Mr. Speaker, I am the bearer of a message from the State President.

The Minister of Transport Affairs thereupon handed the Message to the Deputy Speaker.

The Message reads as follows—

The State President is pleased to relieve Mr. Cornelius Valkenburg de Villiers, whose period of appointment as Commissioner on the South African Transport Services Board expires on 30 November 1981, of his appointment at his own request in terms of the provisions of section 4(4) of the South African Transport Services Act, 1981 (Act 65 of 1981), with effect from 1 October 1981.

M. VILJOEN,

State President

Cape Town

2 October 1981.

Mr. Speaker, I move—

Unfortunately the Bill for 1981 is yet again a somewhat weighty document, in spite of real efforts to limit its scope as far as possible. Some of the provisions are of a routine and unavoidable nature, for example, those needed to lay down the rates of taxation for the 1982 year of assessment and to give effect to certain amendments announced in the course of the year or in my budget speech. Due to rapidly changing circumstances it was, unfortunately, impossible to repeat last year’s ample concessions, but owing to the sound financial policy which has become a feature of our national economy, it was still possible to avoid any increase in rates of tax, notwithstanding the steadily increasing and unavoidable demands made on the Treasury. In terms of other provisions of the Bill, certain concessions of a lesser, though still important nature, are being made, loopholes in the Act are being stopped and a further step is being taken in the implementation of the Government’s policy of ongoing tax reform.

The Bill and the customary explanatory memorandum were made available to hon. members several days ago and a detailed explanation of the various provisions is therefore superfluous. I shall therefore concentrate on just three aspects of the Bill, viz. concessions, tax avoidance and tax reform.

In the past a political party was identified in broad generic terms for income tax purposes as a kind of trade union, and the same exemption that applied to trade unions also applied to the income of political parties.

The tax authorities had difficulty identifying a political party, but now that political parties must be registered in terms of section 36 of the Electoral Act of 1979, they are easy to identify and it is deemed desirable to state clearly the exemption granted in practice. At the same time, donations to political parties are also being exempted from the tax on donations in terms of the amendment introduced by clauses 8(1)(c) and 23(a).

Pensions and other compensation for diseases contracted by persons employed in mining activities have been exempt from income tax for over 50 years, and it seems somewhat extraordinary that compensation payable in terms of the Workmen’s Compensation Act in respect of other industrial diseases is still subject to taxation. I propose that this discrepancy now be rectified, with retrospective effect to the 1979 tax year. Clause 8(1)(d) and 8(2)(b) are concerned with this.

It frequently happens that taxpayers, and industrialists in particular, have to pay large amounts in interest in respect of loans they have negotiated in order to erect, say, new factories or buildings. Because the Act provides, inter alia, that only expenditure incurred in the production of income is allowed as a deduction in determining taxable income, and this expenditure is incurred during the period before the income-producing asset is brought into use, it follows that it does not qualify as an ordinary deduction. Our courts have also ruled that pre-production interest does not form part of the purchase price of the asset, and may not therefore be written off over a number of years along with that purchase price. In essence, therefore, the interest is lost expenditure for the purposes of income tax and can never affect the taxpayer’s tax liability. This situation is unsatisfactory and is causing dissatisfaction among taxpayers. It is beyond all doubt that the interest is an expenditure for them and affects the profits of their undertaking, and I think the time has now come to acknowledge the realities of the situation. Clause 9(1)(a) of the Bill adds a new subsection to section 11 of the principal Act, in terms of which pre-production interest will in future be allowed as ordinary expenditure.

Clause 10 of the Bill makes provision for important amendments to section 11bis of the principal Act, which prescribes rules for tax relief to exporters. Hon. members will recall that during May 1980 the former Minister of Industries and of Commerce and Consumer Affairs announced further tax incentives for exporters, which concessions will cost the State a net additional amount of about R100 million per annum. Particulars of the scheme were published in the Gazette on 31 October 1980 and, as outlined in the explanatory memorandum, the new scheme will be administered by the Department of Industries, Commerce and Tourism, which will also determine the amount which may be allowed an exporter by way of tax relief.

Mr. Speaker, to continue with the discussion of the concessions envisaged, I should like to draw the special attention of hon. members to clause 16 of the Bill. Section 18A(5) was inserted in the principal Act last year and this provision authorized me to extend the concessions in respect of donations to universities and colleges, to donations to other educational institutions as well, particularly secondary schools, while Parliament is not in session. Discussions with interested institutions to eliminate the innumerable administrative problems in connection with the implementation of the concession unfortunately took longer than expected, and finality was in fact only reached in this connection over the past few days. The scope of the new provisions is set out very clearly in the explanatory memorandum, and at this point I should like to express the hope that the concession will elicit additional and abundant donations by taxpayers and will not only have the effect that a part of the donations at present made to universities, will be channelled in the direction of secondary schools and other educational institutions.

Another concession which only affects a limited number of taxpayers, but which is nevertheless very important to them, is being introduced by clause 20. It is essential to protect certain national key points and other specific areas effectively, and I propose that expenses incurred in this connection and not allowed in terms of the existing provisions of the Act, be allowed as ordinary expenditure, even if those expenses are of a capital nature. This concession represents a valuable contribution by the State to the costs of protecting these important facilities. The proposal has been made in certain circles that the Government ought to bear the full cost involved in the securing of key points, either by way of a larger tax concession or by way of a direct subsidy to the person whose responsibility it is to incur the expenditure. Unfortunately I am unable to agree with this view. The responsibility surely rests in the first place on the owner of the key point and it is in his own interests to protect his assets, and therefore his source of income, against loss.

Hon. members will be aware that purchased livestock, the prices of which exceed certain amounts, are taken into account for tax purposes at purchase price at the end of a year, and that the cost price may then be written off over a period of four years. Farmers have been dissatisfied with this system for some time, especially in view of the steadily rising prices of livestock, and have asked that it be abolished as soon as possible. It has now become possible to accede to this request and, as explained in the explanatory memorandum, the present system, in terms of the amendments introduced by clause 26, will be phased out in the course of the next two years. As far as bookkeeping for tax purposes is concerned, this concession ought to afford farmers considerable relief.

I now come to the last of the income tax concessions. Hon. members will recall that in the course of my Second Reading speech on the Part Appropriation Bill earlier this year, I announced that I had asked the Commissioner of Internal Revenue to review the formula in accordance with which the tax-free portion of lump sum payments by pension and provident funds is calculated, since the formula had remained unchanged for a considerable time.

I am pleased to be able to announce that the Commissioner was in fact able to formulate an adjustment of the formula which ought to afford substantial relief to those persons whose lump sum benefits did not exceed the maximum exempted sum of R60 000.

The proposed amendment, which hon. members will find in clause 28 of the Bill and which is made retrospective with effect from the beginning of the 1981 tax year, will meet with the particular approval of the hon. the Minister of Manpower, who addressed such urgent representations to me in this connection on behalf of employees in general who are members of pension or provident funds.

The effect of the amendment is as follows: Suppose a member of a provident fund retires after 30 years of pensionable service and that his highest average annual remuneration during any five consecutive years of service to the employer was R18 000. Under the present dispensation, R36 000 of any lump sum he receives from the pension or provident fund will be tax free, whereas if the proposal is accepted, the amount will be R54 000.

I trust that the additional tax relief thus afforded will be utilized to good effect by pensioners and that it will be used for investment in order to create a better pension for themselves.

†I turn now to the other two aspects of the proposed legislation which I wish to highlight in this speech, namely the matters of tax avoidance and tax reform. As to the former it will be remembered that in my Second Reading speech on the 1980 Income Tax Bill I referred to a form of tax avoidance which is currently particularly popular, namely the practice of dividend-stripping by the shareholders of private companies. The 1980 Bill introduced a provision, which is now section 8B of the Income Tax Act, to counteract one of the facets of dividend-stripping, that is the passing on of the profits of a private company by means of loans to shareholders rather than by the declaration of dividends. In introducing the amendment, I added that investigations were continuing into ways and means of more effectively countering the tax consequences of dividend-stripping. Those investigations have reached the stage where it has become possible to put forward the amendments contained in clause 7 of the Bill and, I may add, those same investigations have shown that it is imperative that the proposed provisions be introduced without delay.

The background to the proposed new section 8C and 8D and the manner in which they will operate are set out in considerable detail in the explanatory memorandum, and I shall therefore not take the time of hon. members by going over them again. It is, however, necessary for me to point out that we are concerned about the way in which tax is being avoided, first of all by the retention of unnecessary profits and then later by the drawing off of those profits by means of schemes which, in some cases at least, are highly artificial and result in a minimal amount of tax being payable. That certain companies must retain a reasonable proportion of their profits in order to grow and prosper, is beyond question, and our law provides amply for such cases. Where, however, profits are retained unnecessarily and by artificial means largely, if not solely, with a view to avoiding income tax and resort is later had to other devices for securing those undistributed profits for the benefit of the shareholders without the payment of tax, the fiscus is not only entitled, but in fact obliged, to take notice.

The effect of these new provisions will in the coming months be watched with considerable interest. If it is found that the existing types of schemes continue, or if new types of schemes having the same end in view Eire evolved, I shall be obliged to come to this House with further amendments.

A second form of tax avoidance which has been causing considerable concern and to which I have twice referred in recent weeks, namely in my budget statement and my reply to the budget debate, is the matter of the abuse of incentive allowances, particularly of the initial and investment allowances on machinery and plant. Those allowances were designed to stimulate investment in industrial and other plant by permitting the entrepreneur to claim for tax purposes an amount equal to 130% of the cost of such plant. Alas, as so often happens, certain persons have in increasing measure made use of the opportunity to devise artificial schemes of ever-increasing complexity, the effect of which is to confer on certain taxpayers concessions out of all proportion to the real cost of the assets being installed. Cases have been observed in which the tax saved by means of these devices approaches or even exceeds the arm’s length cost of the machinery and plant involved. As a result, certain sectors of the taxpaying community which until fairly recently paid substantial sums in income tax have, notwithstanding rising real profits, been able to reduce, or even wipe out, those profits for income tax purposes, thus increasing the burden which has to be borne by other taxpayers.

The amendments introduced by clauses 12 and 13 represent an attempt to restore some sanity to a situation which has become more and more artificial. As indicated in the explanatory memorandum, the basis on which the initial and investment allowances will henceforth be calculated will be the arm’s length cost price of the assets.

In pursuance of our policy of continuous tax reform, which was again referred to in my Second Reading speech on the Part Appropriation Bill, 1981, the staff of Inland Revenue have during the past few months been examining ways and means of reducing the numbers of taxpayers on the income tax register. The purpose of this exercise is twofold. First of all it is essential that in order to make the best possible use of our diminishing resources of trained manpower, the amount of paperwork handled by the staff must be reduced as much as possible without sacrificing efficiency. Secondly, and of greater interest to the taxpayer, it is the aim to make the paying of tax as painless an operation as possible. If as many persons as possible can be freed of the obligation to put in an annual return and yet not be prejudiced in any way, that aim will have been achieved.

Research has shown that there is in fact a large body of taxpayers whose income consists almost exclusively of remuneration and who would suffer no prejudice whatever if they were no longer asked to put in an annual return. Certain adjustments will have to be made to our existing system before we can proceed with our plans, and the provisions introduced by clause 31 represent the first step in that direction. Further details as to what is in mind are given in the explanatory memorandum and need not be repeated here.

Hon. members will be interested to know that according to our provisional estimates, it may be possible to reduce the income tax register by as much as 35%. Since the type of case which will be removed in this way can normally be handled on a routine basis, the changes we plan to make will by no means reduce the work load of Inland Revenue by 35%. They will, however, mean that it will be possible to improve the general efficiency of the tax collecting machinery.

I shall move certain amendments during the Committee Stage. Some of them have arisen since the drafting of the Bill and are designed to improve its scope. Others again arose from discussions which hon. members had with my department after they had sight of the draft Bill, prior to its introduction, as has become customary over the last number of years. These amendments, which improve the legislation, will be moved by me, and I must thank hon. members for their cooperation in improving highly technical and complex legislation in this fashion.

Finally, in regard to our tax reform programme, I want to touch briefly on the matter of fringe benefits. In my recent budget speech I expressed the hope that it would be possible, during the present session of Parliament, to submit draft amendments relating to the taxation of fringe benefits as a part of this Bill. Unfortunately the shortness of the session has prevented us from realizing that hope. Once certain final details have been approved, the draft legislation will, as promised, be made available to interested parties, by the Commissioner for Inland Revenue, with a view to the further elucidation of any problem areas and discussion of the best way in which to implement the proposals. It is my sincere hope that it will be possible to reach finality in this matter at an early date. If that can be done, and the necessary legislation can be introduced early next year, it will still be possible to put the new rules into operation on 1 March 1982.

I have endeavoured to give a fair outline of our proposals relating to income tax and now commend the Bill to the House.

Mr. Speaker, in the first place we should like to place on record our appreciation for the fact that in fairly difficult circumstances we have had sight of the Bill and have been able to negotiate with the department, even though the department has been under some considerable pressure to get the legislation ready on time. On behalf of my colleagues I would therefore like to express my thanks to the department for the very co-operative and helpful spirit it has displayed. This does not mean that the department agreed with everything we asked for, but there was a spirit of negotiation which, from our point of view, is very satisfactory and which has, I think, borne very fruitful results. I therefore extend our appreciation to the department.

Secondly, I want to express my personal appreciation for the fact that this measure is being dealt with today, thus allowing me to attend to my duties—if I may use that expression—as far as my own religion is concerned. I appreciate the co-operation that has been accorded me in this regard.

Thirdly, I want to deal, if I may, with the broader aspects of the Bill. Our objective is to see that whatever taxation has to be imposed, such taxation is firstly necessary for the purposes of running the State, secondly, that it is equitably imposed and, thirdly, that it does in fact give people the incentive to work and create wealth in South Africa, because fundamental to our whole concept of what South Africa should be is the necessity for people to have an incentive to create wealth. If one does not have wealth in the country as such, there is no use talking about distributing wealth, sharing wealth or anything else. In our view therefore there must be an incentive for people to use their ingenuity and their labour to create wealth and achieve certain goals.

