knows, this country needs expansion in investment. A rate of taxation such as is provided for in the Bill is harmful to the economy and to the capacity of the economy to provide for the future improvement of the standard of living.

Mr. Chairman, the hon. member for Constantia made mention here of what he labelled “the marginal rate”. I concede at once that “the marginal rate” is high. It is a high rate. According to the hon. member for Constantia it amounts to 72%. In fact, the hon. member’s statement is not a correct reflection of the position. The hon. the Minister has also indicated that it is only the top R2 000 of income that is taxed at a rate of 72%. If, therefore, one makes an estimate of the true position, the result looks like this: Anyone who earns R30 000 per annum pays R11 000 in income tax. He is therefore still left with a balance of R19 000. This is an average income tax of 36,6%.

One could take it further. Anyone who earns R50 000—and I must say that anyone in South Africa who earns R50 000 per annum earns an enormous income—pays R24 200 in income tax.

They are people like Harry!

I do not know what the hon. member for Yeoville earns; however, it does not matter. An income of R50 000 per annum involves income tax of R24 200. This still leaves the taxpayer in question with a net amount of R25 800 per annum.

It is my contention that anyone who earns an income of R25 000 per annum can look after himself and all his in-laws without any trouble at all. [Interjections.] That is equivalent to a percentage rate of 48,4%. The statement and the calculation by the hon. member for Constantia to the effect that it is an average of 72% is not in fact correct.

However, the position must be inspected further if one is to discover that 63% of the taxpayers in South Africa earn less than R5 000 per annum. Furthermore, 86% of South Africa’s taxpayers earn less than R8 000 per annum, whereas 98% of the taxpayers have an annual income of less than R18 000. If the man who earns R50 000 is burdened with R24 000, I am sure that he is still very well off, particularly when his position is compared with that of the 98% who earn R18 000. The latter group includes members of Parliament, too. I do not believe, therefore, that the picture is such a sombre one.

It must be borne in mind that particularly as far as the higher income groups is concerned, the demands set and the services expected from the authorities are sophisticated. Provision must be made for that. If it had been a more modest community, like communities elsewhere in Africa, for example, our entire tax structure possibly could and would have been at a far lower level. That is why I am quite unable to agree with the hon. member for Constantia. I readily concede that the tax basis in South Africa is fairly precarious. I concede, too, that the time has come—and that this may perhaps be done, particularly in view of what the Government is doing at present—for our basis of tax to be given a broader foundation. Something of this nature would improve matters a great deal.

Mr. Chairman, if one puts this in another way, one might say that the number of taxpayers with incomes of more than R20 000, make out exactly 1% of the whole tax-paying public. Whom is the hon. member for Constantia referring to? I asked the hon. member what the side-effects that he talked about were and he replied “those who pay 72%”. On that basis a man who earns an income of R50 000 pays only 48% in tax. Whom is the hon. member then referring to? He is referring to an absolute minimal number of people, people one can count on the fingers of a couple of hands. Those are the side-effects the hon. member is referring to, the great disincentive effect of our taxes, as he says.

The other point that I want to make is that these tax increases are not nearly as heavy as he makes out, as will be seen from the effective tax rates which I gave earlier. This stems directly from the fact that we have made this much bigger provision for defence, as the hon. member knows. But he has never once mentioned it.

*This is the sole reason why the rates of taxation are slightly higher, viz. to finance the increased defence expenditure. That is the sole explanation for that.

Mr. Chairman, the hon. the Minister asked what the side-effects were and I am going to tell him what the side-effects are. The side-effects are that most professional people of South Africa, those who are worth their salt, are today working for nine months of the year only. During the remaining three months they spend the money which they made during the nine months because they are not prepared to pay the Government 72 cents in every extra rand that they earn. It is not only professional men that do this, but businessmen and industrialists as well. Where does the wealth of this country come from? The wealth of this country comes from that 1% or 2% at the top of the income tax scale, those who are providing employment for other people including the non-White people. I am glad to see that the hon. the Prime Minister is here. The hon. the Prime Minister is worried and has sleepless nights because there may be unemployment. If the hon. the Minister of Finance taxes the entrepreneurs of South Africa out of existence, the hon. the Prime Minister will have sleepless nights because he will then in fact have unemployment. The top businessmen and the top financial people of South Africa are not pulling their full weight, they are not working to the maximum of their potential, because they are being taxed out of existence. Who wants to work for an extra rand and end up with 28 cents? My friend said to me a minute ago that the result of the hon. the Minister’s taxation proposals is that the greatest shareholder in anybody’s enterprise is the Government, because the Government takes 72% before one starts thinking of any dividends or any profit that one might put in one’s own pocket. Those are the side-effects. I am giving them to the hon. the Minister. The economy of the country is suffering because there is no longer any incentive to those entrepreneurs to expand or to extend their activities.

Clause agreed to.

Clause 5:

Mr. Chairman, there is very little of the time left which has been allocated to members in these benches and I accordingly want to move the five amendments printed on the Order Paper in my name, as follows—

1. (1) On page 7, in line 18, to omit “increasing or”;
2. (2) on page 7, in lines 21 to 32, to omit paragraph (b) and the proviso;
3. (3) on page 7, in lines 33 to 40, to omit subsection (4);
4. (4) on page 7, in lines 47 to 54, to omit paragraph (b);
5. (5) on page 9, in lines 10 and 11, to omit “and amounts short-paid being recoverable from him”.

The purpose of these amendments—they should be read together—is to give the hon. the Minister the power to reduce the levy but not to increase it. We do not want a change at all in the law, but this is what we on these benches would prefer if anything is to happen.

Mr. Chairman, in case I get lost in the little time that is left to me, I move the amendment printed in my name on the Order Paper, as follows—

This goes a little further than the amendments proposed by the hon. member for Yeoville. He is prepared to concede to the hon. the Minister the right to alter the rate of the loan levy, provided he reduces it. The effect of the amendments of the hon. member for Yeoville is to remove from these clauses the power to allow the hon. the Minister to increase the rate of the loan levy. We in these benches believe that the hon. the Minister should not be given the power to vary taxation at all. I believe that this evening we have, in this clause, a manifestation, an admission, by the hon. the Minister of his inability to budget accurately. I say this advisedly—despite what the hon. the Minister might have to say—and I want to give the hon. the Minister an example. Since he introduced his budget and asked this House for approval of his budget, we have had the situation that all Civil Service salaries and pensions have been increased. There was no provision in the hon. the Minister’s budget for that increased expenditure. How is the hon. the Minister going to pay for it? I believe the hon. the Minister is going to use this ruse to raise the money to pay for those increased salaries and, in fact, to pay for any increased expenditure which the Government may have between now and March of next year when he has to present the next budget. This is not going to be done along the lines suggested by the Franzsen Commission. If the Franzsen Commission’s report was to be the basis of the hon. the Minister’s proposals here this evening, I believe the hon. the Minister would also have a clause providing for sterilization of those funds. If the hon. the Minister says that he has to use this power to control the economy of the country, he must also give an undertaking that if he does increase the taxation in any form, whether by way of the loan levy or in any other way, he will take the proceeds of such an increase and put them away in a fund that will not be used to fund State expenditure. That is the only way in which the hon. the Minister can justify any move to take more money out of the economy to dampen or cool an overheated economy where there is too much expenditure by the private sector. He can justify that only by taking those proceeds away and sterilizing them. However, there is no provision for this at all.

During the Second Reading debate the hon. member for Sunnyside told the hon. member for Constantia that we must not consider this as a tax, but as a loan levy …

That is correct.

The hon. member says that I am correct. He said that it would come back to the taxpayer, but I want to ask him if it is any easier to find the money to pay a loan levy than to pay a tax? Has he asked the taxpayers of this country whether they are happy to pay a loan levy out of their pockets when they are unhappy to pay a tax? It is exactly the same thing. Money is being taken from the pockets of people who today are suffering under a tremendous burden, viz. that of the increase in the cost of living. That hon. Minister should know that the Government has failed in its attempts to keep the inflation rate down and that it has failed in its attempt to cut down the cost of living. At the moment it is again running at 17,8%. Now the hon. the Minister wants the power to take more money from the pockets of the taxpayers. I do not believe that this is what should be asked for today. As I have said, the hon. the Minister is going to use this power. He claims that this will cool off the economy and extend the finances of the country. If the hon. the Minister will write into this clause an amendment to the effect that if he increases the loan levy at all, he will take the money so raised, put it into some fund, sterilize it and not use it to fund ideological Government expenditure, we can reconsider our attitude, but at this stage, I move the amendment printed in my name.

Mr. Chairman, I am unable to accept the amendments moved by the hon. member for Yeoville and the amendment moved by the hon. member for Pietermaritzburg South for reasons I gave in my Second Reading speech and in my reply to that debate. I should like to correct the hon. member for Pietermaritzburg South when he talks of a cost-of-living rate of something like 17%, because it is nothing like that. The other thing I do not understand, is what the hon. member means when he says that he will be satisfied if the Minister raises loan levies in order to sterilize the amount he raises.

I said if you increased them.