Fourthly, we believe that if there is to be an equitable tax system, the loopholes which enable people to evade tax, have to be closed. In other words, if there is to be a system which is equitable, it must not be a system through which one can drive a horse and cart and get away with things. The hon. the Minister pointed to two examples today which I shall deal with in detail a little later. He will have our support in respect of the closing of loopholes which in our opinion are not equitable approaches to a system of taxation. It seems illogical that some persons, through the ability to utilize particular mechanisms, should have an advantage over ordinary people who do not have those mechanisms available to them. That is why we shall support these measures which are designed in order to deal with what may be tax avoidance or tax evasion. The line between the two is, of course, difficult to distinguish on occasions, but when it comes to the question of policy, that line is not actually important. When it comes to a question of policy and equity, one draws a line and says: That is what is proper and that is what is improper. That is what the law should be and that is how it will be enforced.

The Bill itself is actually unique from the point of view of the Opposition, because we do not intend opposing it. We do not intend moving an amendment at the Second Reading. We have amendments that we shall move in the Committee Stage, some of which I think the hon. the Minister himself will move. However, in so far as the principle of the Bill is concerned, we shall support the Second Reading. If I may say so, that in itself is relatively unique.

You are coming on.

It actually demonstrates that sometimes when one has elections, it is of benefit to the community as a whole, because I have actually listed the benefits which were announced before the election and which are now contained in the Bill. There are no less than 19 things which the hon. the Minister has introduced which I agree with. That must be a record. I think that is beyond question. From the point of view of the taxpayer, it seems to me that if we could say: “A tax bill and an election a year”, then we will really be going places. That would really be quite attractive from the taxpayers point of view, however unattractive it may be from the politician’s point of view.

There are, however, a couple of things which, on principle we must deal with immediately. The first is the fact that the hon. the Minister has not increased taxation; neither has he decreased it. However, we must draw attention to the fact that because of inflation and the fact that more people are moving into higher tax brackets without increasing the real spending power which they have, the hon. the Minister is in fact able to collect more tax without formally increasing taxation. The real issue is whether in fact the real incomes of our people are going up, because when real income goes up then there is a case for the increase of taxation. When there is only an inflationary increase, however, and when we have fiscal drag, then there is a case for the reduction of taxation. I am sure the hon. the Minister will be the first to admit that, because his estimates of revenue clearly showed that he benefits from inflation as a collector of taxes and that he benefits from fiscal drag and so can actually say in the House that he is not increasing in taxation even though he is collecting more money. In those circumstances we have to tell the hon. the Minister that the question of fiscal drag has to be looked at very carefully. Other countries have already worked out mechanisms as the United States recently did under the new Reagan Administration, and other countries have also done it. Their inflation is related to the level of taxation which is imposed so as to try, to some extent, to eliminate the fiscal drag so that the public can know what portion of their real income is being paid in taxation.

The second point which I want to raise is one that I have asked the hon. the Minister to respond to, viz. the question of what is going to happen next year, or maybe the year after—but we hope next year—when it is said Black taxation will be put on the same level as White taxation. That is when we really should combine all taxpayers in South Africa whatever their race may be so that we have a non-racial system of taxation. If that happens, what is the hon. the Minister’s approach going to be to the principle of joint taxation?

What is going to be the situation, because at the present moment we have the taxpayer as a family entity of husband and wife in the one case in regard to Whites, Coloureds and Indians and, in regard to Black people, we have the taxation of the single individual? What are we going to do in relation to that situation and how are we going to approach it? We also have this very important question, namely that with all the demand that there is for the separate taxation of women, we also have to bear in mind that, according to calculations, the people who earn R12 000 or less and who are married will actually be worse off. A small calculation in this regard will show that about 1,7 million of the 2 million taxpayers in South Africa actually earn R12 000 or less per annum. What will happen in regard to this situation? I wonder whether the hon. the Minister will not consider, when the new system of taxation is introduced and when we have a system of non-racial taxation in terms of which everybody will be dealt with the same way, whether there should not be an option that can be exercised in regard to being taxed separately or taxed jointly as far as married couples are concerned. One should also like to ask whether such an option should only be exercised after due consideration of what the implications are for the fiscus so that we can encourage married women who are skilled to go out and work and yet, on the other hand, not penalize the family taxpayer who at the present moment on an income level below R12 000 is in any event probably experiencing a certain amount of difficulty. I ask the hon. the Minister to reply to this because I feel it is quite an important issue.

The third point dealt with by the hon. the Minister arises specifically out of this piece of legislation. I refer to what is to happen to taxpayers on an income level of R7 000 or less per annum in order to ensure that there are fewer tax returns. This will result in lightening the administrative burden enormously as far as the Commissioner’s office is concerned but, as I see this legislation at the moment, it is really only half the story. There is still a great deal more that will have to come before this system can work effectively. One thing is certainly not very clear. The hon. the Minister referred—as does the explanatory memorandum—to people whose income almost entirely from salary. What in effect is the situation of the man whose income is almost entirely from salary but who, for example, earns interest which is taxable? How are we going to deal with such a situation in order to avoid administrative problems? How can we cut these problems down to a minimum? We must also bear in mind that the level of R7 000 must obviously be an artificial level with a view to inflation. Next year, of course, the figure may be entirely different when we consider the rate of inflation. The figure may in effect have to be adjusted virtually year by year in order to deal with a situation which by reason of inflation is going to change from time to time. I should like to ask the hon. the Minister to deal with this aspect and to give us some indication as to how he sees this system operating eventually.

I want now to discuss the question of fringe benefits. We have been debating the issue of fringe benefits for some time now. Originally the taxation of these benefits was going to be included in this particular piece of legislation, so the hon. the Minister said, to enable the public to have advance knowledge of it for next year. Now, however, owing to reasons which are understandable from the point of view of negotiations and problems that have arisen, this is going to be held over. I should, however, like to make an appeal to the hon. the Minister to try to bring this issue to finality as soon as possible and to say that the Bill which will be introduced next year should not be available only to those whom he consults but, once the picture is clear, once we know what the contents of the Bill are going to be, it should be published again in its final form, as it is intended to be introduced into Parliament, for general information so that the public as a whole will know about it. It is not enough that an organization such as the Chamber of Commerce will know what it involves in this regard. I feel that the ordinary man in the street who is going to be fundamentally affected by the taxation of fringe benefits should know in advance what his position is going to be in exactly the same way as his employer is likely to know. I want to make that appeal for publication so that the public as a whole will be informed in this regard.

I want to touch on one further matter to which the hon. the Minister referred indirectly. I want to put a specific problem to the hon. the Minister in regard to private companies in relation to the present level of taxation of companies and the present level of taxation of individuals. I should like to ask whether in fact a situation has not arisen where people who would like to have the benefit of limited liability and the other benefits of a company are in fact worse off from tax point of view if they operate through a company than if they operate as individuals. I wonder whether we should not have another look at this whole system of taxation in private companies so that one can really have an option to say that one wants to be taxed on the income as if one were an individual taxpayer, but one wants to be able to have the benefits of limited liability and the other benefits of being in a company. It does seem to me in the circumstances with our tax levels at the present moment that what we are really doing is making people pay in many circumstances a high premium for the benefit of limited liability and the other benefits of a company whereas in normal circumstances and in the past it obviously was advantageous taxation-wise to be able to trade through a company while in many cases it is now no longer the case.

I should like to deal with some of the individual aspects of the Bill. To me there are really two very fundamentally important provisions in the Bill. The first is the question which relates to tax avoidance which concerns both the question of the abuse of the lease system on which I think we have no quarrel with the hon. the Minister at all. We support that provision because to my mind this was an abuse of something which was intended for a completely different purpose.

I must tell the hon. the Minister that in my own mind I still have very serious doubts whether investment and initial allowances should go to anybody at all other than the actual person who is conducting the process of manufacture. In other words, what is the real reason why they should be able to go to financial institutions when all this kind of thing starts developing? The real issue, as I understand investment and initial allowances, is that the people who are in the manufacturing processes are the people who should get a benefit to encourage them to invest. What is happening at the moment is that in most cases that benefit does not go to the manufacturer, except indirectly because he pays a lower rate of interest, but it goes to the financial institution. I want to put a question mark, without answering the question myself, to the hon. the Minister, as to whether the real intention of these allowances is being fulfilled with the system as it exists at the present moment.

The second point concerns dividend stripping. One of the problems about this is that over many years the situation was allowed to develop in terms of which adverse loan accounts existed in private companies. People paid their tax in the company and then they borrowed from the company and they did not pay tax on the borrowings. The loophole was closed in respect of borrowing last year, but the borrowings which had been done legitimately at that time and before the loophole was closed, now create a serious situation for those people. One can five with that while one is alive, but I wonder whether the hon. the Minister has considered the plight of many estates that are suddenly going to be left with this situation and the kind of liability with which they are going to be left because there are adverse loan accounts.

I wonder whether we should not during the period between now and next year perhaps look at this to see whether some kind of relief cannot be given to people to clear this up. For many years the fiscus, if I may use the term, almost closed its eyes at the fact that there were institutions which were public companies and which bought these companies with appropriation accounts which allowed dividends to be declared without tax being payable on the dividends then and allowed it to be cleared out in that way.

I think the real problem arose from the abuse where people tried to have it both ways; i.e. they not only wanted to get the dividends tax free, but they wanted to create losses too in order to off-set it against other income. The result was that it became profitable, but the fiscus knew that this was happening and the fiscus could have said that instead of all these people making this money, the fiscus would give them a moratorium to clear it out and that X% taxation would be charged if they declared dividends in this form for a period of time.

I wonder whether some of these aspects should not be looked at because I think there will be burdens on estates, and not often very big estates, as a result of this provision. I also indicated in the discussions which took place before the introduction of the Bill that in regard to at least one of the provisions of this measure it may well hit people who are ordinary owners of property and particularly township developers who are declared as dealers. I indicated that there should be a time limit. I suggested that the time limit to go back in respect of dividends should be three years, but I understand the hon. the Minister says it is four years. We are not going to argue about a year. I think a time limit of four years will still be a safeguard, because the provision will then indicate that we are really trying to deal with dividend strippers and not with people who by reason of other circumstances would find themselves taxed quite unfairly in that situation. Therefore, if the hon. the Minister moves that amendment which will make the period in question four years, we will have no objection. I intended to move on page 8, in fine 45, to omit “period” and to substitute—

I understand that the hon. the Minister agrees with that in principle but suggests that it should be four years. I will not argue about that. I think nothing really turns on that extra year.

We then come to what I think must be the most attractive part of this legislation, viz. the provisions which deal with the ability of both individuals and companies to deduct from their income donations which they make to educational institutions. We on this side welcome this. We think it is a progressive step, and we will give it every encouragement. We do it because there is a problem not only in respect of private schools, but also in respect of public schools as regards the provision of amenities. It may well be that the hon. the Minister—perhaps he will take us into his confidence—has something more in mind in regard to this provision in view of the recommendations contained in the report of the De Lange Commission and that this is something which has a broader implication than is presently to be seen. If that is so I should like to hear it and I am sure the House should like to hear it because, basically, there are a number of things which we have to realize in South Africa. If we in this House agree—I understand that we do agree on this issue—that there should be equal quality of education for every child in South Africa irrespective of colour, then all of us have to appreciate that there is no such thing as a free lunch, but that somebody will have to pay for it. If we believe in that policy somebody will have to pay for it, and the people of South Africa must pay for it. I think it is a very small price to pay for the security of your future to see to it that there is non-discriminatory education in South Africa. If that is the intention the hon. the Minister will have our full backing and support in relation to this.

It is a good investment.

As the hon. member for Houghton says, it is a good investment. It will actually safeguard our whole future if we do that. I think the public of South Africa must be told that this safeguards their future and is therefore a very small price to pay.

An issue which is becoming important and which I think we also need to debate is what the contribution is that will in the future have to be made to education by the State and what the contribution is that will have to be made by the parent. I think this particular piece of legislation is relevant to that issue, because it enables one not only to contribute to an educational institution for the benefit of one’s own child, but also to an institution generally and receive that tax benefit. In the present circumstances in addition to universities and similar tertiary institutions secondary schools are now also in this category. Primary schools are not. I wonder whether the hon. the Minister will tell us why primary schools are excluded from it, because there are many of us who feel that primary schools should be included as such. At the present moment a primary school is included if it is part of an educational institution which also has a secondary school, but it is not included if there is just a primary school on its own. I think the hon. the Minister should give us some explanation as to why that is the situation.

The second point which I think also needs to be dealt with is that we accept for the moment—we do not oppose it—that this is to be in respect of contributions of a capital nature, in other words, the buildings, the land and the equipment which is there. There are amendments I have suggested in respect of enlarging the movables and I think that those have found favour with the hon. the Minister. The issue which I think has to be faced squarely is that there is a very real problem in respect of the running costs of certain private schools in South Africa. It is no use saying people should not send their children to private schools. I have no problem in that regard, since my children all went to public schools. They did not go to private schools. I thought that that was the correct thing to do. However, if one closes the private schools, the burden that will fall on the taxpayer of all those children having to be educated at public expense will be very substantial. So, even though my children went to public schools, I do not condemn private schools in that context. I think they fulfil a particular role in the South African society. What is happening, however, is that the running costs of these schools are actually increasing daily. If one looks at the increases in salaries and such factors, very real problems exist in regard to the running expenses of schools in South Africa.

One of the difficulties many of these schools have relates to pension funds. The Government has an easy answer for its pension funds. If they are not actuarially solvent, there is always the taxpayer to fall back on. The private schools cannot do that. I think we are going to have to look at that situation in the future. I am not being ungrateful or an Oliver Twist asking for more, because I am appreciative of what is being done for schools, but I am pointing out what the other implications are to which further consideration should be given.

Speaking of what amendments we should have, I want to say that at the present moment provision is made for buildings and the purchase and construction of buildings of a permanent nature, but as I have indicated, we intend to move an amendment, if the hon. the Minister himself does not do so, in relation to the development of grounds. Apart from buildings, there are sports fields and things of that nature relating to the development of grounds which should be taken into consideration. Also, as regards movables, we believe that any movable of a capital nature should be included here and in particular classroom equipment, reproduction equipment, electronic equipment and data processing equipment. All of these fall within the category of capital goods. We talk about visual and audio-visual aids, but I want to say that electronic and data processing equipment is also going to become part of the ordinary equipment of schools within a relatively short period of time and should therefore be included here.

So, while we welcome these provisions, I have drawn attention to the problems there are. I should also like to say that I think that in certain circumstances there may be a case to be made out for allowing donations from foreign countries, which are not presently included in the definition. If the hon. the Minister can see his way clear to amending this to make it possible for the donations of approved foreign countries and institutions in foreign countries to be tax deductible, it will meet with support from this side of the House.

Those, to my mind, are the highlights of this Bill. There are some other matters I should briefly like to touch on. There is, for instance, the question of hotel equipment, building allowances and allowances of that kind. I plead with the hon. the Minister to give attention as a matter of urgency to granting in respect of flats allowances similar to those granted to hotels—they need not be identical; I use the word “similar” advisedly. I refer particularly to flats for the middle and lower income groups because the private sector is not building flats for those groups of the population. The flats that are being built today are all being built to be sold under sectional title and as luxury flats. However, the ordinary man in the street is going to end up being an ever-increasing burden on the State unless more is done to encourage the building of flats for letting purposes and not merely for selling.

Interest on mortgage bonds could be made tax deductible.

Yes, that is one of the points that has been made by various hon. members. The whole concept of what we have to do in respect of the occupation of premises is one which I think does need very urgent attention. I do not believe that we differ on that. We may all have our own pet schemes, and I personally believe that one should give incentives as there are in the hotel industry. Other hon. members may have other ideas, but there is no doubt that something has to be done about it.

I now wish to refer to the export incentive scheme. I find it a bit strange that we should have a taxation measure actually going to another department, because the Department of Industries, Commerce and Tourism is now going to play a role in determining what the amount should actually be. As a matter of principle in normal circumstances I am not happy about that. I think that taxation belongs with the Commissioner for Inland Revenue and with the Department of Finance. I understand the problems here, but there is one matter I want to make quite clear. We shall only support a system that treats people as a class and not a system whereby an individual can receive a concession which another individual cannot. I hope the hon. the Minister will give us the assurance that the scheme as it has been discussed and as it has been canvassed is the one that will be implemented in that form so that there will be categories of allowances for categories of people. It would be dangerous to open a loophole where an individual exporter can receive a particular attractive allowance which other people could not receive in the same circumstances.

With regard to key point expenditure I must say to the hon. the Minister that I think there is a case to be made out where in some circumstances a tax allowance will not be enough. The nature of the protective measures in respect of a strategic industry might be of such a nature that the State might have to make a contribution to it beyond merely allowing a tax benefit from it.

I also want to deal briefly with a few smaller matters. For instance, there is the question of donations that may be made to children and which were increased to R15 000 and accumulatively to R45 000. I think that figure has been overtaken by inflation and it needs reconsideration.

I think all the amounts relating to the savings bank structure are out of date when it comes to inflation, and I therefore think that the hon. the Minister should look at that in toto and should in fact review all these things so as to allow these amounts to be kept up to date with inflation. The same thing applies to the mere R200 increase in respect of the tax free allowance for married women. I do not think the amount is adequate in the existing circumstances, and I think it too should be looked at again.

There are many things that we appreciate that are being done, but one of the things that needs to be done is to keep up to date with inflation in respect of all these allowances and all these payments, because when one is operating at an inflation rate of about 15% quite obviously one has to review the matter and review it virtually annually to see that justice is done in these circumstances.

I have tried to cover a large field, but I must tell the hon. the Minister that this is one of the better taxation Bills that we have had, and if next year’s is even better we shall be even more pleased.

Mr. Speaker, I want to congratulate the hon. member for Yeoville on the very responsible speech that he has made. I also want to thank him for supporting the principle of the Bill and for supporting the measures that are intended to close the loopholes that exist. In addition, I want to convey our good wishes to him on the occasion of his celebrations tomorrow.

*Last year’s discussion of the Income Tax Bill took place late at night. This year the discussion is taking place in the middle of the day, and therefore, I think, there ought to be a greater degree of level-headedness and clarity with regard to the entire situation than was the case last year.

The purpose of this legislation is to give legal effect to the hon. the Minister’s tax proposals. Circumstances do of course require that amended fiscal measures be laid down from year to year, and also that fiscal policy be used as a regulating mechanism in the economy. By introducing a more or less stringent income tax structure, the hon. the Minister can either slow down or speed up the economy. I am of the opinion that the hon. the Minister has succeeded admirably in implementing a good cruising speed. At the moment this is very important.

To have been able to reconcile the growing demand for more money with revenue, without an increase in the rates of tax, is a wonderful achievement. I think we should all take cognizance of the fact that if the State is compelled by circumstances to provide additional and more expensive services, State expenditure will of necessity increase. According to the principles of State financing, the revenue must then be brought into line with increased expenditure. It must be adapted in such a way that the adverse effect which increased taxes may have do not warp the economy or bring it to a standstill. This is the art of budgeting and of State financing.

It is fair that the tax burden should be distributed evenly. That is why we welcome measures which try to avoid the tax pressure. That is why, as I have already said, we also welcome the support we are getting from the hon. Opposition with regard to the plugging of the existing loopholes. Every person who does not contribute his rightful share, places an additional burden on the law-abiding person.

We regard the righting of inconsistencies, cases in which the individual is taxed unnecessarily heavily, in the same light. We welcome, for example, the concession to those in receipt of disability pensions, as contained in clause 8(1)(d) of the Bill under discussion. There was an anomaly in this regard, which has now been rectified. The question of allowing pre-production interest is a sound concession which can also have a real effect on the development of new undertakings. I think that an anomaly existed in this case as well, in that developers were not allowed to deduct for tax purposes the interest they had to pay before they could begin production. However, I also want to issue a warning that this matter be watched carefully, because I foresee abuses in this regard. I nevertheless believe that the Government is aware of this and that they will give attention to it.

In his speech the hon. the Minister mentioned that tax relief to exporters granted last year by the Minister of Industries and of Commerce and Consumer Affairs, will cost the State an additional R100 million. However, I regard this as an investment. As a result of the poor financial condition in which many of our trading partners find themselves at the moment, exports are becoming increasingly difficult. As a matter of fact, statistics prove this. It is therefore very important for the South African economy that we should export and develop our export industry. I therefore hope that the understanding between the Director-General of Industries, Commerce and Tourism, who is to administer the export incentive scheme, and the Receiver, will be very good at all times.

Clauses 11, 12 and 13 ought to have a stimulating effect on the economy in respect of the training of manpower and the development of new undertakings.

The hon. member for Yeoville referred to clause 16, which makes provision for deductions in respect of donations to universities, colleges and certain educational funds. When the Franzsen Commission recommended that donations to educational institutions should enjoy tax benefits, the presumption was that such donations would only be paid to universities and to the National Study Loan and Bursary Fund. It was also the understanding that such funds would be more specifically for capital works or movable property in the form of laboratory equipment, sports equipment or workshop equipment and even vehicles. Donations to schools did not qualify for tax benefits, and in my opinion this is therefore a good extension. In terms of the Bill the principle is now being extended to schools offering secondary education and does not exclude a school which is partially primary and partially secondary. In terms of subsection (3) a donation will only qualify for deduction if supported by a receipt issued by the university or college concerned or the person in control of the educational fund concerned. In answer to the hon. member for Yeoville’s question as to why primary schools are not included, my information is that it was agreed in the discussion between the Department of Inland Revenue and educational heads that primary schools should be excluded. Various reasons for this decision were advanced, the most important probably being that there is not such a need for such aid at primary schools. It was also argued that it would be difficult to control administratively if donations could also be made to primary schools.

As regards bursaries, subsection (2)(a) only prescribes donations for purposes other than the defraying of student’s fees or the granting of bursaries. Donations for study bursaries must be made to the National Study Loan and Bursary Fund and bursaries donated by employers to employees, or even to the children of employees, can in fact qualify as deductions in terms of the new subsection (1) of section 11sept when they are regarded as training in the interests of the manpower situation. The hon. member for Yeoville also referred to private schools. In this connection one should take into account that legislation was submitted during this session of Parliament which enables the Provincial Administrations, too, to make certain grants to private schools, which will certainly be greatly to the benefit of those schools.

I want to refer briefly to clause 21, in which certain concessions are made to cooperatives in respect of storage buildings. In this country we have surplusses in some years, shortages in others. In my opinion, therefore, it is very important to follow a sort of Joseph’s policy. We must stockpile the surplusses during certain years so that they can be used when there are shortages. Accordingly the storage building investment allowance is a special privilege, particularly for the co-operative sector. However, this is not a special privilege for the co-operatives. I am very glad that it is spelt out clearly on page 14 of the explanatory memorandum that the allowance to co-operatives is the counterpart of the building investment allowance granted in respect of the cost of certain industrial buildings and machinery. It is only being granted to bring the position of co-operatives into line with that of the industrial sector. However, we are grateful that the period is also being extended.

I think the hon. member for Port Elizabeth Central referred to clause 21(1)(f). I think it was that hon. member who made mention of the fact that this proposed new subsection (5B) will in actual fact replace section 170 of the Co-operatives Act, 1981. I think he said it was a strange situation that while we are busy with the co-operatives legislation, there is already a Bill on the Order Paper deleting one of the provisions of the co-operative legislation.

This is not the first time.

However, if one looks at it carefully, it is not so strange. I have clause 170 of the Co-operatives Bill in front of me. It reads as follows—

All that has now happened is that clause 21(f) of the Income Tax Bill makes provision for the co-operative to be seen as an operation which is continued in the case of an amalgamation. Therefore, when this legislation becomes law, section 170 of the Co-operatives Act in fact becomes superfluous. It is not, however, superfluous before the Income Tax Bill is accepted, but as soon as the Income Tax Bill is accepted, it does become superfluous. It is therefore simply a correction. There is nothing sinister about the entire matter.

It sounds very complicated.

It may sound complicated to someone who cannot understand it, but to anyone who understands it is not really so complicated. [Interjections.]

Another clause which perhaps calls for attention is clause 23, which concerns the exemption from taxation on donations. This must be read in conjunction with clause 8(1)(c) on page 11. It says any political party is exempted in respect of recepts and incidental donations, provided it is a registered party. I think all political parties can enjoy the benefit of this.

I now come to clause 26. This is of real importance to the farming community, and on behalf of the agricultural industry I want to express a word of thanks for the phasing in of a standard value for all breeding stock.

Clause 28 deals with lump sum benefits paid to pensioners from provident funds. I think this clause is also of real importance, especially to those persons affected by it.

I now come to clause 31, which deals with standardized deductions for taxpayers with small incomes. I think the explanatory memorandum puts the matter very clearly. The hon. member for Yeoville referred to this clause and said there would be problems. Of course there will be problems. However, the explanatory memorandum puts it very clearly—

It is completely acceptable to me that where one begins such a new system, there will be growing pains and adjustments will have to be made. I am quite convinced that those hitches or problems will emerge within the next two or three years so that they can be eliminated by means of additional legislation.

In conclusion, I want to address a word of sincere thanks to the department for the very neat and comprehensive explanatory memorandum and also for their friendly help and assistance to us when we made inquiries.

Mr. Speaker, I rise to tell the House that we in the NRP will be supporting the measure. The hon. member for Malmesbury, as well as the hon. member for Yeoville, have dealt with the Bill at great length and referred to many of the provisions contained therein. I agree that it is legislation which is to be welcomed because, first of all, there is clearly no increase in taxation, and I am sure most South Africans welcome this. Then there are, of course, the concessions to which the hon. the Minister has referred. Thirdly, there is the closing of the loopholes which was, of course, a matter of some concern. I am not going to dwell at any length on the other provisions, other than to say with regard to the clause dealing with private schools, that we particularly welcome that clause.

I think there is something else to which the hon. the Minister and his colleagues must give even more consideration, and that is that as we move into a greater South Africa, where we are providing greater opportunities for all our people, it will be found that the burden which was previously carried by the State, will have to be shared more by voluntary contributions from the private sector. We should, therefore, encourage the private sector to make these contributions as they see fit and as they choose and the provision which now extends the concessions as far as contributions to private schools are concerned, will achieve this objection. I was reading recently that it is going to cost South Africa something like R5 000 million in capital just to establish the capital base, in terms of school buildings and so on, if we are ever to achieve equality in education for all our people. That is just the capital cost, let alone the operating costs which the hon. member for Yeoville mentioned earlier. I should also like to take this opportunity to remind hon. members of the contribution made to the country as a whole by parents who send their children to private schools. By so doing, the ordinary taxpayer is not required to finance education for those children. I do not know exactly what it costs, but maybe hon. members can tell me what the cost per annum is to educate a child at a private school.

It depends whether he is White or Black.

I am talking about White children.

R1 000 per year. [Interjections.]

R849 per annum is what it costs the State to educate a White child at school. As far as parents who are paying for their children’s education at private schools are concerned, I believe one can look upon that as an additional R849 which they are paying in taxation. Therefore we welcome these measures as well as the measures to close existing loopholes in the Act. Hon. members have referred to the dividend stripping of companies and we welcome the measures before us which will control this practice.