Why do you have to raise a tax in order to sterilize the revenue from that tax? It would surely be a completely stupid thing to do. Surely, as I explained earlier, one is only going to raise this levy when it is deemed absolutely essential in the national interest. It is purely an empowering measure, particularly where we face a dangerous world, through no fault of our own, and have to be prepared militarily. That is the reason underlying this. It is interesting that the hon. member for Yeoville concedes the principle that discretion must be given to the Minister to vary tax rates as long as he does not raise them. He can reduce them …

No.

Of course. The hon. member is accepting the fact that the Minister can reduce the rates and, as I understand his amendments, he is only objecting to the power given to the Minister to raise loan levies. That is what is involved. It is, therefore, rather interesting that he accepts the principle that the Minister be given a discretion. I regret that I am unable to accept these amendments.

Mr. Chairman, I must say that I am very surprised at the attitude of the hon. the Minister to the amendment moved by the hon. member for Pietermaritzburg South. When he introduced, in his Budget Speech on 31 March 1976, the idea of the power to increase or decrease the loan levy between sessions, it was for the purpose of having an instrument to stabilize the economy. This follows the recommendation of the Franzsen Commission. The Franzsen Commission recommended that this power to decrease or increase taxation between sessions should be given to the Government only in order to stabilize the economy.

I thought the hon. member said to sterilize the economy. [Interjections.]

To that recommendation they attached the condition that any additional money raised in this way should be sterilized in the Stabilization Fund. [Interjections.] The idea of using increased revenue or increased loan levies to pay for expenditure that had not been budgeted for in other ways, I think, is very bad financing. We on this side of the House can certainly have nothing to do with it.

On amendment moved by Mr. W. T. Webber,

Question put: That all the words from “(b)” in line 26 on page 5 up to and including “by” in line 18 on page 7 stand part of the clause,

Upon which the Committee divided:

AYES—82: Albertyn, J. T.; Badenhorst, P. J.; Ballot, G. C.; Bodenstein, P.; Botha, G. F.; Botha, J. C. G.; Botha, L. J.; Botma, M. C.; Clase, P. J.; Coetsee, H. J.; Coetzee, S. F.; Cronje, P.; De Beer, S. J.; De Jager, A. M. van A.; Du Plessis, G. F. C.; Du Plessis, G. G.; Du Plessis, P. T. C.; Du Toit; J. P.; Engelbrecht, J. J.; Greyling, J. C.; Grobler, W. S. J.; Hartzenberg, F.; Hayward, S. A. S.; Hefer, W. J.; Herman, F.; Hoon, J. H.; Janson, J.; Janson, T. N. H.; Koornhof, P. G. J.; Kotzé, G. J.; Kotzé, W. D.; Krijnauw, P. H. J.; Langley, T.; Le Roux, F. J. (Brakpan); Le Roux, F. J. (Hercules); Le Roux, Z. P.; Ligthelm, C. J.; Ligthelm, N. W.; Louw, E.; Malan, J. J.; Marais, P. S.; Maree, G. de K.; McLachlan, R.; Meyer, P. H.; Morrison, G. de V.; Mouton, C. J.; Muller, H.; Niemann, J. J.; Palm, P. D.; Reyneke, J. P. A.; Rossouw, W. J. C.; Schlebusch, A. L.; Schoeman, J. C. B.; Scott, D. B.; Simkin, C. H. W.; Smit, H. H.; Snyman, W. J.; Steyn, D. W.; Steyn, S. J. M.; Swanepoel, K. D.; Terblanche, G. P. D.; Uys, C.; Van den Berg, J. C.; Van der Spuy, S. J. H.; Van der Walt, A. T.; Van der Walt, H. J. D.; Van der Watt, L.; Van Heerden, R. F.; Van Rensburg, H. M. J.; Van Tonder, J. A.; Van Wyk, A. C.; Van Zyl, J. J. B.; Venter, A. A.; Vilonel, J. J.; Vlok, A. J.; Vorster, B. J.; Vosloo, W. L.; Wentzel, J. J. G.

Tellers: S. F. Kotzé, J. P. C. le Roux, A. van Breda and C. V. van der Merwe.

NOES—34: Bartlett, G. S.; Baxter, D. D.; Boraine, A. L.; Cadman, R. M.; Deacon, W. H. D.; De Villiers, I. F. A.; Eglin, C. W.; Enthoven (’t Hooft), R. E.; Graaff, De V.; Hickman, T.; Hughes, T. G.; Kingwill, W. G.; Lorimer, R. J.; McIntosh, G. B. D.; Mills, G. W.; Murray, L. G.; Olivier, N. J. J.; Page, B. W. B.; Pyper, P. A.; Raw, W. V.; Schwarz, H. H.; Slabbert, F. van Z.; Streicher, D. M.; Van Coller, C. A.; Van den Heever, S. A.; Van Eck, H. J.; Van Hoogstraten, H. A.; Van Rensburg, H. E. J.; Wainwright, C. J. S.; Webber, W. T.; Wiley, J. W. E.; Wood, L. F.

Tellers: E. L. Fisher and W. M. Sutton.

Question affirmed and amendment dropped.

Amendments moved by Mr. H. H. Schwarz negatived (Official Opposition and Progressive Reform Party dissenting).

Clause put and the Committee divided:

AYES—81: Albertyn, J. T.; Badenhorst, P. J.; Ballot, G. C.; Bodenstein, P.; Botha, G. F.; Botha, J. C. G.; Botha, L. J.; Botma, M. C.; Clase, P. J.; Coetsee, H. J.; Coetzee, S. F.; Cronje, P.; De Beer, S. J.; De Jager, A. M. van A.; Du Plessis, G. F. C.; Du Plessis, G. C.; Du Plessis, P. T. C.; Du Toit, J. P.; Engelbrecht, J. J.; Greyling, J. C.; Grobler, W. S. J.; Hartzenberg, F.; Hayward, S. A. S.; Hefer, W. J.; Herman, F.; Hoon, J. H.; Janson, J.; Janson, T. N. H.; Koornhof, P. G. J.; Kotzé, G. J.; Kotzé, W. D.; Krijnauw, P. H. J.; Langley, T.; Le Roux, F. J. (Brakpan); Le Roux, F. J. (Hercules); Le Roux, Z. P.; Ligthelm, C. J.; Ligthelm, N. W.; Louw, E.; Malan, J. J.; Marais, P. S.; Maree, G. de K.; McLachlan, R.; Meyer, P. H.; Morrison, G. de V.; Mouton, C. J.; Muller, H.; Niemann, J. J.; Palm, P. D.; Reyneke, J. P. A.; Rossouw, W. J. C.; Schlebusch, A. L.; Schoeman, J. C. B.; Scott, D. B.; Simkin, C. H. W.; Smit, H. H.; Snyman, W. J.; Steyn, D. W.; Steyn, S. J. M.; Terblanche, G. P. D.; Uys, C.; Van den Berg, J. C.; Van der Spuy, S. J. H.; Van der Walt, A. T.; Van der Walt, H. J. D.; Van der Watt, L.; Van Heerden, R. F.; Van Rensburg, H. M. J.; Van Tonder, J. A.; Van Wyk, A. C.; Van Zyl, J. J. B.; Venter, A. A.; Vilonel, J. J.; Vlok, A. J.; Vorster, B. J.; Vosloo, W. L.; Wentzel, J. J. G.

Tellers: S. F. Kotzé, J. P. C. le Roux, A. van Breda and C. V. van der Merwe.

NOES—35: Bartlett, G. S.; Baxter, D. D.; Boraine, A. L.; Cadman, R. M.; Deacon, W. H. D.; De Villiers, I. F. A.; Eglin, C. W.; Enthoven (’t Hooft), R. E.; Graaff, De V.; Hickman, T.; Hughes, T. G.; Kingwill, W. G.; Lorimer, R. J.; McIntosh, G. B. D.; Mills, G. W.; Murray, L. G.; Olivier, N. J. J.; Page, B. W. B.; Pyper, P. A.; Raw, W. V.; Schwarz, H. H.; Slabbert, F. van Z.; Streicher, D. M.; Van Coller, C. A.; Van den Heever, S. A.; Van Eck, H. J.; Van Hoogstraten, H. A.; Van Rensburg, H. E. J.; Von Keyserlingk, C. C.; Wainwright, C. J. S.; Webber, W. T.; Wiley, J. W. E.; Wood, L. F.

Tellers: E. L. Fisher and W. M. Sutton. Clause agreed to.

Clause 7:

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

I moved this amendment because I feel that where a national serviceman is prepared to serve for longer than the compulsory period, he should not be subject to tax in this respect.

Mr. Chairman, I regret that I am unable to accept the amendment. As the hon. member says, it is really consequential on the amendment to clause 9, an amendment which, I say right away, is also unacceptable.

Amendment negatived (Progressive Reform Party dissenting).

Clause agreed to.

Clause 9:

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

I would like to hear from the hon. the Minister why he regrets being unable to accept this amendment because I think there is a valid reason why it should be accepted.