There is one aspect of these provisions that I have noticed throughout this legislation and that is that there have been a number of increases in various allowances that are made. For instance, the allowance for a married woman has now been increased, from R1 200 to R1 600 per annum. Certain allowances for annuities have also been increased from R1 000 to R2 000. I just want to say to the hon. the Minister that one may look at this and say that this is due to a liberalizing attitude on the part of the hon. the Minister in his approach to taxation. However, I would say that this is simply an indication of the toll that inflation is taking of the economy of South Africa as a whole. It is in this connection that I should like to address the hon. the Minister today and ask him whether he feels that the policy of strict discipline in regard to fiscal and monetary matters that he has followed in an effort to win the battle against inflation, is being as effective as it could be and should be. The hon. the Minister has just returned from a very successful trip to the United States where he met the financial leaders of the Western world at the meeting of the International Monetary Fund. From the reports I have seen on TV and read about, these leaders have clearly stated that inflation must be curbed throughout the Western world and that one of the ways of doing this is to follow a policy which the hon. the Minister has been following in recent years, and that is a policy of strict discipline over the money supply as well as strict discipline in so far as Government spending is concerned. I should like to know whether the hon. the Minister is satisfied that his Cabinet colleagues are sufficiently disciplined in the light of the great challenges that are facing South Africa at the present time. The hon. member for Yeoville referred to fiscal drag, and I read recently that this is going to contribute something like R900 million to the hon. the Minister’s coffers this year. Perhaps the hon. the Minister can enlighten me in this regard. I should like to have some indication of the additional taxation that people will pay because of inflation. I want therefore to call upon the hon. the Minister to prevail upon his colleagues for even more discipline when it comes to public spending. I believe that this is absolutely essential because of one particular factor that has been debated repeatedly in this House during this session. Here I refer to the need for sound economic growth in South Africa over the next 20 years. Hon. members on the Government benches have said that the growth rate must be of the order of 5% per annum for the next 20 years if we are to achieve the degree of employment that is necessary for our growing Black population. What concerns me is that over the past two or three weeks I have read reports by economists who say that this year we are going to fall below the 5% level and that the position for the next few years does not look too rosy. If this is the case, it means that we are falling behind in our programme. I believe that we must constantly keep in mind our objective of a minimum average growth of 5% per annum in the GDP every year until the year 2000. As I have said, to achieve this will require tremendous discipline in Government spending and a commitment to the principles of free enterprise. It is, after all, the entrepreneurial thrust and initiative that contribute towards the generation of wealth in South Africa and, indeed, in every country. It is in this context that I believe we should view this Income Tax Bill.

I am sure the hon. the Minister will agree with me that if taxation is permitted to become too burdensome it will have a smothering effect upon initiative. We have seen this happen very much of recent years in the Third World countries, especially in more recent times in the countries to the north of us where socialist-oriented Governments have placed a too heavy burden upon the entrepreneur thus destroying the initiatives that emanate from the profit motive. In the end, the economy suffers and all the people suffer.

This brings me to the final point I would like to put to the hon. the Minister, namely, the need for the greater exercising of our collective minds—if I may put it that way—in regard to future forms of taxation and the distribution of tax revenues when South Africa’s constitution is amended, something which is bound to happen within the next two or three years. No doubt the amending of our constitution will make it possible for us to move away from a centralized legislative and administrative structure such as we have today and towards a more decentralized one in order to accommodate the plurality of our people, to accommodate their desire for self-determination and also for their own economic prosperity.

I should like to tell the hon. the Minister and the hon. members of this House that we must never forget that it is the ability to levy taxation which constitutes real power. It is through taxation that governments raise the funds to finance their law-enforcement agencies, their armies, it is through taxation that they provide education and health and welfare and it is also through taxation and in recent times also through inflation that, let us face it—I think the hon. the Minister must concede that this is taxation in disguise—socialist governments finance or try to finance their social welfare states. I think we have a very good example just to the north of us in Zimbabwe. Recent reports emanating from that country indicate that the situation is now being reached there that a lot of people who formerly were full of the fire in the belly of the entrepreneur are now being smothered and there is talk of those people leaving Zimbabwe which will be a tragedy for that country.

Therefore I should like to ask the hon. the Minister whether he and his colleagues are giving any thought to the control of taxation and the distribution of tax revenue in the years to come when we move into greater decentralization of government in South Africa. With these words I should like to say to the hon. the Minister that we shall support the Bill.

Mr. Speaker, it is certainly not an everyday occurrence for there to be so much unanimity in this House on such an important issue. I think it is really a feather in the cap of the hon. the Minister of Finance and his department. On behalf of this side of this House I should like to thank him and his department for the excellent work they have done overseas at the IMF during the past week or so. We are greatly indebted to them.

I just want to refer very briefly to two aspects of this legislation. The first involves clause 12, which concerns the initial and investment allowances in respect of manufacturers of machinery. In this connection the hon. member for Yeoville pointed out that he was unhappy about the fact that this allowance was being transferred to financial institutions and said that it should perhaps be limited to manufacturers and the people who will use it. I think there is some logic in what the hon. member says, but one should not overlook the fact that the financial institutions provide a very important service in this connection. I think one must be careful not to throw the baby out with the bath-water.

I was initially a little worried when I read clause 12 to see how interest and financing costs were to be dealt with. At the same time, one must read clause 9 in conjunction with clause 12 to realize that the two supplement each other.

I want to refer very briefly to clause 16 to which other hon. members have also already referred. This concerns the question of educational contributions. I think the important principle which must be reemphasized is that the public and the private sector have a very definite responsibility to act as partners of the State in the establishment and improvement of educational facilities in South Africa. The mere fact that by means of the proposed amendment this facility is being extended to senior or secondary schools, is an excellent amendment which will be widely welcomed. I want to point out to the hon. the Minister that the school in Paarl which he attended has launched a very large project in recent years specifically to undertake capital work. This type of concession will help a great deal.

There are two aspects in this connection which I do just want to bring to the attention of the hon. the Minister. In the first place, it is not clear to me whether the proposed section 18A(2)(a)—the hon. member for Malmesbury also referred to this—imposes a limit on contributions in respect of bursaries. If it is only intended to prevent tax evasion, where a donation is made to a university on condition that that donation must be used, for example, to give a bursary to one’s own child, something which has in fact already happened in the past, it is 100% correct. But I think we must also be careful here that we do not hinder the granting of donations with the exclusive aim of granting bursaries other than through the National Study Loan and Bursary Fund. I must say that universities rely to a large extent on contributions which they receive for the granting of bursaries. If this provision were to exclude such donations from tax deductions, it would have a considerable effect on universities. A final point is that the provision to the effect that an individual’s contribution is limited to R500 or 2% of his taxable income, remains in the Act. This sounds logical, but I know that some universities are experiencing problems where an individual who is well-off wants to make a very large donation to a university, but as a result of this measure is prevented from making such a donation because he is unable to obtain the necessary tax concession.

I just wanted to mention these few points. For the rest I am happy to support this Bill.

Mr. Speaker, I will try to be as brief as possible in view of the time limit on this Bill and, particularly, in view of the fact that the hon. the Minister still has some amendments to put through.

Mr. Speaker, I want to return to the subject mentioned by the hon. member for Yeoville, viz. the problem of fiscal drag. The hon. the Minister will know that this is the third time that I speak in a financial debate this session on this particular subject. We can see the effect in the Bill before us today. The hon. the Minister has had to change a number of limits as to what is tax-free, etc., but he has not covered the whole field, not by a long chalk. I believe there is a tremendous amount of investigation that needs to be done. The hon. the Minister may recall that I put a question to him earlier in the session in which I tried to highlight a number of these various factors. One that I should particularly like to return to very briefly is the rate at which one is set free from paying tax on a portion of one’s dividends. In other words, when one reaches a certain threshold, one only gets a third of one’s dividends tax-free. I believe those thresholds and those brackets should be raised considerably. They have not been altered for a considerable period of time and altering them could actually have a beneficial effect on the fiscus, because if dividends are to a greater extent allowed tax-free in the hands of the individual taxpayer, it can in fact make a difference as regards the dividends paid by private companies into the hands of their shareholders. As such I believe the ultimate effect could be that more tax would be paid because more dividends would be paid out to taxpayers of companies and less retained.

The real reason why I wanted to speak in the Second Reading debate was to talk about the education situation, because I believe that to try to restrict the benefits afforded by this Income Tax Bill only to secondary education is not wise. It is almost tantamount to saying one of two things: either that secondary education is the most important form of education and outweighs the advantages of primary education or pre-primary education, or that we as a State have a problem with secondary education and in order to try to overcome that problem we are now going to encourage private individuals to invest more money in schools. If we are going to take the attitude that a tax incentive to people who wish to invest in secondary education is desirable, then I see no reason why we should not apply the same formula to other forms of schooling, thus also to primary education and pre-primary education. I would hate to have anybody in this House come out and say specifically one form of education was more important than another. I think they all have their definite roles within the system, I think they are all extremely necessary and I therefore have an amendment on the Order Paper to omit “secondary” from the Bill so that the provisions will cover all education. I am not terribly hopeful that the hon. the Minister is going to accept this in the Committee Stage, but I think it is something he could think about and then perhaps come with such an amendment next year because, as the hon. member for Yeoville has said, the advantages of education to our society are incalculable. Anything we can do to provide better education, at whatever level it might be, is going to be of great advantage.

There is also the point of view that the hon. the Minister is actually creating a loophole here. I think that if the hon. the Minister does not bring in primary schools, what is going to happen is that one is going to find a series of mergers, to call them that, between private senior schools and private primary schools. They will then have one board of governors or directors and separate subcommittees to handle the secondary and junior schools. In that way they will get the tax advantage. This is certainly a loophole one can drive a cart through and I would suggest that the hon. the Minister should not try to stop that loophole but should simply make it legal.

The other thing I should like the hon. the Minister to look at as regards tax is the fact that a tremendous number of private schools in this country have closed down or are in the process of closing down. Here I want to refer in particular to the schools, mainly secondary schools, run by the Roman Catholic religion in one form or another. We all know of such cases. Let me mention just two. There is De la Salle in East London and St. Aidan’s in Grahamstown. St. Aidan’s was a wonderful school with a long history. Those buildings are now to be used for an hotel. I do not believe that this is to the advantage of South Africa generally. We are short of secondary schools. Whether they are private schools or Government schools, they are doing a good job educating South Africa’s children. I think the hon. the Minister should have a very close look at why schools of this nature are closing down. Let us try to get them back on the right road and if we can even resuscitate some of them, so much the better. Every child entering the private education system, as opposed to the public education system, is going to be to the hon. the Minister’s benefit. I think that those two points should therefore be very seriously considered.

Finally I want to talk briefly about the co-operatives mentioned by the hon. member for Malmesbury. He referred to the speech I made in the Third Reading debate on the Co-operatives Bill. In closing, I want to say to him that for there to be an amendment on the Order Paper to a Bill which has not even passed through all its stages yet must be a world record. I can see no justification for having a clause in a Bill which, before that Bill is even passed, is to be amended in the same session by another Bill. If it is necessary to amend it, why was it not taken up by the hon. the Minister of Agriculture and Fisheries at once? I submit that in this particular regard there is a certain element of one hand not knowing what the other hand is doing, particularly as the present hon. the Minister of Agriculture and Fisheries is a former Deputy Minister of Finance.

Mr. Speaker, I have listened to the debate with interest, and I wish to express my sincere thanks to hon. members on both sides of the House, not only for their contributions, but also for the spirit in which the debate was conducted and for their support of the Bill. When one introduces legislation which is full of taxation measures and amendments, it is gratifying to have it supported by the whole House. I appreciate that. I wish to refer to the more important contributions to the debate and to the points that have been raised. I shall start with the hon. member for Yeoville.

†First of all I should like to thank the hon. member for his kind remarks yesterday in regard to my attendance of the IMF and World Bank meetings. I am not quite sure whether the fact that the hon. member and I seem to have the same ties on today is of any significance. I can assure you, Mr. Speaker, it is a pure coincidence.

It is a fiscal tie.

A fiscal drag! [Interjections.]

The hon. member for Yeoville referred to the taxation of Blacks and asked what the approach would be as from next year. We are in fact still carrying on important consultations with the governments of certain of the National States. They are, of course, the tax authorities in connection with their own tax affairs. In the light of that I should appreciate being able to have a little more time to complete those negotiations in order that there should be no misunderstandings on either side. I shall then be only too pleased to keep the hon. member for Yeoville abreast of developments. It is an important matter. We are certainly trying to reach the stage of complete equality in the taxation of all taxpayers of this country.

In passing I might just mention that people earning less than R12 000 a year will actually be better off under joint taxation in terms of the new rates. I should like to point that out. I noticed the hon. member for Houghton did not take part in this debate. I think she is more and more coming round to my approach.

[Inaudible.] [Interjections.]

I think the hon. member will agree that we have gone a long way in order to be really very kind to women taxpayers.

In fact, some of your best friends are women.

I hope so!

We now come to the question of schools and allowances. I should like to deal with the allowances immediately because it is a matter which has been referred to frequently during the debate. In connection with the question of the tax deductibility of contributions to educational institutions and also in relation to primary schools—a point referred to by the hon. member for Port Elizabeth Central—I should like to point out that where a school consists of a secondary and a primary establishment that whole school will be affected. We are not drawing any distinction there. It is purely in the case of primary schools as such—primary schools which are on their own—that there is a problem. It is an administrative problem. We have had considerable discussions with various authorities and representatives of various educational institutions, and I can give hon. members the assurance that there is a very extensive administrative problem. We should like to see this new, broader dispensation get well under way in order to see how it works. If it is at all possible later to extend this sort of concession we shall only be too pleased to do so. In fact, the whole aim is to extend it. We are, however, doing it in this way, and I can assure hon. members there are practical reasons for that. I hope the hon. member will accept it at this point.

I do have an amendment which I shall move in this regard when we reach the Committee Stage. I shall perhaps have a little more to say about it when we reach that stage.

The hon. member for Yeoville, referring to the final fax deductions in respect of people earning less than R7 000 a year, who are now being exempted from submitting a tax return, asked the question as to what is “almost entirely” income from salary. As I think I tried to indicate during my Second Reading speech, the precise meaning of this is being carefully studied at the moment. It will certainly be very clearly stated in the legislation which I hope to introduce in this respect early next year. That is a point which is being very carefully investigated.

Investment and initial allowances were referred to by the hon. member for Yeoville as well as the hon. member for Paarl. I also thank the hon. member for Paarl for the friendly words he addressed to me. I would simply say that it is a question whether these investment and initial allowances should go to the manufacturers as such and not to financial institutions. I think the financial institutions do tend to admit that the full benefit does not go to the manufacturer. However, the Standing Commission on Tax Policy is looking at the whole question of incentive allowances. The hon. member may recall that inquiry, which I am told is making good progress, but it is quite a comprehensive one. Therefore we shall hear more about that when that report is to hand.

*The hon. member for Paarl also referred to the role played by finance houses with regard to the provision of machinery for lease. I think he pleaded that the investment allowance should be retained for them as well. I think there is much to be said for that approach, because entrepreneurs who do not have a great deal of capital are hereby given a chance to obtain cheaper financing. I think this is an important point, as long as this concession is not abused, of course.

†I shall now deal with various points, although not in any particular order. I think it was the hon. member for Yeoville who raised the question with regard to flat buildings. He asked whether they could not be treated in the same way as hotels when it comes to tax policy. I think hotels are not quite on the same footing as flat buildings. Unfortunately the incentive to build flats for resale is much greater than the incentive to build flats for letting. I think it is the letting that the hon. member had in mind. The matter has been looked at and it will obviously be looked at again. There is in fact an important concession in the Bill to encourage housing, i.e. the increase of the exemption for tax-free building society shares from R10 000 to R20 000. This is, of course, the amount of the investments. This does have a bearing on the matter. However, that is probably as far as I can take that matter at the moment.

Then the hon. member made one or two important references to companies and individual taxpayers and asked whether the individual is better or worse off if he is taxed as an individual compared with being taxed as a member of a private company. I can merely say that measures are being looked at and that they will continue to be looked at during the recess to allow those companies with director loan accounts to clear out against payment of lesser tax. I should like to interpolate here that the Commissioner for Inland Revenue has said to me a few times that the word “moratorium” is a word that is rather anathema to him as a tax gatherer because it might mean that the taxpayer who did not do his duty is favoured over the taxpayer who did. However, as I say, this matter is receiving attention and we shall hear more about it.

The question of whether people who are members of private companies are worse off by being in that position is a matter which I am told is receiving the further attention of the Standing Commission on Tax Policy at this moment.

Then there is the question of limited liability. The hon. member said that someone might wish to be a member of a private company because he gets the benefit of limited liability, but I think the extent of the limited liability there is itself limited as creditors tend to insist on personal guarantees by the shareholders in such cases. That is not illegal, but it is a practical aspect. However, these matters will all be dealt with further.

The hon. member for Amanzimtoti talked about future forms of taxation and the distribution of tax revenue in the future when we might have to be dealing with future constitutional changes in a changed position. This is an extremely important matter, and obviously it will receive very careful consideration and I think it will have to be very carefully debated in this House. I take the hon. member’s point and I agree with him that it is extremely important.

He also referred to education and welcomed the added concessions to the public to encourage them to make contributions to educational institutions by virtue of the higher tax deductibility. He looked upon it as an encouragement to the private sector to contribute towards the cost of education. That is, of course, the main motive.

The hon. member then raised a very interesting point, namely the question of the effectiveness of financial discipline. For the first time since I have been attending the meetings of the International Monetary Fund this was, in fact, a feature of the discussions. In the past there has been the tendency towards almost a permissivity on the part of a large number of those who had taken part in the debates. They felt that more and more credit should be given, that the real solution to the problems of the Third World and underdeveloped areas was simply to give them more paper money, SDR’s or soft loans. However, a feature of the latest conference, starting with a speech made by President Reagan of the United States when he opened the proceedings, was that the time has come for discipline and that the very easy or unrestricted granting of credit for development purposes has been proved a massive failure. It was felt that the time had come that these things should be looked at far more carefully and that there should be a greater surveillance—as they call it—to see that after aid had been granted, the money was being put to proper use and, indeed, to the uses for which it was granted. That point was also stressed by the head of the IMF and by the new head of the World Bank, Mr. Clausen, who is a very distinguished banker and until recently the head of the Bank of America, which is just about the biggest bank in the world. I think we have no option and that the call for fiscal and monetary restraint was extremely well-timed. I shudder to think what our position would have been if we had not tried to exercise some financial restraint in this country. However, the hon. member was correct in saying that we have to watch the growth rate, especially in a country like ours with a rapid population increase. To prevent the money supply getting out of hand, taxes and Government spending going too high and yet to ensure an adequate growth rate, is in fact a great challenge. That, I think, is an art. If we are going to have a substantial rise in taxes during the next year or two in order to finance all sorts of schemes, it may very well have a dampening effect on the growth rate. I did happen to say at the conference in Washington that it seemed to me that the only way we could ensure that taxes did not rise, or did not rise more than moderately, was to keep a hold on spending in the public sector but also on unnecessary spending in the private sector. If I understood the hon. member correctly, I think we are talking on the same plane.

*I want to thank the hon. member for Malmesbury for his contribution, and since we have now come to the end of this session, I also want to thank him, in the first place, for his assistance as chairman of the finance group of the caucus on this side of the House, where he was very helpful. I also want to thank him for the work he did as chairman of the Select Committee on Public Accounts. Today he once again furnished proof of his clear vision of these matters, and also of the amendment to the Cooperatives Act. I do not want to detain the House unnecessarily. The hon. member for Port Elizabeth Central referred to it jokingly, but actually there was a reason for it.

†I now want to come to the question of fiscal drag, and I must ask the hon. member for Port Elizabeth Central to bear with me. Last night I signed a note in which I gave him certain information, and I hoped that he might receive it by today. If he did not, it is on its way. It deals with fiscal drag, the taxation of dividends and one or two other matters he has raised in recent debates which I unfortunately did not get round to replying to earlier. I should, however, like to refer to those matters now.

Let me first of all deal with fiscal drag, and I shall be brief and confine my reply to the general merit of the proposal that fiscal drag should be limited or kept right out of the picture, or that allowance should be made for inflation so that there would not be any fiscal drag. I should like to confine myself to this rather than dealing with the practicalities involved. I must immediately emphasize that because companies have a fixed tax rate we would not, in that connection, talk of fiscal drag. They can therefore be left out of the picture. In a report of the OECD, the organization for Economic Co-operation and Development in Europe entitled “The Adjustment of personal Income Taxes for Inflation” the following relevant passage appeared—

It is said that in Canada, for example, federal and provincial taxes were cut by Canadian $400 million in 1974 as a result of indexation. In Denmark the revenue loss was 800 million Danish krone and in the Netherlands, 880 million guilders. I quote further—

The answer there, of course, might be not to expand welfare programmes, but so much for that. The article goes on to say—

I should like to go on with this because I think this is an important issue and I use indexation as an example because up to now this is about the only practical method that has been adopted here. I say that not only will the adoption of indexation result in an unacceptable decreases in tax revenue but it will, I believe, also hamper the ability of the Government to adapt to changes in the general economic situation and revenue requirements. Although I do not believe indexation to be an acceptable solution to the problem of the effects of fiscal drag, the question of the role that fiscal drag plays in our economy is constantly receiving attention and where circumstances have permitted it, we have attempted to ameliorate its effects.

I should like to draw hon. members attention to what I said in my budget speech last year. I quote—

That is the last budget but one—

Where we were able to do so, therefore, we certainly tried to address the problem. The measure of success achieved is, I think, demonstrated by a series of graphs compiled by Senbank and published to illustrate an article that appeared in Finance Week of 10-16 April 1980, showing that since 1978 the effects of fiscal drag have been eliminated to a very substantial extent. Furthermore, it is interesting to note that while the consumer price index increased by 69% between 1978 and June 1981, the deduction allowed to married women was increased from R750 to R1 400, which is an increase of 85%, while the threshold at which persons become liable for taxation has increased by 114% in the case of unmarried taxpayers and 108% in the case of married taxpayers with no children. The result of all these concessions which have been granted so far could perhaps be illustrated by an example.

A married taxpayer earning R10 000 in 1978 would have borne an effective tax rate of 15,2%. If one assumes that his income has risen by 69% to keep up with inflation according to the index up to June 1981, that is, that he has enjoyed no increase in real terms, he would be earning R16 940 as at June 1981. His income would be subject to an effective tax rate of 13,9%, which in fact is 1,3% less than the 15,2% he would have had to pay before. This means that such a taxpayer is in fact better off today than he would have been under a system of indexation.

Finally and as a matter of interest I should like to draw the hon. member’s attention to the fact that a news report which came from Australia not very long ago, states that Australia has decided to phase out indexation over the current and coming financial years. Apparently the reason for that is largely the sort of position I have just tried to illustrate. Therefore, what I am saying is that one must clearly watch for the onset of fiscal drag. It can be a problem, but if one has the means, one must also try to handle it. I think on the whole we have perhaps not done too badly.

I should also like to refer to the question of taxation of dividends. The hon. member for Port Elizabeth Central earlier in the session and again today pleaded for a higher threshold for the concession in respect of taxation of dividends. I should like to point out that the partial exemption of dividends from normal tax in the hands of individual taxpayers is a perpetuation of the position which applied while the incomes of individual taxpayers were, until the 1959 tax year, subjected to both the normal and the supertax, and dividends were taken into account for purposes of the latter tax only. Liability for supertax commenced only when the income subject to that tax, i.e. income from other sources plus dividends, exceeded R4 600. Dividends were accordingly taxed less stringently than income derived from other sources. When the present system whereunder a single tax, the normal tax, is payable on income from all sources, was introduced with effect from the 1960 tax year, it was deemed advisable not to withdraw the concession which had applied in regard to dividend income. The inversely progressive exemption ranging between 100% where the taxable income including dividends does not exceed R2 300 and 331/3% where such income exceeds R4 600 was introduced, thereby ensuring that dividends continued to be taxed at a lower effective rate than other income. South Africa is in fact the only country which taxes investment income from equities more favourably than income from other sources, and an extension of the concession would under those circumstances be rather difficult to accept at this time.

I have sent this material to the hon. member plus a few other things which he may perhaps have the opportunity to read. However, I wish to thank him for raising these matters and I am sorry that my replies could not be given earlier.

*Mr. Speaker, as hon. members know, other aspects were also raised. However, I trust that I have replied to the most important arguments that were advanced. I shall have more to say about one or two aspects when we come to the amendments I wish to move during the Committee Stage.

Question agreed to.

Bill read a Second Time.

Committee Stage

Clause 7:

Mr. Chairman, I wish to move the following amendment—

The hon. member for Yeoville mentioned this in his Second Reading speech. He mentioned the period of three years. I feel it is fairly arbitrary as to whether the period should be three years or four years. However, I understood the hon. member to say that he could accept this.

I’ll settle for three and a half.

Very well. I do not know whether this Committee would like a more detailed explanation of this amendment but perhaps I should just say that the proposed new section 8D provides that there must in effect be included in the income derived by a share dealer from the disposal of shares in a private company’s trading stock any dividends received by him on those shares which have not already been included in his taxable income. The dividends distributed out of current profits or the profits of the preceding year are excluded from this rule. It has been brought to my attention that having to account for all past dividends in this way may have untoward effects especially where the declaration of a dividend in the past was postponed for reasons in connection with the operation of the dividend-declaring company’s business rather than the gaining of profits by the shareholder from the exploitation of the shares on which the dividend was declared. It is a matter of some difficulty to be able to draw a line in these cases. Nevertheless, I propose to make a further exclusion in respect of dividends declared more than four years prior to the tax year in which the shares are disposed of, hence this amendment.

Mr. Chairman, I had intended to move the same amendment or substantially the same amendment using a period of three years. However, as the hon. the Minister has indicated, it is an arbitrary decision as to whether it should be three years or four years. I would have preferred three years but I am quite happy to accept four years.

The only point I want to make to the hon. the Minister is that this clause is actually one that is difficult to interpret. This is also the case in regard to the proposed new section 8C. I think that we may well have to look at this whole matter again next year. As I indicated during the Second Reading debate, there are certain problems in this regard some of which the hon. the Minister said he was sympathetic to. I think it may be as well if we can all have a good look at it again before next year and perhaps hold over any problems that may arise administratively.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 8:

Mr. Chairman, I should just like to draw the attention of the hon. the Minister to the provisions of clause 8(1)(f) which deals with the amount of R10 000 in respect of Post Office Savings Bank Certificates. I think that this figure was fixed seven years ago and that inflation should be taken into account in this regard. I hope that the hon. the Minister will be able to increase this amount quite considerably next year.

Mr. Chairman, the hon. member is quite correct. It is to be hoped that the inflation rate may perhaps have dropped slightly by next year. In any event, I shall look at the matter again.

Clause agreed to.

Clause 16:

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

1. (1) On page 32, in line 27, to omit “secondary”;
2. (2) on page 32, in line 30, to omit “secondary”.

In the main I have already motivated these two amendments, but I should just like to point out that the effect of the first amendment is that all education will be covered, including primary schools, of course. The effect of the second amendment will be likewise.

Mr. Chairman, I am certainly not unsympathetic towards these amendments as I tried to indicate earlier. The effect of the amendments would of course be that primary schools will also qualify for this tax deduction. As I mentioned, at the meetings with various education authorities at which representatives of private schools and bodies such as PACE and the Urban Foundation were present, the question of donations to primary schools was fully discussed—so I am informed—and the conclusion was arrived at—I am not saying everybody agreed—that apart from the added administrative work, because there are 12 000 odd additional schools that will then come into the picture, the need for assistance here was not as great as was the case with secondary and tertiary education. It will also be seen that the clause is so worded that where a school has a primary as well as a secondary division, the full donation will qualify for deduction and no attempt is made then to apportion it or to disqualify the donation. I am somewhat sorry that I cannot accept the amendments, but let us see how this works out and we can always look at it again.

I move the following further amendments—

1. (1) On page 34, in line 7, after “bursaries,” to insert:

or

1. (aa) the Minister of Finance is satisfied that such institution provides educational facilities similar to those provided by a university or college; and
2. (bb) the said Minister, having regard to the nature and objects of such institution and the persons benefiting from the educational facilities provided by such institution, has approved such institution for the purposes of this section,

1. (2) on page 34, in line 18, after “acquisition” to insert “or development”;
2. (3) on page 34, in line 23, after “any” to insert “classroom furniture,”;
3. (4) on page 34, in lines 23 and 24, after “equipment,” to insert “libraries or library equipment,”;
4. (5) on page 34, in line 24, after “any” to insert “electronic,”;
5. (6) on page 34, in line 29, after “(c)” to insert:

In moving the first part of these amendments—i.e. the amendment to the proposed definition of “educational fund”—I have in mind the creation of a purely enabling measure whereby donations to a foreign educational institution can be approved to qualify for the deduction if it can be shown that South Africa or Southern Africa, through such a concession, will benefit either directly or indirectly.