Mr. Chairman, as I said I am unable to accept this amendment. The hon. member for Yeoville apparently wants these service gratuities to be exempted from tax in the same way as the daily cash allowances and the allowances for rations, lodging and so on. The service gratuity, however, stands on a completely different footing to other allowances. The men who qualify for the service gratuity are volunteers who do this to a large extent because of the gratuity and possibly to avoid annual camps. The gratuity can be compared with the salary of any other young man who leaves school and goes to work. There is a motive of gain here that does not apply to the daily cash allowance of 94 cents and the value of rations and lodging which are given to persons doing compulsory service as part of their keep. The tax on the service gratuity is, in any case, watered down quite substantially by the provisions of the new proposed section 7A(3) of the Income Tax Act which allow the gratuities to be spread over the period of service. That is the essence of my difficulty in that respect.

Mr. Chairman, I have little time to reply. I merely want to make one point. There is no comparison between a young man who agrees to do extended service and gets a gratuity and a young man who takes a job. Though the hon. the Minister suggests a comparison, there is no comparison whatsoever. One man is doing a job for his country while the other is doing a normal job of work.

Question put: That the words stand part of the clause,

Upon which the Committee divided:

AYES—84: Albertyn, J. T.; Badenhorst, P. J.; Ballot, G. C.; Bodenstein, P.; Botha, G. F.; Botha, J. C. G.; Botha, L. J.; Botma, M. C.; Brandt, J. W.; Clase, P. J.; Coetsee, H. J.; Coetzee, S. F.; Cronje, P.; De Beer, S. J.; De Jager, A. M. van A.; Du Plessis, G. F. C.; Du Plessis, G. C.; Du Plessis, P. T. C.; Du Toit, J. P.; Engelbrecht, J. J.; Greeff, J. W.; Greyling, J. C.; Grobler, W. S. J.; Hartzenberg, F.; Hayward, S. A. S.; Hefer, W. J.; Herman, F.; Hoon, J. H.; Janson, J.; Janson, T. N. H.; Koornhof, P. G. J.; Kotzé, G. J.; Kotzé, W. D.; Krijnauw, P. H. J.; Langley, T.; Le Roux, F. J. (Brakpan); Le Roux, F. J. (Hercules); Le Roux, Z. P.; Ligthelm, C. J.; Ligthelm, N. W.; Louw, E.; Malan, J. J.; Marais, P. S.; Maree, G. de K.; McLachlan, R.; Meyer, P. H.; Morrison, G. de V.; Mouton, C. J.; Muller, H.; Niemann, J. J.; Palm, P. D.; Reyneke, J. P. A.; Rossouw, W. J. C.; Schlebusch, A. L.; Schoeman, J. C. B.; Scott, D. B.; Simkin, C. H. W.; Smit, H. H.; Snyman, W. J.; Steyn, D. W.; Steyn, S. J. M.; Swanepoel, K. D.; Terblanche, G. P. D.; Uys, C.; Van den Berg, J. C.; Van der Spuy, S. J. H.; Van der Walt, A. T.; Van der Walt, H. J. D.; Van der Watt, L.; Van Heerden, R. F.; Van Rensburg, H. M. J.; Van Tonder, J. A.; Van Wyk, A. C.; Van Zyl, J. J. B.; Venter, A. A.; Vilonel, J. J.; Vlok, A. J.; Vorster, B. J.; Vosloo, W. L.; Wentzel, J. J. G.

Tellers: S. F. Kotzé, J. P. C. le Roux, A. van Breda and C. V. van der Merwe.

NOES—37: Bartlett, G. S.; Baxter, D. D.; Cadman, R. M.; Deacon, W. H. D.; De Villiers, I. F. A.; De Villiers, R. M.; Eglin, C. W.; Enthoven (’t Hooft), R. E.; Fisher, E. L.; Graaff, De V.; Hickman, T.; Hughes, T. G.; Kingwill, W. G.; McIntosh, G. B. D.; Mills, G. W.; Murray, L. G.; Oldfield, G. N.; Olivier, N. J. J.; Page, B. W. B.; Pyper, P. A.; Raw, W. V.; Schwarz, H. H.; Slabbert, F. van Z.; Streicher, D. M.; Sutton, W. M.; Van Coller, C. A.; Van den Heever, S. A.; Van Eck, H. J.; Van Hoogstraten, H. A.; Van Rensburg, H. E. J.; Von Keyserlingk, C. C.; Wainwright, C. J. S.; Webber, W. T.; Wiley, J. W. E.; Wood, L. F.

Tellers: A. L. Boraine and R. J. Lorimer.

Question affirmed and amendment dropped.

Business interrupted in accordance with Standing Order No. 74.

Clause agreed to.

House Resumed:

Bill reported without amendment.

Third Reading

Mr. Speaker, I move, subject to Standing Order No. 56—

Upon which the House divided:

AYES—84: Albertyn, J. T.; Badenhorst, P. J.; Ballot, G. C.; Bodenstein, P.; Botha, G. F.; Botha, J. C. G.; Botha, L. J.; Botma, M. C.; Brandt, J. W.; Clase, P. J.; Coetsee, H. J.; Coetzee, S. F.; Cronje, P.; De Beer, S. J.; De Jager, A. M. van A.; Du Plessis, G. F. C.; Du Plessis, G. C.; Du Plessis, P. T. C.; Du Toit, J. P.; Engelbrecht, J. J.; Greeff, J. W.; Greyling, J. C.; Grobler, W. S. J.; Hartzenberg, F.; Hayward, S. A. S.; Hefer, W. J.; Herman, F.; Hoon, J. H.; Janson, J.; Janson, T. N. H.; Koornhof, P. G. J.; Kotzé, G. J.; Kotzé, W. D.; Krijnauw, P. H. J.; Langley, T.; Le Roux, F. J. (Brakpan); Le Roux, F. J. (Hercules); Le Roux, Z. P.; Ligthelm, C. J.; Ligthelm, N. W.; Louw, E.; Malan, J. J.; Marais, P. S.; Maree, G. de K.; McLachlan, R.; Meyer, P. H.; Mouton, C. J.; Muller, H.; Niemann, J. J.; Palm, P. D.; Reyneke, J. P. A.; Rossouw, W. J. C.; Schlebusch, A. L.; Schoeman, J. C. B.; Scott, D. B.; Simkin, C. H. W.; Smit, H. H.; Snyman, W. J.; Steyn, D. W.; Steyn, S. J. M.; Swanepoel, K. D.; Terblanche, G. P. D.; Uys, C.; Van den Berg, J. C.; Van der Merwe, P. S.; Van der Spuy, S. J. H.; Van der Walt, A. T.; Van der Walt, H. J. D.; Van der Watt, L.; Van Heerden, R. F.; Van Rensburg, H. M. J.; Van Tonder, J. A.; Van Wyk, A. C.; Van Zyl, J. J. B.; Venter, A. A.; Vilonel, J. J.; Vlok, A. J.; Vorster, B. J.; Vosloo, W. L.; Wentzel, J. J. G.

Tellers: S. F. Kotzé, J. P. C. le Roux, A. van Breda and C. V. van der Merwe.

NOES—36: Bartlett, G. S.; Baxter, D. D.; Boraine, A. L.; Cadman, R. M.; Deacon, W. H. D.; De Villiers, I. F. A.; De Villiers, R. M.; Eglin, C. W.; Enthoven (’t Hooft), R. E.; Graaff, De V.; Hickman, T.; Hughes, T. G.; Lorimer, R. J.; McIntosh, G. E, D.; Mills, G. W.; Murray, L. G.; Oldfield, G. N.; Olivier, N. J. J.; Page, B. W. B.; Pyper, P. A.; Raw, W. V.; Schwarz, H. H.; Slabbert, F. van Z.; Streicher, D. M.; Van Coller, C. A.; Van den Heever, S. A.; Van Eck, H. J.; Van Hoogstraten, H. A.; Van Rensburg, H. E. J.; Von Keyserlingk, C. C.; Wainwright, C. J. S.; Webber, W. T.; Wiley, J. W. E.; Wood, L. F.

Tellers: W. G. Kingwill and W. M. Sutton.

Question agreed to.

Bill read a Third Time.

Mr. Speaker, I move—

In view of the fact that the Bill is short and relatively uncomplicated, it has not been felt necessary to provide an explanatory memorandum. I hope to deal in the course of my speech, with the various changes in sufficient detail to explain fully why these changes are necessary. The Bill, in fact, introduces amendments to only two revenue Acts, namely the Estate Duty Act, 1955, and the Stamp Duties Act, 1968.

Clause 1 of the Bill proposes amendments to section 4 of the Estate Duty Act, 1955. These amendments affect the deductions which may be made from the gross value of an estate in order to arrive at the net value thereof for estate duty purposes.