The other amendments expand the definition of “special educational projects” so as to include the development of land, classroom furniture, libraries and library equipment, electronic aids and the payment of interest on loans used for the various purposes set out in the definition.

I think this is a good example of cooperation between the Government side and the Opposition on these matters and I have pleasure in moving these amendments which I hope will improve the position and in fact help us to attain more effectively what we are trying to attain. I may just say in reference to the power to make a concession in the case of an institution outside South Africa, that it will obviously be sparingly made. It will have to be shown that it is very much in the interests of South Africa or, as I have said, Southern Africa. However, I think it is right. Just at this moment I do not have a specific case before me, but I can imagine that it may well be that a very deserving case comes up beyond simply the Black States which have become independent and which are provided for here. I think we ought at least to have that authority to make a concession in such a case according to the conditions laid down.

Mr. Chairman, we on this side support these amendments because these are matters which we have asked for. In so far as the question of an institution outside the Republic is concerned, we believe that discretion will obviously be exercised circumspectly in special cases. I think in those circumstances this power can be entrusted to the Minister.

Secondly, in so far as the other amendments are concerned, I should like to refer the hon. the Minister to the actual wording of paragraph (c) on page 34 of this Bill which refers to the purchase of movables. In my amendment I used the words “all movables of a capital nature and including …”. In other words, all movables, whatever they might be, of a capital nature, although they might not be listed, would be included. If the hon. the Minister tells me that that is really what the words in the Bill mean and that that is how this paragraph will not be a problem. We have, for instance, dealt with classroom furniture. It can be interpreted that a hall is also a classroom. However, I would not like to have a misunderstanding in this regard. When one furnishes a hall, that would also be dealt with as a movable in terms of my amendment.

Then, when we deal with the various types of equipment I want, inter alia, to use the term “reproductive equipment” because schools print and duplicate things and for this they use equipment which is also of a capital nature. I understand that paragraph (c) as it is printed will also be interpreted to include these and I hope the hon. the Minister will confirm this. When we deal with electronic equipment I take it that under the term “electronic equipment” data processing equipment will be included because I regard data processing equipment as electronic equipment. I hope that the hon. the Minister will agree that that is so. If that will be done administratively, I will be very happy about it and will not pursue further amendment of this paragraph. I should like to have the hon. the Minister’s assurances on these points.

Mr. Chairman, I think the point of the hon. member for Yeoville is quite reasonable. In fact, this is clearly what we have in mind. I think the hon. member will agree with me that a tax authority always tries to be reasonably specific, but this will be administratively interpreted along the lines he has suggested. I have just asked the Commissioner whether he will agree with me and he has answered in the affirmative. Therefore, I think I can give the hon. member that assurance.

Mr. Chairman, I should also like to refer to this clause. It has already been mentioned how much we welcome this assistance to the schools. I should like to draw attention to the fact that adult education and the educational training of physically or mentally handicapped people have been included in these definitions. I think this is to be welcomed.

Looking at the definition of “specified educational project” I think it is important that we bear in mind that there is in relation to Government schools something of a misconception among many people that we have what amounts to totally free White schooling. In practice that is not really the case. I should just like to mention a number of examples to put this in context. For example, in the Cape, if a school wants a typewriter it is provided with 50% of the cost of that typewriter up to a maximum of R40. Anybody knows that a manual typewriter today costs hundreds of rand and that an electric typewriter costs the best part of R1 000. Similarly, in the case of duplicating machines, to which the hon. member for Yeoville referred, they get 50% up to a maximum of R80. When it comes to the maintenance of grounds, the grants to many of the schools amount to only 10% or less of what they have to spend. As far as sports equipment is concerned—here I am talking about rugby balls, cricket bats, tennis nets, etc.—schools in the Cape Province do not get a single cent towards such articles. So they will certainly be very pleased to get any assistance they can.

In relation to the “specified educational project”, as defined on page 34 of the Bill, I would be very grateful if the hon. the Minister would clarify certain things. First of all, I ask him to clarify the definition of “sports equipment”. I realize one cannot give a precise word-for-word definition, but what in fact is envisaged here? In the case of for instance rugby as a sport, the basic equipment is in fact the rugby ball. Whether the hon. the Minister has in mind only rugby posts and perhaps scrumming machines or whether something like a rugby ball will fall within the definition, or in the case of cricket the cricket bats, which last a few more years than rugby balls, I do not know, but I think that for many school authorities, who will be delighted to hear of these provisions, it will be useful if at an early stage they can get an idea of whether the sports equipment which may be used for a period of only three to four years before it is worn out will qualify under the definition of equipment in this Bill.

The second area in regard to which clarity is required is that of grounds maintenance equipment. Although they are not specifically mentioned in the list of things about which the hon. the Minister and the hon. member for Yeoville have been talking, I am thinking of tractors, trailers, mowers, sprinkler systems and that sort of thing which many schools have and which of course cost a great deal of money. I would hope that it will be possible for those to be included within the broad spectrum of the purchase of movables.

As regards paragraph (d) of the definition of “specified educational project”, I should like the hon. the Minister to comment on whether that will apply only to new loans or whether in the case of existing loans for capital projects the schools will be able to write off those loans with donors getting the tax benefit. In the explanatory memorandum there is a phrase that does rather confuse me, viz. “Donations to ordinary school funds will not qualify”. I presume that refers only to funds that are being used for running expenses. A lot of what one might normally call donations to ordinary school funds are in fact used for things such as audio-visual aids, laboratory equipment, etc. I would be grateful if we could get that clarified as well.

When it comes to private schools, I should like to emphasize the point made by another hon. member that the number of private schools in the country is decreasing steadily because the running expenses of those schools are crippling them. This, of course, is placing an extra burden on the State coffers. In the present position tens of millions of rand are saved to the State because of what parents pay to private schools. I believe it is in the financial interests of the State, of the Government and the provincial authorities, to keep the private schools healthy and in operation.

We welcome this measure and hope it is just a beginning. I would appreciate clarification on the points I have raised.

Mr. Chairman, I think I can say in just a few words that we will take a broad view of the interpretation of these terms because that is really our aim as well. The same applies to sports equipment. This is really equipment to be used for the purposes of teaching and of taking part in sport. Therefore, if one is going to use a cricket bat, for example, I believe that should be included. A matter such as ground maintenance equipment is also, as I see it, something which should be included under development expenses. Interest on existing loans is also included. Ordinary school funds are not donations but ordinary contributions. Therefore a special fund for the items mentioned by the hon. member should be formed.

I hope this covers most of the points raised by the hon. member.

Amendments moved by Mr. D. J. N. Malcomess negatived (Official Opposition dissenting).

Amendments moved by the Minister of Finance agreed to.

Clause, as amended, agreed to.

Clause 19:

Mr. Chairman, I simply want to take the opportunity of thanking the hon. the Minister for the amendment regarding the physically handicapped, and also for the removing of the anomaly that existed in that a deduction was allowed in respect of a wife but not in respect of a child. The hon. the Minister has now acceded to the request I made earlier. In addition he is now even going to increase the amount from R1 200 to R2 400.

Mr. Chairman, I want to ask the hon. Minister to confirm just one point. A question of interpretation has arisen in respect of whether the term “physical disability” will also apply to a child who is mentally disabled. In my view it should apply because I believe that a mental disability does amount to a physical condition. If the hon. the Minister would confirm that it would certainly help some people because it will remove existing doubt in this respect.

I am delighted to say that I can confirm that.

Clause agreed to.

Clause 20:

Mr. Chairman, I move as an amendment—

This is simply a textual amendment in order to bring the Afrikaans text into line with the English text.

Mr. Chairman, I should just like to raise the same point that I raised with the hon. the Minister during the Second Reading debate. That is that some of the expenditure might be of so significant a nature that merely to allow it for a tax deduction is not adequate. In other words, it might well be that a strategic industry is involved, an industry which is of such a nature that it needs such protection that it could actually completely consume all its income for a year or beyond. That could cause a very serious problem. What I should like to ask the hon. the Minister to do—and I am not moving an amendment—is merely that he consider that where a case of that nature occurs, we should have what is called in the USA a reverse tax situation, which means that one can actually obtain a credit in that regard so that someone who happens to take the necessary precautions in this regard will not find himself without profit. It may well be that he is not only protecting himself, but that he is also, to a considerable extent, protecting a strategic industry, which might be very, very expensive.

Mr. Chairman, the need for this clause has arisen from recent experience, particularly since the need for security has been more clearly emphasized lately. If a case of the nature referred to by the hon. member for Yeoville should arise, we shall obviously look very closely into it. If it is not suitably taken care of by this measure, we can always later consider making special provision for it. This clause, however, simply covers the sort of situation which has been increasingly experienced lately. That is what has made this provision necessary. I think this is also a useful and positive step forward on the part of the Government.

This is something which we can investigate more closely at a later stage again. If it should become necessary we could take care of it administratively, in terms of this clause, and if any further problems should arise, special steps can be taken.

Amendment agreed to.

Clause, as amended, agreed to.

House Resumed:

Bill reported with amendments.

Bill read a Third Time.

Mr. Speaker, I move—

According to the usual practice those provisions of the Bill which are of a technical nature, as is the case with tax legislation in general, are explained in an explanatory memorandum which has been made available to hon. members. It will be seen that the amendments proposed in the legislation do not involve any dramatic changes in terms of the levying of sales tax, but are rather aimed at finding solutions to the problems pertaining to the practical application of the Act, to eliminate anomalies and to make the application of various provisions more meaningful. This tax has been in force for more than three years now and it is indeed gratifying that it is not necessary to propose any drastic changes and that the ideal of a simple general tax at a low rate can still be maintained. It is obvious that the more exceptions that are made in the form of exemptions, the more complicated the administration of the Act will become from the point of view of traders, manufacturers and other entrepreneurs as well as that of Inland Revenue. The reason why most of the exemptions for which provision has already been made, were granted, was to ensure that the tax burden would, as far as possible, be borne by the final consumer without an unacceptable escalation in the tax.

†It will be seen that the Bill in fact deals mainly with exemptions or refinements of existing exemptions. I do not propose to deal with the amendments in detail—that has already been done in the explanatory memorandum—but I think it right to mention that the question of what tax-free inputs should be allowed to various kinds of enterprises is one which is constantly being reviewed by Inland Revenue. The Bill in fact proposes certain changes in regard to the tax-free inputs of rental enterprises, manufacturers, service enterprises, printing enterprises, mining enterprises, farmers and fishing enterprises. It is not a matter of arbitrarily providing an exemption but rather an exercise which in the final analysis involves looking at the tax burden of the final consumer, i.e. the tax he bears directly on his purchase and the tax, if any, he bears indirectly as a result of the intermediate taxation of some of the inputs which go into the product purchased. The exemptions ensure, as far as possible, that the tax indirectly borne is kept as low as possible.

I propose referring to only one other aspect, and that is the question of tax avoidance. Even in the case of a sales tax levied at 4%, avoidance schemes are encountered, some of them quite sophisticated. A rental enterprise is permitted to acquire tax-free the goods obtained for the purpose of being let. The exemption is granted because the hirer of the goods bears tax on the rentals paid by him. The exemption is based on the assumption that the rentals charged will be economic rentals. Unfortunately cases have come to light where the rentals charged are nominal in relation to the value of the goods let. In terms of clause 3(1)(b), (c) and (d) it is proposed that an exemption may not be granted to a rental enterprise in respect of the acquisition of goods intended to be let unless the rentals are to exceed an amount calculated on the value of the goods at the rate of 10% per annum.

In conclusion I wish once again to express my appreciation for the co-operation the department is receiving from the business community. On-going consultations are held with commerce and industry to improve the system and most of the amendments contained in this Bill emanate from these consultations.

Mr. Speaker, I hope the one thing that the hon. the Deputy Minister will do will be to follow the example of the Minister when it comes to giving us certain assurances. What we, in fact, want from him, is an assurance before we agree to pass the Second Reading of this Bill, and I hope he will see his way clear to give us that assurance. I wish, however, to move an amendment, as follows—

It is very simple, Sir. We do not need a division or a debate on the Bill; all we need is an assurance from the hon. the Deputy Minister that he will introduce this legislation and that will be the end of it.

We have at every opportunity asked for the removal of sales tax, particularly on foodstuffs, in view of the high inflation rate, and I believe that the case for so doing is unanswerable. However, one of my colleagues will discuss this aspect further.

The hon. the Deputy Minister referred to the fact that there are a number of exemptions or “vrystellings” and that the more exemptions that are granted the more involved the administration of the Act becomes. We believe, however, that the exemption we are asking for is a very simple one. It will be very easy to apply and will create no real problems. The removal of sales tax from foodstuffs is a way of dealing simply with a very complicated problem, and at the same time it will bring tremendous relief to thousands and thousands of people in South Africa.

Dealing with the specific provisions of the Bill itself, I wish to make a few brief comments. Firstly, I understand the problem in regard to having different definitions of the same things in different Acts, which is dealt with in the explanatory memorandum. However, I should like to make an appeal that expressions should, as far as possible, have the same meaning in statutes, and that items should as nearly as possible be defined in the same manner. Without that one is creating a tremendous amount of confusion and misunderstanding. If it is necessary in a particular statute to qualify or slightly change a definition, one should add a rider to the normal definition so that words still have their ordinary meaning but are qualified by a rider that is added specifically for the purposes of the relevant statute. I do want to appeal, however, for words to be given their ordinary meaning. I think I have quoted Alice in Wonderland and Alice Through the Looking Glass before in this context, so there is no necessity for me to do so again now.