The first amendment, which is made to section 4(e), concerns the deduction which may be made from the value of an estate of a deceased resident of the Republic in respect of assets situated outside the Republic. The general rule in the case of the estate of a deceased person who was at the date of his death ordinarily resident in the Republic, is that all his assets, both in and outside the Republic, must be included in his estate. The value of foreign assets is, however, excluded from the estate in the following circumstances: Firstly, if they were acquired by the deceased person before he became ordinarily resident in the Republic for the first time. This is a concession to immigrants who bring foreign assets with them to this country; and secondly, if the assets were acquired by the deceased person after he became resident in the Republic for the first time and the assets were acquired by him either by inheritance or by a donation from a donor who at the date of the donation was not ordinarily resident in the Republic. This was also originally intended as a concession to the estates of immigrants who might in the ordinary course of events be expected to have inherited or to have been given foreign assets by relatives still residing overseas.

The problem that has arisen concerns inherited property. I do not propose to dwell on the methods adopted by some ingenious persons for avoiding estate duty beyond saying that by the creation of a foreign company holding assets in the Republic, it is, on a literal reading of the present provisions, possible to avoid duty in the second, third and subsequent generations succeeding the creator of the foreign company, while all the people concerned are residents of the Republic. The concession was not, of course, intended to be as wide as this, and it is proposed to close the loophole as far as possible without detracting from the concession as originally conceived, by providing that the prior deceased person, just as in the case of a donor, must at the date of his death not be ordinarily resident in the Republic.

*I come now to the second amendment relating to the deductions permitted in the determination of the net value of an estate for estate duty purposes. Hon. members will be aware that it is made possible in the Act to make provision for the payment of estate duty by taking out life insurance policies and by making investments in certain Government stock and land bank debentures. The provisions relating to Government stock are contained in section 4(1) of the Estate Duty Act, It covers local registered stock, local bonds and local debentures issued in terms of provisions of the General Loans Act of 1961. The latter Act has been repealed with effect from 1 April 1976 by the Exchequer and Audit Act of 1975, and as from that date the issue of Government stock is regulated in terms of the Exchequer and Audit Act. Consequently it is necessary to bring the Estate duty provisions into line with the provisions of the new Act which differ in certain respects from the provisions of the repealed Act.

The estate duty provision will in future refer to public stocks and bonds issued in the Republic. These are the same as the local stocks and local bonds to which reference has been made up to now, and such stocks and bonds as have already been issued in terms of the repealed Act will still qualify for the reduction. The reference to local debentures is being deleted since Treasury debentures are merely a form of security, for bank loans, for example. The general public is not being asked to invest in these. They cannot really be regarded as a form of investment in the present context. The value of the concession is not being reduced, and I cannot over-emphasize the benefits attacked to it. Hon. members will know that any person making the maximum investment of R70 000 is able to make full provision for estate duty on an estate with a value of R452 308, including the R70 000, when he is survived by a wife and two children.

Clause 2 amends the provisions of section 24 of the Estate Duty Act relating to appeals against decisions of the Income Tax Special Court in estate duty cases. The amendment brings the procedure for such appeals into line with the new procedure for income tax appeals which is being proposed in the Income Tax Bill. It is not necessary to elaborate any further on this matter since the explanatory memorandum on the provisions of the Income Tax Bill cover the matter in full.

Clause 3 amends the provisions of Item 15 of Schedule 1 to the Stamp Duties Act, 1968, relating to marketable securities. In terms of these provisions exemptions are granted in respect of the issuing and registration of transfer of the Export Capacity Notes issued by the Industrial Development Corporation. These notes are issued to finance the assistance offered by the IDC to industrialists in connection with interest pertaining to the installation of new production capacity for exports. The export capacity scheme is not intended to be profitable for the IDC, and since the Government is doing everything in its power to encourage exports, it is felt that exemption from stamp duties is fully justified.

Mr. Speaker, with that I have covered the contents of the Bill, but since the amendment of the Estate Duty Act is being proposed, I should like to make use of the opportunity, in anticipation of what other hon. members are going to say or ask, to elaborate a little on estate duty, and I hope, eliminate certain misconceptions.

When people refer to estate duty it conjures up images of heirs reduced to penury as a result of this fearsome tax. One does not know what causes these illusions, but they could have arisen from what happened abroad or from clinging desperately to worldly possessions even when a departure from this life was imminent. Even the biblical parable of the camel and the eye of the needle does not cause people to part readily with their wealth. Let us, in the first place, consider the position of estate duty in the taxation pattern of a country. In order to distribute the tax burden as evenly as possible and also to achieve certain economic objects by means of fiscal measures, tax in the modern State is derived from various sources. In this way for example there is tax on income, tax on wealth—including estate duty—and in other countries also tax on assets, capital gains, etc., tax on transactions, for example transfer duties, stamp duties, licences, etc., and tax on consumption, including customs, excise, sales duty, etc. If there had been a tax on income only that tax—as the population came to expect more and more services, etc., from a government, and for which the funds would have to be derived from taxation—would eventually become so high that it would dampen the initiative to work harder, or save or invest, to such an extent that the country as a whole would suffer as a result.

The Commission of Inquiry into the Fiscal and Monetary Policy in South Africa instituted an exhaustive inquiry into the South African tax structure, and in discussing the desirability of estate duty—the retention of which they advocated—stated, inter alia, as follows—

This is the quotation from the Franzsen report.

The history of estate duty in South Africa began in 1922, when the first Death Duties Act was introduced. Under that Act both an estate duty and a succession duty was levied. The provisions of the Act remained virtually unchanged until 1953, and slight amendments were effected in 1954, so that the exemption limit for estate duty was raised from R20 000 to R30 000, and a reduction of 20% on the duty was allowed. However, succession duty, which was payable if the amount devolving upon an heir exceeded R400, remained unchanged.

In 1955 the Death Duties Act was repealed, and an Estate Duty Act was introduced in terms of which succession duty fell away and a new scale of estate duty was introduced. Since then the duty has been adjusted from time to time to altered circumstances, and in 1971 an amended scale and an increase in reductions was introduced.

As a result of the constant adjustments which have been made, estate duty at present is lower than it was in 1948. If one compares estates in which, for example, there is a surviving spouse and two children, the comparable duty will be as follows: On an estate with a value of R50 000 including a return of R25 000 from insurance policies, the duty in 1948 would have amounted to R4 624 while at present there is no duty; on R100 000 it was R17 424 in 1948 while at present it is nil; on R200 000 it was R64 624 in 1948 as against the present R12 625; and on R300 000 it was R107 024 as against R37 625 today.

In addition to these scale adjustments the following additional and extremely important relief measures were effected—

1. (a) Valuation of land used for agricultural or stock breeding purposes: Although all assets in an estate have to be assessed at market value, land which is used for agricultural and stock breeding purposes may, at the choice of the executor, be brought into account at “Land Bank value”, which is the production rather than the market value of the land.
2. (b) Deaths in quick succession: When an heir inherits property and dies shortly afterwards, provision is made for a reduction in respect of the duty in the last estate on property included in that estate. The percentage relief is as follows—

is not more than two years 100% more than 2 years but not more than 4 years 80% more than 4 years but not more than 6 years 60% more than 6 years but not more than 8 years 40% more than 8 years but not more than 10 years 20%

1. (c) Exclusion from the estate value of the returns on Government stock and insurance policies: To enable testators to make provision during their lives for the financing of estate duty upon their death without any need for other assets to be affected, provision has been made since 1957 that the return on insurance policies, locally registered (Government) stock and Land Bank debentures up to certain maximum amounts be excluded from the value of an estate. These amounts are adjusted from time to time, and at present may total R70 000, of which not more than R35 000 may consist of returns on insurance policies.

The effect of this concession is that if the return on the said investments and policies amount to R10 000 it will cover the estate duty of an estate with a surviving spouse and two children up to an estate with a value of R71 900, including such returns; R30 000 covers the duty on a similar estate with a value of R277 000; R50 000 covers an estate of R368 333 and, as I have said before, R70 000 covers an estate of R452 308. By making provision in good time, as an estate grows, for estate duty in this way, there ought to be no fear that the heirs will have to convert assets to cash in order to pay the estate duty. If the estate duty is of a confiscatory nature there is nothing to commend it, and such a duty will be counter-productive.

In South Africa the burden of taxation, as I have previously indicated, is indeed low and even in the case of larger estates than those I mentioned it is not exorbitant. In this way for example the total duty on an estate of R1 million is only 26,1%, of which a quarter may be covered by way of the investment which I mentioned previously.

In conclusion I just want to put forward an idea to those who advocate the abolition of estate duty. Estate duty is an important source of tax revenue. In many cases—I would almost say in most cases—estates are built up from untaxed income, i.e. either from income which is not subject to taxation, for example capital receipts, or donations and bequests, or as a result of low income tax brought about by tax concessions. One only has to compare all the permissible deductions and allowances.

If estate duty were to be abolished, the deficit would have to be made good from other sources, and it would be extremely unfair to expect that those who had never been able to build up a taxable estate should pay more tax in order to exempt the wealthy from estate duty.

Mr. Speaker, I want to give the assurance that the Government is constantly alive to the need to prevent a lapse into the socialistic tendency of a confiscatory tax on wealth and the possession of property. We believe in the principle of free enterprise and the right of each person to amass wealth for himself through his own initiative, efforts and skill, but we also believe that this should not be done at the expense of others or that power groups should be formed in this way. The latter evil can be mitigated by means of estate duty.

Mr. Speaker, I have listened with considerable interest to what the hon. the Minister has had to say in connection with estate duty and the history of this duty, the history of death duty and succession duty, and have carefully noted his conclusion that over the years the impact of these duties, which take away from inheritors a portion—in many cases a substantial portion—of their wealth, has been a diminishing impact. This is something which we on this side of the House welcome very much. We regard estate duty as being a destructive tax, a tax that is destructive of capital in that it takes capital out of the private sector, out of private ownership and places it in the hands of the State. We believe that the more capital you can leave in private hands, the more productively that capital is likely to be used. Therefore the tendency of the impact of estate duty to be a diminishing one, is a tendency which we welcome very much. I would like to say very clearly that this is a tax we would like to see done away with altogether. I shall have a little more to say in a minute or two about estate duty.

I would like to deal now with the Bill which is under discussion. I think the hon. the Minister will be pleased on this occasion that this is a Bill we are able to support. The Bill contains no additional revenue duty imposition. This of course is a considerable relief after having just dealt with the Income Tax Bill, which included very substantial additional impositions and, sandwiched as it is between that Bill and the next Bill—the Customs and Excise Amendment Bill, which also contains substantial additional impositions—we find this Bill to be a considerable relief. For what it is worth, it does give minimal relief in one direction, and that is in respect of stamp duty and transfer duties on export capacity notes issued by the Industrial Development Corporation. This is not a concession that is likely to be felt by the man in the street, because I think it is only financial institutions that are interested in this particular investment.

The Bill also closes a loophole as far as estate duty on the inheritance of foreign assets is concerned. We welcome the fact that this loophole is being closed. It also applies—and this is something we welcome very much—improved procedures with regard to appeals against decisions of the special court in that it now enables appeals to be made on questions of fact—without limitation—as well as on questions of law. However, it is a matter of regret to us that when framing the amendment covered by clause 1(i)(b), the hon. the Minister did not see fit to increase the aggregate of the exemption for Government stock plus insurance above the figure of R70 000 it has stood at for some time now. I noted with interest what the hon. the Minister had to say about the level of this exemption. This exemption, however, serves two purposes. As an exemption it serves the purpose of lowering the impact of estate duty, but it is also an incentive to invest in Government stock. I believe that on both those counts there is a case to be made out for increasing the level of this amount. As I said, this amount has stood at this figure for some time now while the value of money has been depreciating. By not increasing this amount, the Government is taking advantage of a fiscal drag in the impact of estate duty. On account of inflation estates are getting larger and larger, as they must, and the rate at which estate duty is being applied to them is becoming higher and higher, but the concession granted in respect of this exemption of R70 000 remains the same. I think there is consequently a very strong case to be made out for increasing this amount of R70 000. The Government will not entirely suffer if it does so because a larger amount will act as a greater incentive for investment in Government stock. I would like the hon. the Minister to consider this possibility.

Mr. Speaker, I am pleased that the hon. member for Constantia has informed us that they are going to support the Bill. I listened attentively to the hon. member. We came to this House together and at times I have a great deal of appreciation for his arguments in the field of economics. This evening he devoted half of his speech to sound economic arguments, but unfortunately I cannot agree with the latter part of his argument. In the course of my speech I shall come back to that aspect.

I appreciate the fact that the Opposition agrees with us, particularly since the hon. the Minister cast some light on the history of estate duty in South Africa. I am pleased he did so, because this is a matter which is constantly under the limelight. There are often misgivings about this “monstrous” duty which is supposedly imposed in South Africa. However, the hon. the Minister has indicated that he does not consider it justified to see the matter in that light and that the so-called “monstrousness” attributed to this duty is probably caused by events abroad. When we look at estate duty we should really go back to the year 1971. One cannot really look at estate duty in isolation. Income tax must also be brought in to the picture. In 1971 I had the privilege of being in this House when we effected amendments. We then eliminated the so-called tax bulge. At the same time, in accordance with the recommendations contained in the report of the Franzsen Commission, we made certain concessions as far as deductions relating to estate duty were concerned. These things together form part of a whole. The point of departure on this side of the House at the time was that as far as income tax was concerned, we wished to eliminate the bulge in order to make the scale more equitable. We wanted to afford relief to the person with the smaller income effecting a reduction in the scale in that area, but at the top, at the level of the wealthier man, we wanted to put up the scale because we believe in the principle that tax must be collected from the person who can afford it. Consequently we made concessions with regard to estate duty. Whereas in the past it was the case that a certain amount could be deducted, but the duty was calculated on the total assets in the estate after which the duty calculated on the deductions was deducted from the total duty, we changed the system in 1971. In terms of the new system, R25 000 each could be deducted for the surviving spouse and children in addition, in respect of Government bonds the amount to which the hon. the Minister referred could also be deducted. The duty was calculated on what remained in the estate after deductions. This new system had a tremendous impact on the number of people who had to pay estate duty.

I should like to quote figures in this connection, but when one is dealing with estates, one has to be careful not to make use of recent figures, because it sometimes takes a number of years before some estates can be wound up.

Sometimes the attorneys do have difficulty widing up certain estates expeditiously;

My learned friend behind me here states that the attorneys sometimes have difficulty getting estates wound up quickly. Nevertheless the latest figure I have at my disposal applies to the year 1972. In that year there were 20 482 estates and of these, 16 002 fell below the R25 000 notch; 1 895 between the R25 000 and R50 000 notches; 1 371 between the R50 000 and R100 000 notches and 1 214 above the R100 000 notch. The farming community was particularly hard hit by estate duty in the past when the old system still applied. When we look at the 1 214 estates which exceeded the R100 000 notch, since we lack the exact number of farmers’ estates involved, we can safely take it that about 17% of them could be regarded as farmers’ estates. This gives us a figure of about 206 farmers. Statistics show that a surviving spouse and three children are involved in 55% of the estates in South Africa. Looking at the figures quoted by the hon. the Minister, we note that whereas in 1948 the sum of R107 024 in estate duty was payable on an estate of R300 000, only R37 625 has to be paid in 1976. What is interesting is that whereas 35,7% of the estate had to be handed over in 1948 in the form of estate duty, in 1976 only 12,5% has to be handed over. This is a vast improvement.

I now come to that part of the argument of the hon. member for Constantia with which I am unable to agree. I do not agree that we should do away with estate duty. I want to concede to the hon. member that he is a good businessman, but when one wants to reduce the tax basis by doing away with certain sources of tax which have to contribute towards replenishing the State coffers, then this in fact means that one must impose higher taxes on the remaining sources. For example, we calculated that if one were to do away with estate duty, the scale of income tax which we have now levelled out by eliminating the bulge that existed would have to be increased by about 7% throughout to be able to recover from income tax the loss of revenue from estate duty. This in turn would defeat the primary object of the whole exercise, namely to adjust the income tax in such a way that the man with the smaller income could be afforded the opportunity to build something up whereas the rich man, who is able to add to his wealth under very favourable circumstances in South Africa, could be taxed a little more heavily. All this would be undone, and I do not think that would be right. I do not think it would be good business if we were to adjust our tax structure accordingly. Our tax structure has been planned by experts and by the Minister to afford the lesser privileged an opportunity to improve their position while not having too detrimental an effect on the more privileged, the wealthier man. There are only three or four million Whites in South Africa, and a small percentage of our 1,8 million economically active people pay tax. In view of this we cannot afford having a man who inherits R1 million maintaining a higher standard of living in this country without also contributing his share to the national welfare. Such a man will have to be compelled to make his contribution because we desparately need the force and the contribution of each White person in South Africa. When we discuss effectiveness and productivity in these times of inflation, then in fact this bolsters my argument that we should give judiciously to those people to whom we have to give by means of our tax structure whereas we should also take judiciously from those from whom we can take so as to encourage and motivate everyone to make a contribution to our national welfare. That is why I should like to support this Bill, and I should like to tell the hon. member for Constantia that he should reconsider his argument because we cannot reduce our tax basis by abolishing estate duty because by doing so we should undo what we have achieved thus far.

Mr. Speaker, we have no quarrel with any of the provisions in this Bill and shall therefore support it. As far as the general principle of estate duty is concerned, I do not wish to enlarge on this subject this evening other than to make two points. Firstly: Having listened to the hon. member who has just spoken, I am a little bit concerned whether some of the things he said might not be as good an argument for introducing capital gains tax as they are for having estate duties. I wonder why he found it necessary to use those arguments. In exactly the same way, when I listened to the end of the hon. the Minister’s speech, I got a horrible feeling in my stomach that he was giving us this wonderful outline of estate duties in order to prepare the ground to introduce a capital gains tax in the future when the administrative procedures of the Secretary for Inland Revenue are such that they could cope with it. I felt that maybe he has that up his sleeve. If that is not the case, I hope he will make that clear this evening.

I had no ulterior motive.

In other words, we can take it that there will be no capital gains tax?

Until next week!

He will introduce it during the recess!

No, he has not yet got the power to alter these sorts of taxations during the recess, whether advantageously or otherwise. Provision has been made for the power to erode capital—with that we have no problem, because that happens every day.