This brings me to a second point I want to make about repair and maintenance service contracts, which the hon. the Deputy Minister dealt with. In my opinion it is not only a question of people using mechanisms to avoid the 4% sales tax. What worries me even more is that many of the people who sign such contracts—particularly in the case of television sets—do not actually know what they are signing. They think they are being covered completely for any repairs to the equipment when, in fact, they are liable for certain substantial payments when the equipment goes faulty, and then the people concerned are very surprised. I think that a warning should be given by this House—even though it does not apply to every dealer and every maintenance contract—to people to read very carefully any maintenance and service contract that they sign so that they know exactly what they will get in terms of those contracts, because in many cases they are made to pay very substantial sums of money for repairs to their faulty equipment. The sales duty aspect is, in fact, dealt with here, but the morality of making a person pay for a service contract when that person is under the wrong impression is another matter entirely. I think that there should be agreement in this House that such practices should be stamped out.

I have a difficulty in regard to clause 3(1)(b). I understand the statement in the explanatory memorandum that the “… consideration is determined at a rate of not less than 10% per annum …”, but I should like the hon. the Deputy Minister to explain to me why it is stated, and I quote again from the explanatory memorandum—

I think that needs some explanation, because I would have thought it should read somewhat differently.

I have only two points left that I want to raise, and the next is that I am concerned about the actual collection of sales tax. Here I am not only referring to the example the hon. the Deputy Minister gave. Should it not be made very clear that no one should be allowed to sell anything that is subject to sales tax unless there is a cash slip or invoice of which a record is kept? I ask this because I am not satisfied—and I do not think members of the public are satisfied either—that the Commissioner is not being defrauded in two ways. I am referring to the fact that in the case of some enterprises not only does the money not go into the till and is no income tax payable on it, but there is no sales tax payable on it either. The fiscus therefore loses twice. We do not, of course, approve of certain aspects of this taxation, but where there is taxation, that taxation has to be enforced and it has to be enforced equitably. One of the things that people have to understand is that if one person does not pay the tax, somebody else will have to pay more. That is why we believe that it should be made quite clear that there should not be a sale without a cash register slip, which is a permanent record, or without an invoice of which one copy has to be submitted and another copy kept on the business premises. Without that, there is really no safeguard to prevent malpractices and we are really encouraging tax evasion.

My last point relates to clause 10 and the question of financial leases. I think that sooner or later in this House we will have to look at what really is a lease and what is not, because often there are sales that are disguised as financial leases. We really have to take a closer look at the types of financial transactions that are taking place. I think that too many transactions today are said to be financial leases when, in effect, they are not financial leases at all, being simply sales on instalment that grant certain tax benefits because they are structured in a certain way. I believe that we need to look at the substance rather than merely the form of such transactions.

Mr. Speaker, politically it is a particularly popular move to ask that the GST on food and provisions be abolished. However, one must consider what the results of this would be and what problems it would create. The cost of the necessities of life, and food in particular, is very important, and I can give the hon. member for Yeoville the assurance that hon. members on this side of the House are just as worried about it as hon. members opposite. However, the solution does not lie in the abolition of the GST on food. There is already an instrument aimed at keeping the costs as low as possible, namely the subsidies. This instrument is used on a large scale, and it is a reasonably economical and reasonably effective instrument. The question must now be asked: Why should a further instrument be created if this one is already being used effectively? If the GST on food were to be lifted, it would mean that tax would be relatively high, and this would to a large extent cancel out the benefits of GST. One need not be expert on tax matters to know that if the GST on food and certain provisions were to be lifted, it would bring about at least a doubling or a trebling of the administrative costs not only for the State but also for the private sector. This would also mean that other taxes would have to be levied, or that existing taxes would have to be increased considerably to make provision on the one hand for the loss in income from the GST and also for increased expenditure in obtaining it. This Bill confirms the idea that the GST should remain a general tax, and that it should be as wide as possible, so that it can consequently be kept as low and also as economical as possible.

The exemptions granted by means of legislation, must therefore not be seen as a general extension of the exemption. They should rather be seen as a refinement and an improvement of the present and essential exemptions. It is as a result of this approach, an approach which indicates that we should move to a greater extent in the direction of indirect tax, and that it should be as widespread and low as possible, that indirect tax as a percentage of the total tax has risen considerably. In the 1973-74 financial year indirect tax constituted 35% of the total tax. In the 1980-’81 financial year it constituted 40% of the total tax. As a result of the success of the GST it became a very important part of the indirect tax. The GST at present constitutes 32,7% of the tax which is collected indirectly. It is just lower than the 39,1% contribution of customs and excise to indirect tax. A good example of the refinement and improvement of the exemptions contemplated by this legislation, is the exemption on goods purchased on behalf of the handicapped. They are expressly exempted from GST in this legislation. It is not necessary for the handicapped to purchase goods themselves. As the present Act may be interpreted at the moment, the handicapped shall purchase such goods themselves. The legislation at present before this House, also makes specific provision for the costs of repairs to goods purchased on behalf of the handicapped. Another example of the refinement and improvement of the exemption is in respect of immigrants and returning inhabitants of the Republic. Previously, caravans, trailers and boats of immigrants and returning inhabitants were made subject to GST. This Bill exempts such goods from GST provided they are imported for the personal use of their owners.

Two other groups who benefit, are farmers and fishermen. Both are granted exemptions in respect of gas used by them for repair work, as far as farmers are concerned to repair their farm machinery, tractors and implements and as far as fishermen are concerned to repair their fishing vessels. It gives me pleasure to support the Bill.

Mr. Speaker, we in the NRP will be supporting this measure and we shall be doing so because it has been a long-stated principle or policy of our party to support this form of taxation. This type of taxation could in fact be called a consumption tax.

Tuberculosis?

Well, it could be called an expenditure rather than a consumption tax. We prefer this type of taxation, Sir, because it only taxes those people who have money to spend, when they actually spend it. That is the important thing, Sir, because it means that this encourages savings and in a developing country like South Africa this is something we need. We need greater savings so that we will have the capital to invest in industrial development projects and others, such as agriculture and in commerce, so as to generate an economy that will create wealth for our increasing population. It is for this reason that we consider this form of taxation to be a desirable form of taxation.

Having said that, I am pleased that the hon. the Deputy Minister has introduced this Bill into this House because, as he said during his Second Reading speech, it contains quite a number of exemptions or refinements of existing exemptions. We are particularly pleased to see that the measures contained in this Bill take greater cognizance of something which hon. members on these benches have been asking the hon. the Minister to do for many years and that is to free the input costs of manufacturing, agriculture, industry and so on from sales tax. I am quite sure the hon. the Deputy Minister will recall how the former member for Mooi River, who used to speak on this topic at great length at times, was constantly calling upon the Government to ensure that there was not double or treble taxation of the input costs of the manufacturing, agricultural, industrial or other processes. The measures contained in this Bill do attempt to do this, especially when it comes to an item like gas that is used in certain manufacturing or maintenance operations. For that reason, we shall be supporting this measure.

I am afraid, Sir, that we cannot support the hon. member for Yeoville in his amendment for the simple reason, in the first instance as I said, that we consider this type of tax to be a desirable form of taxation. Secondly, we cannot support this amendment because of the administrative difficulties which I believe are going to be encountered in administering this proposal. The hon. member has stated that he wants sales tax to be excluded in respect of the essentials of life, and, in particular, basic foodstuffs. I ask him Sir, what is an essential of life? Who is going to define it? What is a basic foodstuff?

Well, you must be a bit of a clot if you don’t know that. In fact, you really are a clot.

Mr. Speaker, the hon. member for Yeoville has just made certain remarks towards me, but I want to ask him to define these items.

Your problem is that you do not know what it is like to be poor.

I should also like the hon. member for Yeoville to tell us what the costs will be of administering what he is suggesting. The State does, in fact, at the present time provide relief on certain items such as transportation, housing, bread subsidies and other subsidies …

It should be anything that is for the poor.

The State does already provide these subsidies and the question which I should like the hon. member to reply to is how far he now wishes to expand basic foodstuffs. Does that include, for instance, bread and milk, which I am prepared to concede can be considered?

And meat.

The hon. member says meat too. Does that mean that prime or super fillet cuts.

That is all you eat and that is exactly the problem.

… should also be free of taxation?

The hon. member has an amendment before the House, and we know that he will be able to make a lot of publicity out of it and everybody will think that the hon. member is a great guy … [Interjections.] … but we know that his amendment has been moved purely for publicity. He has not for one moment stopped to consider the effects of what he is asking. The cost to the State may be far more than the benefits which can be derived. For these reasons I am afraid we are not able to support the hon. member’s amendment. This is a desirable form of taxation and it encourages people to save. South Africa today, in fighting inflation, requires greater saving and greater investment to create wealth-generating activities in South Africa. We believe that the provisions of this Bill will encourage it.

Mr. Speaker, if the hon. member for Yeoville could give me the assurance that if the sales tax on foodstuffs are done away with, the eventual price of such foodstuffs will not revert to the same prices before the abolition of sales tax, I shall support him. I am afraid, however, that the hon. member for Yeoville cannot give me such an assurance.

I should like to give him a sort of résumé as to what could happen if we were to remove sales tax. The conceivable consequences of exclusion on a commodity basis can be illustrated by examining the possible results of the exclusion of all sales of foodstuffs from the ambit of the tax. Since the existing system does not require the keeping of sales records on a commodity basis, an accurate determination cannot be made of the actual amount of sales tax collected in respect of the sales of foodstuffs. The available information does, however, indicate that the tax yield from such transactions is in excess of R450 million per year. Based on current estimates this means that should sales of foodstuffs be excluded, it would require an increase of at least 20% in the tax rate—i.e. by 0,8 of a percentage point—to maintain the yield of the tax at the present rate. In view of the practical difficulties of applying a rate of 4,8%, however, the rate would have to be increased to 5%. If it is assumed that the person in the lowest income brackets spends 35% of his income on foodstuffs, it means that at present a person earning R3 000 per year is paying only R42 per year in respect of sales tax on food purchases. If we assume further that such a person currently spends 80% of his income on purchases in respect of which sales tax is payable, the combined effect of the exemption of food sales and the simultaneous increase of the tax rate to 5% would be to reduce the total amount of sales tax payable by him by R28,50 per year—i.e. from R96 to R67,50—provided of course that basic prices remain unchanged. The latter is, however, most unlikely, and even if traders were to increase prices by as little as 1,5% to compensate for additional administrative costs—as the hon. member for Amanzimtoti has pointed out and which, I think, is a factor is to be reckoned with—the net result would be that to obtain the same volume of goods and taxable services it would cost this consumer R2 504,51 compared with the total amount of R2 496 at present. The concession would therefore leave him worse off to the extent of R8,51 per year.

*I concede that these cases are of course hypothetical and the calculations, too, are absolutely hypothetical. Taking into account the arguments advanced by the hon. member for Amanzimtoti, one must bear in mind the basic aim of sales tax, viz. to keep the tax structure as low as possible for as long as possible. One also has to bear in mind that it is not a commodity tax but a turnover tax. One must also consider the administrative burden imposed on the vendor for the vendor has to keep records, train people and exercise control. I therefore contend that this hypothetical calculation which we have made is not far from the truth and that the taxpayer—i.e. the very person whom the hon. member for Yeoville wants to protect—will ultimately be worse off or will derive no benefit from this, and besides, the measure will give rise to a heavy administrative burden being created. I should also like to make a point which is not often taken into consideration, and that is that we should organize the structure of our sales tax in such a manner that the limited manpower of our private sector need not be employed to administer tax collection procedures. The more taxation is geared to commodities, the more these people will have to employ their scarce labour resources to carry out administrative duties in respect of commodity tax structures instead of a simple, uniform low tax structure covering the whole spectrum.

†The hon. member for Yeoville mentioned the payments of rental at 12 monthly intervals, referred to in clause 3(1)(b). It appears that the hon. member’s question is in effect: Why should rentals be payable regularly or at least at intervals of 12 or six months? The answer is that taxation can be postponed for a quite a lengthy period if the rentals are not payable regularly as provided for in the Bill. On the other hand, a rental payable in a lump sum in advance, while it may not be objectionable, tends to turn the transaction into something other than a rental transaction, as it is not usual.

As far as the leases are concerned, we take the point made by the hon. member. This matter is being constantly looked at to see that this practice is not abused and that taxation is not dodged. It is a point well taken, and we would like to ensure that GST is on par with sales. In other words, we want to ensure that the GST is on a par with sales in such leasing contracts.

As regards the provision for cash slips for sales, we admit that this is a matter that causes concern. As the hon. member has said, it also touches on income tax. Whatever system one follows, however, evasion will always take place. This matter needs a circumspect approach as it involves cost to venders. Inland Revenue has, however, an inspection staff which has a branch which can find these faults and unearth the dodgers. I wish to thank the hon. member for his support.

*I should like to thank the hon. member for Amanzimtoti sincerely for his support of the Bill and also for sharing my opinion that we cannot accept the amendment moved by the hon. member for Yeoville. My thanks go, too, to the hon. member Mr. Schutte for supporting the Bill.

There is still perhaps just one point to which I should react for the benefit of the hon. member for Yeoville, and that is that definitions per se should be the same throughout. I think we all agree with the hon. member that this should be the case, but in respect of GST there are certain exceptions. I should like to give one example. It concerns the definition of “processes of manufacture”. Take large laundries and slot-washing machines, for example. In order to prevent double taxation we want to identify the activities of the people who do not have processes of manufacture in the true sense and who have to carry out maintenance work on their machines, as processes of manufacture in the discretion of the Commissioner of Inland Revenue to allow them to receive GST benefits in regard to the maintenance of their equipment. In this way double taxation may be avoided.

I think I have replied to all the questions. I thank hon. members for their praiseworthy, calm and sober participation in the debate.

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

Upon which the House divided:

Mr. Chairman, an error has occurred in the printed version of the Bill in that the reference to the date of coming into operation of clause 4(1)(e) was inadvertently omitted. In order to correct this oversight I move as an amendment—

Amendment agreed to.

Clause, as amended, agreed to.

House Resumed:

Bill reported with an amendment.

Bill read a Third Time.