There is one other point I want to make. I hope the hon. the Minister will review all these measures in the light of the changed circumstances, the changed value of money. If he does so, will he also look at the question of rebates given in respect of widows and children, because those also have become a little out of date in the light of the inflationary conditions?

Mr. Speaker, I am glad that the hon. member for Yeoville is so easily satisfied. I must say that I am not as easily satisfied. I do not believe that any of us on these benches are so easily satisfied. The hon. member for Constantia has indicated that we shall support this Bill, but I must tell the hon. the Minister that I believe there are certain things he has failed to do in this Bill, things he could so easily have done.

You must be planning to leave a very big estate.

Because of the tax policy of this Government and of that hon. Minister in particular, I shall not be in a position to leave any estate at all. [Interjections.] However, I want to come back to the hon. member for Heilbron. I want to say to him that I cannot understand his attitude either. Here is a man who is a farmer, who is a landowner and who is in the category of persons about whom I wish to talk to the hon. the Minister. The hon. member for Heilbron talks about this Bill as if it is one of the laws of the Medes and the Persians, if I may quote one of my hon. friends here. He refers to the Bill as if it is something which has developed over the years, something which has evolved out of the brilliance of the people who have worked out this taxation system. He reacts as though he believes it is utterly fair to all sections of the community. He, as a farmer and as a landowner, should know how unfair the Estate Duty Act is to the farmers in particular, and more particularly to the young farmer.

Why?

The hon. member asks why. I shall tell him in a moment why. In 1971 adjustments were made to the rebates which were allowed, and I want to agree with the hon. member for Heilbron that those adjustments made it possible for the first time for the smaller man in this country to build up an estate which he could hand on to his heirs; an estate which he could hand on to them intact, so that they could from there build up, and build on for the economy and for the welfare of the country as a whole. It is those people who have capital who are the backbone of the economy of this country. They are the people who are responsible for the growth in this country. In that respect I can agree with the hon. member for Heilbron.

However, let us for a moment consider the situation of the farmer and particularly of the progressive farmer—not those who belong to the PRP—but the progressive farmer, from the point of view that he knows where he is going and who gets there. [Interjections.]

[Inaudible.]

That sort of farmer has had to use the resources of an organization such as the Land and Agricultural Bank of South Africa in order to get there. In the bad old days—and I say the bad old days advisedly—many of those farmers had trouble paying off their bonds, and their heirs after them had trouble paying off the bonds which their fathers had taken over from their fathers. Today, however, that is not the situation at all. Today, in terms of the rules and regulations of the Land and Agricultural Bank of South Africa, every bond is guaranteed by a life insurance policy. It is built into the whole scheme. The whole loan is dependent upon such a life insurance scheme, which means that when a man dies his children inherit his property unencumbered. I believe it is a wonderful scheme. I believe it is in the best interests of agriculture and of the agricultural economy of this country that that scheme was introduced. It received the wholehearted support of this side of the House when it was introduced.

But what is the effect now with regard to this hon. Minister of Finance and his estate duty? It means that almost every person who inherits a farm today, inherits its net value. I believe, contrary to my friend from Heilbron, that the rebates which this hon. Minister allows—even though they were increased in 1971—are still insufficient in most cases. They are insufficient in the case of fixed property, particularly farm land, which is inherited today. There is no farm worth the name of a farm today, which can be inherited at a value of under R100 000. I would even go so far as to say that there are many farmer members here whose farms, when they die, will be worth more than R200 000. It is their heirs who are going to be hit by this estate duty. It is for that reason—and for that reason primarily—that we in the UP have said that, when we come to power, we shall do away with this Act, because we believe it is an unfair tax. We believe it is an unfair tax on heirs who should be allowed to go ahead and to do well.

Even if one takes production values?

Even if we take production value. The hon. member raises the question of the valuation which can be made and which can be accepted …

Which is half the market price.

At the moment it might be half of the market price, but there is no guarantee that it is going to remain at that. Furthermore, I do not believe that even that is a fair valuation for estate duty purposes.

That is no argument. Then the Government will alter it again.

Then the Government alters it again? But this is the whole point. Are we continually going to make adjustments and arrangements to meet the circumstances? I believe that we stand by the principle that we should not have any estate duty at all. I even want to go further and to say that if we have to have estate duty—such as we are compelled to have under this Government—the hon. the Minister will have to make a rational arrangement for a rebate to be allowed to those people who are going to inherit land from their fathers; those people who are going to inherit farms.

In clause 1 of this Bill we find now that—

It is now going to be included in the estate of that person. If this happens to be a farm, it is going to push the value of that person’s estate up to the point where he is going to have to find cash in order to pay estate duty. This is another point which my hon. friend from Heilbron has lost sight of. Admittedly, the value for duty might be half of the market value, but those young men who inherit from their fathers are going to find themselves in the situation where they will have to find cash with which to pay. Even if it is—as in the example given by the hon. the Minister—only R16 000, it is going to be very difficult for those young people to raise that amount in cash.

I want to ask the hon. member for Heilbron something. Surely he must have heard of young farmers who have inherited farms and who have had to sell stock and implements to raise the money to pay estate duty; or succession duty in the olden days. Those are the problems. People have to find the cash to pay estate duty and if they have to find the cash, they very often have to do so on a value which they have not really received.

I have made these comments; I hope the hon. the Minister will take cognizance of the points I have mentioned. I hope that, in time, what I have said and others have said often before me, will ultimately get through to the hon. the Minister and to this Government and that they will accept the suggestion which we have given them from this side of the House. The time is fast coming when I believe the Government should do away with this particular Act.

Mr. Speaker, I want to continue from where the hon. member for Pietermaritzburg South has left off. He has gone as far as the point where an estate is being taxed with estate duty. I want to continue from there. Invariably it is the widow who is taxed and who has to pay the estate duty. If an agriculturist passes away and—as the hon. member for Pietermaritzburg South has mentioned—the estate is worth, for argument’s sake, R100 000, the property is bonded to the Land Bank for R100 000, this automatically becomes taxable for estate duty. Fair enough; that is only half the story.

The farm is then registered in the name of the widow. Another bond has to be taken out with the Land Bank accordingly, in order to pay the estate duty and this is where we find that problems arise with the Land Bank. We have had complaints from board members that the same property is rebonded over and over. When the widow passes away, estate duty has to be paid again on the same property. The heir, presumably the son, inherits the property and he again has to take up another Land Bank bond. This becomes a vicious circle and, while this is all going on, one finds a de facto principle being adopted by the State that estate duty is being paid repeatedly on the same property. This de facto principle results in the “income yielded” by the property not being nearly what it would have been, had estate duty not been applicable. In other words, if the unit which was worth R100 000 was free of a bond, one would find, over a period of 10 to 20 years, that that unit would bring in far more in revenue by way of income tax than it would in estate duty. This is our problem; it has become a hardy annual, but we on this side of the House plead for the abolition of estate duty. I know that there are arguments against the abolition of estate duty, but we who have gone into the matter, and particularly those of us who are agriculturalists, believe that the arguments in favour of the abolition of estate duty far outweigh the arguments for the retention thereof.

Mr. Speaker, I must admit that I have listened with interest to the speech of the hon. member for Heilbron because he provided us with some very useful information. I think he has … [Interjections.] No, let us be fair. I think the hon. member gave a very objective picture of the position of the farmer as far as estate duty is concerned. It is quite easy to say that this duty places a burden on this or that person in this or that manner. However, we have had the facts here today. I also have a few facts here. In fact, I have a document here dealing with suggestions that estate duty places a heavy burden on farmers. When one approaches the matter in the manner the hon. member for Heilbron did, an approach based on facts, one appreciates that the matter is not as simple as our hon. friends on the opposite side of the House try to make out.

†The hon. member for Constantia asked me to consider raising the limit for Government stocks in the context of the estate duties tax. I would like to point out that only last year the exemption limit was raised from R50 000 to R70 000. If one does not have an insurance policy, one can, in fact, put one’s investment in Government stocks. From last year the amount which could be invested in this manner was increased from R50 000 to R70 000, which is a 40% increase. I think the hon. member will agree that it is very substantial, and that was only last year.

The hon. member for Pietermaritzburg South was critical of this tax, but I would like to ask him whether he has taken into account that farms can be valued at what we might call the Land Bank value instead of the market value, and that can be done by market valuators appointed by the Land Bank. I think that the hon. member will agree that in practice that is a very substantial concession. That is generally agreed.

Yes, but that is not sufficient.

As far as insurance proceeds are concerned, I would like to point out that these proceeds, including any policy on the life of the deceased to cover a bond, qualify up to an amount of R35 000 for exclusion from duty for estate duty purposes. If one looks at this from the context of concessions and particularly from the point of view of relief that has been given over the last few years—over the last seven, eight or nine years—one will find that it is an enormous improvement from the point of view of the taxpayer. Some people say that we should not compare ourselves with other countries, because we have to pay what is required here. However, I think that it is fair to draw some comparisons. After all, we are part of the Western democratic system. I might point out that in South Africa an estate of R150 000 would pay just over R3 000 in duty, which is just over 2% of the value of the estate. In the United States of America it would be R27 000, or 18%, and in Great Britain R54 000, or 36%.

What has become of your argument now!

Well, this is the point. If you want to compare, take R400 000. In South Africa the tax payable would be R67 000, or 17%; in the United States of America, R106 000, or 27%; and in Great Britain R215 000, or 54%. So one could compare with other countries and find that we compare favourably with practically every country that one can mention. What is more, the position is being improved all the time. I cannot honestly envisage the abolition of this tax, because the revenue from this tax amounts to approximately R40 million per year. It is all very well to say that the tax should be abolished. We would still have to find this amount. It might be said that the Government could save that amount in spending, but the Government has saved very substantially already. So, that amount will still have to be found. Where are we going to find another R40 million? We have only a very limited tax base, a limited number of tax sources, and this would mean that we would either have to put up levies or that we would have to put up normal tax or the excise and petrol duty. However, people complain bitterly when these are raised even to a small extent. It is an easy matter to say abolish these things. Unfortunately a Minister of Finance must find certain funds; he must have the funds. If one is simply going to throw away R40 million by saying that this tax should be abolished, then, as the hon. member for Heilbron said, one would have to find replacement sources of revenue, and this could make the position worse than it is. We think that we have a fairly balanced system as it is. Mr. Speaker, I think we will leave the matter there.

Question agreed to.

Bill read a Second Time.

Committee Stage taken without debate.

Bill read a Third Time.

Mr. Speaker, I move—

Copies of the Bill in draft form and the explanatory notes in respect thereof were made available to hon. members on both sides of the House before the Bill was read for a first time in order to enable them to study it.

Except for the usual clause in connection with the dates on which certain provisions, which appear in the schedules to the Bill, shall be deemed to have come into operation, this Bill also contains some amendments to the text of the Customs and Excise Act, 1964.

As far as clauses 1 to 7 are concerned, I do not intend elaborating at this stage, except to say that these amendments are proposed to simplify and expedite certain customs procedures, to cancel certain requirements which have become outdated and to update the Customs and Excise Act as a result of changed circumstances.

With reference to clause 8(b), I would like to draw the attention of hon. members to the fact that provision exists in the Customs and Excise Act whereby the customs duty on imported goods may be amended on the recommendation of the Board of Trade and Industries or for various other reasons. In the case where the customs duty is increased on an imported product and a corresponding local manufactured product is liable to excise duty, the excise duty on it may be increased to the same extent as the customs duty. These amendments are effected by means of Government notices. Provision also exists whereby the Minister may, on the recommendation of the Board of Trade and Industries or when it is deemed expedient in the public interest, reduce the customs, excise and sales duties by means of a Government notice. No provision exists in the Customs and Excise Act whereby the excise and sales duties may be increased as a fiscal matter except by means of taxation proposals.

In this regard I should like to draw the attention of hon. members to the third report of the Franzsen Commission. The commission recommended in paragraph 358 of its report that the Minister of Finance should be authorized to adjust the rates of certain taxes and the loan levy between budgets, if and when the course of economic activity demanded such a step.

Normally where excise and sales duties are increased, the increased duties are only applicable to goods still in stock on the premises of manufacturers and importers licensed by the Department of Customs and Excise, that is goods which, at the time the taxation proposals are tabled by the Minister, have not yet been cleared for home consumption.

Before the budget this year allegations appeared in the Press regarding the hoarding of excisable goods, especially cigarettes, and of the fortunes which could be made by speculators because of the fact that increased duties are only imposed on stocks held by manufacturers. It was alleged that these stocks of cigarettes purchased and stockpiled before the budget and on which the old rates of duty applied, would be sold after the budget at a higher price as if the increased duty was paid on such stocks. Such stockpiling not only results in a loss of revenue to the fiscus, but rightly also leads to dissatisfaction on the part of the consumer since the consumer must in such cases pay more for an article thereby merely enriching the profiteers.

It was mainly for this reason that, as hon. members are aware, it was decided to impose the recent increased duties in respect of cigarettes, cigarette tobacco, beer, spirits and spirituous beverages also on stocks held by certain classes of dealers. The imposition of the increased duties on the so-called open stocks not only places a heavy additional burden on the staff of the department concerned, but also on the dealers affected as stock has to be taken and returns rendered by such dealers.

*Mr. Speaker, not only does the hoarding of stocks before a Budget cause administrative problems, it also has a detrimental effect on commerce. It also results in dealers and consumers buying more than they can pay for and has also, particularly when the speculations turned out to be incorrect, caused such parties to experience financial problems at a later stage.

Unfortunately it will probably be impossible to prevent the hoarding of stocks by dealers and consumers, especially not when tax increases are usually announced only during a Budget. To prevent the hoarding of stocks and the attendant criticism, it would seem that the only alternative would be to increase taxation at times when this is not expected. In this connection it may also be mentioned that certain manufacturers of excisable goods have already proposed that taxes be increased before a Budget. In addition it may also be mentioned that the former president of the Afrikaanse Handelsinstituut remarked as follows during his presidential address to the recent annual congress of the institute in Pretoria—

Although it is also stated in the Franzsen Commission report that the increases should be restricted to a certain percentage, it is not practicable to apply such a provision in the case of excise duty. Excise duties are for the most part specific duties, i.e. based on quantities, and a percentile increase in this case could result in considerable problems in so far as price increases are concerned.

With the proposed amendment it is being envisaged to bring increased excise and sales duties into operation by way of Government notices when economic activities justify such a step, and it is deemed to be expedient in the public interest. This will have the advantage that if the State requires funds after the end of a parliamentary session for which provision had not been made in the consideration of the Budget, taxes may be increased at once, without having to wait until the next Budget. Such increases in the excise and sales duties have to be laid down by legislation during the next ensuing session of this House, as is the case at present with amendments to the schedules which are promulgated by way of Government notices.

It may also be accepted that taxes will only be increased when it is absolutely necessary, and that the increases will be restricted to the minimum.

The additional proposed amendments contained in clauses 9 through 12 are self-explanatory, but I should like to refer briefly to the proposed amendment of section 91, as indicated in clause 12 of the Bill. Section 91 of the principal Act provides that when a contravention of the Customs and Excise Act, 1974, has been committed, the person who did so has to admit that he has contravened by signing an admission of guilt. The admission of guilt has in the past caused a great deal of dissatisfaction and it is now being proposed that the provision pertaining to the admission of guilt be deleted. The proposed amendment of section 91(2) is also self-explanatory and it is being provided that the right of appeal shall be exercised within a definite period.

The schedules, which constitute most of the Bill, also contain—except for the tax proposals in respect of certain imported, excisable and sales duty goods—amendments to the schedules to the principal Act which have been effected since 31 January 1975 on the recommendation of the Board of Commerce and Industry by notice in the Gazette and which are now being ratified in terms of the provisions of the said Act.

Mr. Speaker, once again I should like to express my appreciation to the hon. the Minister for the explanatory memorandum that he has furnished us on this piece of legislation. This memorandum must have taken a great deal of work on the part of the officials concerned to compile. I should like them to know that we appreciate their efforts and assure them that it has been of considerable value to us in understanding the contents of this Bill. Normally we would regard this Bill—which is an annual Bill—as a Committee Stage Bill. It is a measure which introduces changes to the customs tariffs, excise duties and sales duties. These changes cover a wealth of detail, details which can more appropriately be dealt with during the Committee Stage.

This year, however, there is one very important new principle included in the Bill, a principle which needs the full consideration of the House at Second Reading. I refer to the new principle enunciated in clause 8, namely that power is now to be taken by the hon. the Minister to increase excise and sales duties during a parliamentary recess—i.e. between sessions—and only to refer these increases to Parliament for rubber-stamping at the next session. In his Second Reading speech the hon. the Minister referred to this as a recommendation of the Franzsen Commission. That is true. The Franzsen Commission made this recommendation as far back as 1970. I think it is important to realize how long ago this recommendation was made. The recommendation was that the hon. the Minister should have power to adjust certain taxes between sessions as a means of achieving economic stability. I stress the reasons that lay behind the recommendations of the Franzsen Commission, because in his Second Reading speech the hon. the Minister indicated that these were powers he proposed using, if necessary, to raise taxes to meet expenditure. However, that was not the purpose of the Franzsen Commission’s report. The Franzsen Commission clearly recommended that the measure for increasing taxes should be used for the purpose of economic stability and not for the purpose of raising additional revenue. The recommendation of the Franzsen Commission has particular relevance to this Bill, because the Franzsen Commission also recommended that changes in indirect taxes, namely customs duties, sales tax and excise duties should be the main instrument of a fiscal stabilization policy.

In view of the fact that this Bill is subject to a time limit, I do not want to repeat all the arguments I used, during the Income Tax Bill debate, against a similar principle which was included in that legislation. Suffice it to say that we on this side of the House regard this power, which the hon. the Minister proposes to take, as usurping a fundamental responsibility of Parliament, the fundamental responsibility of fixing taxes, being responsible for taxes and authorizing expenditure of the money raised by taxation. This is our main objection to this principle.

The hon. the Minister may reply that he already has the power to adjust customs duty between sessions. In fact, the hon. the Minister mentioned that in his Second Reading speech. However, that power is prescribed for different purposes, in fact, for certain defined purposes. The main one is to ensure, after careful Board of Trade investigation, that South African industries enjoy a reasonable degree of protection. The hon. the Minister’s right to adjust customs tariffs is not a taxing measure; it is a protective measure. It is a measure to protect industry and not, in the final instance, to raise additional taxes for the Treasury. The hon. the Minister already has powers to reduce customs and excise duties and sales tax, but that is a completely different matter to taking power, as he now proposes to do, to raise sales tax and excise duties. If taxes have to be increased under whatever circumstances, it must be for Parliament to decide. If those changes need to be made urgently and cannot wait for the normal next session of Parliament, the whole question of parliamentary routine must be reviewed. Either Parliament must be summoned for a special session, if increased taxes are needed or the routine procedure in terms of which Parliament meets only once a year must come under reconsideration.

Apart from the reasons I have just advanced, which are the main reasons for our objections to the introduction of this principle into this Bill, there are also certain practical and economic reasons why we object to the hon. the Minister being granted this power. Firstly, having the possibility of increased excise and sales duties hanging over their heads, causes great uncertainty amongst the trading community. It even creates uncertainty amongst members of the public. We already have a situation of uncertainty as far as the customs tariffs and changes in the customs tariffs are concerned. Whenever a notice appears in the Government Gazette to the effect that an increased customs tariff has been applied for, importers who may be affected by any actions taken as a result of that application are placed in an uncertain position. They then do not know whether to go ahead with importation or not. We saw the confusion that was caused in 1974 when the Government put up duties on imported textiles by a very substantial amount. They had to retract on account of the confusion and uncertainty that was caused as a result of that action. We do not want any further element of uncertainty introduced into the business life of this country, because that can only lead to loss of confidence.

The second economic reason why we are opposed to the introduction of this principle is that it is a very doubtful method of damping the economy down to increase customs and sales duties during highly inflationary times such as we have now. When the Franzsen Commission undertook its investigation, which was more than six years ago, inflation was running at only something like 2% per annum. The recommendation that increased sales and excise duties might be used as a stabilizing factor might have had some validity then, because inflation was not a main consideration.

An altogether different position exists now with inflation running at about 12%. We want to avoid a position where this is exacerbated, a situation which can arise if additional indirect duties are added to prices. In any case, as I have said when we were discussing the Income Tax Bill, the whole concept of using increased taxes to achieve economic stability is completely invalidated unless the conditions which were laid down in the Franzsen Commission recommendations are observed. One of those conditions was that additional receipts must be sterilized and put into a stabilization account at the Reserve Bank. The hon. the Minister, as I have already said, has indicated that that is not his purpose at all. His purpose, therefore, is not stabilization; his purpose is to have an additional power to raise additional revenue to meet additional expenses. The hon. the Minister knows as well as I do that he is unable to meet the condition laid down by the Franzsen Commission of sterilizing additional taxation. This just does not happen in practice. The Stabilization Account is spent either on financing State deficits or on financing the National Supplies Procurement Fund, and the moneys put into it are anything but sterilized.

For the reasons I have already advanced, we regard this as an important new principle which we find unacceptable, and we regard it as such an important principle that we are going to vote against this Bill at Second Reading.

Finally, I would like to say that if we are not successful in the vote at Second Reading, and the Bill proceeds to the Committee Stage, we shall oppose the increase in excise duty on petrol and we shall oppose the increases in sales duty which are contained in the schedule. In today’s inflationary situation these increases in the price of petrol and in sales duty can only have an inflationary effect and can only add to the burden of an increased cost of living. The price of petrol is a sensitive price. It permeates every facet of our economic life. It affects costs as far as every person, organization and business is concerned. The increase in sales tax affects such a wide range of merchandise—such a wide range of everyday goods—that to increase the price of those goods by adding to the sales tax imposed on them, can only have, as it has had, a highly inflationary effect.

Mr. Speaker, I am amazed that an hon. member of whom one usually takes a great deal of notice when he discusses these matters, can make such a contradictory speech. He states that the Minister ought not really to be given the right to increase sales duty during the parliamentary recess and in the same breath he states that Parliament should really sit more often during the year or for the full year. He therefore admits that the gap we have in South Africa, namely that Parliament is in recess for half of the year, does in fact create a need for the kind of right for which we are making provision in this legislation.

One cannot really discuss this Bill in isolation because it forms part of our tax legislation as a whole. Permit me, therefore, to refer in rather more general terms to speeches made in this debate. The hon. member for Yeoville repeatedly accused the hon. the Minister of window-dressing. He maintained that the hon. the Minister had painted too rosy a picture of the economic situation in our country. I do not know whether that hon. member was present at, or perhaps failed to read, the hon. the Minister’s budget speech. However, in my opinion the hon. the Minister adopted a very responsible approach. In fact his whole budget is based on the economic situation as he sees it, particularly as far as our balance of payments is concerned. I just want to refer briefly to the hon. the Minister’s introductory speech. I quote (Hansard, 1976, col. 4234)—

He then also made this important statement—

In my opinion these words are very clear. They tell not only this House, but the whole country as well that we are experiencing difficult economic conditions. The hon. the Minister said that people who ought to know and who have a great interest in the economic stability of our country do not always take sufficient account of needs. In his budget he referred to the advancement and postponement of foreign payments which has had a very detrimental effect on our balance of payments. In a recent speech he again referred to a new method which these people have developed in the meantime, viz. over-invoicing. I think that these are aspects of which cognizance is being taken. When one speaks as irresponsibly as that hon. member spoke—and he has a great deal of interest in these matters—then this can only have a detrimental effect in general. I also want to refer to what the hon. member for Constantia said. He referred to this budget as a … What did he call it?

A savage budget.

Yes, a savage budget. As it happens, he referred again this afternoon to the enormous increase there has been in regard to income tax. However, the hon. the Minister stated here what the total increase was. I just want to refer further to the increase in real tax, excluding the loan levy. On an income of R50 000 it is only 2,2%. If a general impression is created that we are dealing here with “a savage budget”, it certainly cannot help the recovery of our economy.

An important point is that it is vital that there should be the necessary consultation, confidence and co-operation between the Government and the private sector. We must all be aware of the fact that our country, which has a proud record as regards its payments, must maintain that proud record. It is illuminating that for the very first time in the history of this country we have now built an export harbour for the first time, and not just one, but two. Our future is export-orientated. In a system like ours there is, unfortunately, a tendency among our manufacturers to reduce production and employment as soon as their profits are affected. We are saddled with a vast unutilized production capacity in our industries. Something must be done to rectify this so that in the event of an upward movement in the world economy we shall at least be able to share the benefits thereof. The consequence of such a drop in our production is that we have a seller’s market. The seller determines the price and the purchaser has to pay it. We feel unhappy about the fact that we see from time to time that increases in prices of consumer goods are asked for whereas according to the statements provided, steadily increasing profits are being indicated.

However, the private individual ought to play his part as well. There has been a great deal of complaint about sales duty. Provision is made for additional revenue of R66 million which must be collected by means of an increase in sales duty. We must take into account the fact that at the moment we have about 3 million vehicles on our roads. If a mere 10 litres of fuel per month is saved by each of those vehicles, this would amount to a saving of 36 million litres per annum which would not only result in a vast saving in foreign exchange but would also involve a saving for the consumer. Calculated at 20 cents per litre, the savings would amount to R75 million per annum, which is a great deal more than the R66 million we now have to find by means of the increase in sales duty.

Is the increase in sales duty really as bad as people make out? In 1971 the sales duty on furniture for domestic use 15%, in 1972 it was 10% and at the moment it is 6½%. On jewellery it was 30% in 1971, 20% in 1972 and at present it is 26½%—a great deal less than in 1971. On paint it was 15% in 1971 and at the moment it is 6½%. In my opinion the hon. the Minister and his advisers have achieved a great deal by at least remaining far below the level of 1971. However, we have another evil in our commerce: These things are being exploited by persuading our public to buy more just at the time when we want to save. Immediately after the increased duties were announced, large advertisements were to be seen at the furniture shops in Cape Town: “Buy! Old supplies still available. Sales duty increased by 33⅓%.” One can imagine what an impression such advertisements must have made on the buying public. However, we must bear in mind that if a person had purchased furniture to the value of R400 before the increase in sales duty, the sales duty thereon would have amounted to R20. After the increase in sales duty it amounted to R26,50—an increase of less than 1% on the real selling price. However the general public is given the impression that they are facing an increase of 33⅓%!

If we do not get the co-operation of commerce, the industrialist and the private individual, we shall not emerge from this difficult economic situation. It is clear, as the hon. the Minister indicated, that there are signs of a recovery abroad. It is essential that we in South Africa should be prepared to make use of such a recovery if it should occur, but then each of us will have to give the necessary co-operation now and put a stop to this unnecessary, unjustified and distorted criticism.