Mr. Speaker, I move—

The purpose of the Bill is to make provision for enabling provisions for setting off the profit or loss involved in the provision of cover to exporters of capital goods and services against fluctuations in the rand/US dollar exchange rate against the Forward Exchange Contracts Adjustment Account. This account is already being used to place on record any profits or losses made on forward exchange contracts entered into by the Reserve Bank, as well as profits or losses on any amount borrowed by the Reserve Bank in a medium of payment other than the currency of the Republic.

The reason why the Government has decided to make provision for this facility arises from the fact that sound long-term programmes to promote exports and to protect and encourage exporters are of real importance for the long-term growth of and the creation of employment opportunities in the South African economy.

The export credit scheme, which was established several years ago under the Export Credit Reinsurance Act, 1957, and in terms of which South African exporters can be afforded the necessary protection, so that they can operate with confidence abroad in the field of credit granting, was an important step on the part of the Government to promote exports.

Since then the IDC, under the protection against payment risk afforded by the Credit Guarantee Insurance Corporation’s policies, has established a scheme with the commercial banks in terms of which funds can be drawn from the banking sector and can be made available as export credits for capital goods and services of a medium and long term nature. These facilities have grown more important every year owing to the ever increasing competition in international trade and the need to keep up with it.

Naturally the export of capital goods and services in particular is very beneficial to the Republic’s export effort. Inter alia, South Africa’s own contractors are provided with a channel through which to diversify their activities, thus making a greater contribution to their fixed costs and to the constant employment of their specialized employees. In addition greater utilization of South Africa’s manufacturing industry, especially its heavier industries, is promoted. In addition projects are usually of a high value, so that large-scale foreign exchange earnings are delivered at one stroke. Such large projects in turn create new openings and connections in the overseas trade.

In spite of many problems South African exporters of capital goods and services have done remarkably well during the past few years. However, these achievements can and must be enhanced if the ability of South African exporters to compete with exporters in other countries is to be improved. One of the methods by means of which this can be accomplished is to create facilities which make it possible for the overseas buyer of capital goods and services provided by South Africa to pay back the credit made available to him in US dollars instead of in rands.

In the countries and territories where South Africa would like to compete on a larger scale, the rand is a relatively unknown currency, and in most cases it is asking a great deal of a buyer to incur an obligation in rands over, say, the next 10 years. In addition buyers of South African goods and services would like to link their obligations to their expected earnings from the projects that are being undertaken. Since the proceeds of these projects are in many cases sold on world markets for dollars, it is therefore understandable that they would prefer to conclude contracts with South Africa in dollars.

If contracts are concluded in dollars, the exchange rate risk in the abovementioned circumstances shifts from the buyer, viz. the overseas party, to the credit grantor, the South African party. The latter can cover himself at present in the forward market, but various factors make this unattractive—

1. (a) Cover can only be obtained for a period of one year at a time, whereas contracts are, on average, concluded for five year periods.
2. (b) The rate at which cover can be obtained, is a market-related rate which can make the cover very expensive.
3. (c) Overseas exporters with whom South African exporters are competing, have facilities made available by their Governments to accept dollar obligations and can cover exchange rate risks far more cheaply than the rate at which South African exporters can obtain cover under the normal forward cover scheme.

Under the circumstances the Government decided that a special exchange rate cover scheme for the export of capital goods and services, will definitely be indispensable for South African exporters in this category.

Apart from the fact that it is unfortunately not possible to determine in advance how many South African undertakings will make use of this facility during a specific period, nor what the total value of the contracts will be, the value of the rand as against the dollar changes constantly. Consequently it is impossible to make a really accurate estimate of the proposal’s financial implications. If necessary, however, adjustments will be made to the terms at which this facility is offered, after sufficient experience has been gained.

Clause 1(a):

Clause 1(a) of the Bill provides that in addition to profits or losses made on forward exchange contracts entered into by the Reserve Bank, and profits or losses resulting from any amount borrowed by the Reserve Bank in a currency other than South African rands, the profits or losses made on a reinsurance agreement entered into in connection with insurance provided by the Credit Guarantee Insurance Corporation to exporters of capital goods and services against changes in the value of South African rands as against American dollars, will accrue to the Government.

Clauses 1(b) and (c):

The insertion of a new paragraph (c) in subsection 1 of section 17C makes it necessary to refer specifically in paragraphs (a) and (b) of the present subsection (2) of section 17C to paragraphs (a) and (b) of subsection 1 of section 17C.

Clause 1(d):

This clause provides that profits or losses made on a reinsurance agreement contemplated in the new paragraph (c) of subsection (1) of section 17C shall be accounted for in the Forward Exchange Contracts Adjustment Account. This procedure will make it possible to keep abreast at all times with the costs involved in the provision of this new facility to exporters of capital goods and services.

Mr. Speaker, I just want to say that the official Opposition will be supporting this measure. We can see no reason why there should not be cover against such exchange risk. It is certainly in the interests of export trade. I think that to some extent the financial risk depends entirely upon what view one takes of the rand as against the dollar.

That brings me to one question that I should like the hon. the Minister to answer. He has said that this will, in fact, be taken into account in regard to the specific account which is kept and which, at one stage, received a very substantial amount of credit as a result of the revaluation of the gold reserves. Since then, however, there has been a very substantial depreciation of the rand against the dollar. One of the things we would therefore very much like him to tell us is what the state of that account is today. Where do we actually stand as far as that account is concerned? In other words, to what extent are we actually in the red and what has happened to the tremendous reserves that accrued with the revaluation of gold? That is the one question that I should like the hon. the Minister to answer. Whatever the answer may be, however, we shall still be supporting this Bill.

Mr. Speaker, I am sorry that I have to speak after the hon. member for Yeoville again. I am not going to praise him today because the other day he took it amiss of me when I did so. We on this side of the House are nevertheless grateful for the fact that hon. members opposite support this measure. I say this because it is a fact that an exporter of capital goods and services is of cardinal importance to any developing country. That is why long-term protection is necessary and, in addition, encouragement in a tangible way by the public sector is even more important. A question which comes to mind in connection with this legislation is how the Government can promote the financing of exports. The immediate answer is naturally that the Government can only do so by creating confidence in the exporter during the process of financial negotiation. In other words, where the exporter acts as the credit grantor to the overseas purchaser of capital goods and services, the exporter must be confident that he will be able to compete on an equal footing with exporters of other countries on the world market. The scheme under the Export Credit Reinsurance Act was an important step on the part of the Government to promote exports.

One must also mention the role of the commercial banks here, because they are also important in the sense that funds are drawn from the banking sector to be available as export credit for capital goods and services in the medium and long term.

Competition in the field of international trade makes very heavy demands, and we in South Africa must take account of this. Except for the necessity of exports for the maintaining of a sound balance of trade, in other words the earning of foreign exchange, exports are also of importance to create employment opportunities in the South African economy. Notwithstanding our problems in the political field in South Africa, and other obstacles we are faced with, South Africa is doing extremely well as far as its exports are concerned. But how much better could South Africa not do if our exporters could be placed in a position to compete on an equal footing in the world market, where there is keen competition?

What does the overseas buyer of South African goods require? He wants to obtain credit in the form of American dollars instead of South African rands. On most international markets where South African exporters must compete, transactions are concluded in American dollars and our exporters must not be at a disadvantage in this field merely for this reason. When contracts are therefore concluded in American dollars instead of in South African rands, the rate of exchange risk shifts from the buyer in the overseas country to the seller or credit grantor in South Africa. There are in fact possibilities for obtaining cover, as the hon. the Minister outlined in his Second Reading speech. I do not wish to discuss this again, except to say that we do in fact have the problem in South Africa that the fluctuation in exchange rates causes tremendous problems, for the exporter in particular. Therefore, in order to afford South African exporters, better protection and to encourage them, this measure is of the greatest importance to South Africa. We can only compete in the world market if we can negotiate on an equal footing. Only experience will determine in future whether there will be any further adjustments to these measures. However, I think it is a exceptionally good measure. There will be certain profits and losses in regard to changes in the exchange rate of the dollar and the rand that will accrue to the Government. The hon. member for Yeoville is concerned about the Forward Exchange Contract Account, but I am certain that the hon. the Minister will be able to set his mind at rest on this matter. In other words, there will be no problem with regard to control either. For this reason it is a privilege for us on this side of the House to support the Second Reading of such a positive measure.

Mr. Speaker, the hon. member for Turffontein went to some lengths to explain the reasons why we should all approve the measure before us. I want to tell the hon. the Minister that we agree that there is a need for this type of protection for those of our businessmen who are trying to promote export trade, and for that reason we will be supporting the Second Reading of the Bill.

Mr. Speaker, I want to convey my sincere thanks to hon. members who participated in the debate for their positive contributions and their support, which I really appreciate. I listened with interest to the hon. member for Turffontein who made out a good case for export promotion. I fully agree with him.

†The hon. member for Yeoville spoke very nicely and gave his support for the Bill very readily, but then he asked me a quite impossible question!

That’s our Harry!

He asked me what the precise state of the Forward Exchange Contract Adjustment Account was. When we revalued our gold reserves some time ago the Reserve Bank which, as the hon. member knows, is an extremely cautious undertaking …

[Inaudible.]

No, no. Believe it or not, the Reserve Bank established four accounts. If I were to get my hands on any part of those funds, I would have to ask them to go through four accounts, which would make it, in practical terms, virtually impossible. That is an outstanding example of financial obstructionism by a very good institution! However, the fact is that that account was very strong then, but since then there have obviously been various developments, both favourable and unfavourable. I will endeavour to obtain information regarding the position of that account and I will let the hon. member have it. I do not wish to hide it at all, but I must be quite honest, I do not have the figure with me. I thank hon. members for their support.

Question agreed to.

Bill read a Second Time.

Bill not committed.

Bill read a Third Time.

Mr. Speaker, I move—

I am pleased to be able to point out that for the second consecutive year the Revenue Laws Amendment Bill contains no proposals for increased taxation scales. Indeed, apart from a few technical amendments that are being made, the Bill is introducing concessions only. It is interesting to note that in spite of regular annual concessions the revenue from the sources covered by the so-called revenue laws continues to show a healthy increase and once again endorses the standpoint that levies such as stamp duties, transfer duties and estate duty play an important role in our taxation structure. Without the contribution made by those taxes, it would have been necessary to increase the income tax scales—a step that would undoubtedly have had an adverse effect on the domestic economy.

During the debate on the Bill last year hon. members proposed that an explanatory memorandum be made available in future instead of explaining the provisions of the Bill during the Second Reading speech. That proposal was accepted and hon. members have in their possession a comprehensive document that discusses the various amendments in the greatest of detail. Further explanations regarding the technical aspects of the various provisions would therefore be redundant, but I should like to avail myself of the opportunity, however, to elucidate a few points and to discuss them.

Estate Duty:

The amendment to the Estate Duty Act that is being introduced by clause 4, is putting into effect the proposal that the hon. the Minister made in his budget speech, viz. that the abatements with regard to the estate itself, a surviving spouse and surviving children, are once again being adjusted. In the case of an estate where the deceased is survived by his wife and two children, an investment of R100 000 in estate duty free Government stock and insurance policies will in future be adequate for covering the estate duty on an estate with a net value of R731 423 (including the exempted investments). These adjustments are by no means insignificant and serve as further proof of the Government’s intention that this duty should be kept at an extremely reasonable level and should not become confiscatory.

Stamp duty:

Mr. Speaker, just as in the case of other taxes, highly intelligent persons spend a great deal of their valuable time in thinking out schemes for the avoidance of stamp duty. They have been particularly successful in schemes involving the takeover and amalgamation of companies, putting through a series of perfectly legal but nevertheless highly artificial transactions of a type that no normal businessman would consider, and saving the parties concerned a great deal of money. This state of affairs cannot be allowed to continue. The matter is, however, highly complex and needs to be approached very circumspectly, but effectively. The reason I am mentioning it here is to sound a note of warning to the perpetrators of these schemes that amending legislation aimed at curbing the abuse will be introduced as soon as possible.

Companies annual duty:

Clauses 10, 11 and 12 are designed to give effect to a proposal made by the hon. the Minister of Finance in his budget speech. In this connection it will be remembered that the Minister indicated that the annual duty would henceforth be a flat rate of R80 instead of an amount calculated on a sliding scale. This concession will be welcomed by many companies, especially external companies some of which have until now had to pay very large sums by way of annual duty that have been quite out of proportion to their financial stake in our country. A welcome side-effect will be that larger South African companies will no longer have any incentive to resort to somewhat artificial measures to reduce the base on which their liability for the duty is at present calculated.

The Bill, Mr. Speaker, is of a very straightforward nature and I commend it to this House.

Mr. Speaker, this Bill contains a number of different provisions dealing with various aspects of the law. In the first instance, I should like to express my thanks for the provisions of clause 9 because these provisions were inserted in this Bill as a result of certain representations that were made. I am grateful not only that these provisions have been inserted but for the expedition with which this matter has in fact been handled.

Secondly I want to say that the whole question of estate duty for the abolition of which there are continual representations in the House, particularly from one section of the House, needs to be looked at from a broad taxation point of view. I wonder whether we should not look at the basis that was laid down by the Carter Commission in Canada many years ago when it was submitted that if one taxes every accrual of whatever nature or kind there is, whether it comes as a result of work, a donation, an inheritance or in any way whatsoever, it will result in a more equitable system of taxation and in a much lower rate of taxation particularly for people who work to earn money. At the present moment one finds oneself in the situation where one can inherit a vast amount of money and pay relatively little tax and one can make a capital gain of a tremendous amount and pay no tax at all. However, if one earns by the sweat of one’s brow, which one is commended to do, one pays the highest rates of tax. I think we ought to look at this whole situation because by rationalizing the whole tax structure we shall be able to pay lower rates in respect of virtually everything and we shall probably receive more revenue in the process. I should like to commend that to the hon. the Deputy Minister for consideration and investigation. We have a standing committee on taxation and I think we need to look at the position on a broad basis in that fashion.

As far as the annual duty is concerned I should like to say that we obviously support that.

There is one provision in the Bill which we cannot support and that is clause 3 on which I intend moving an amendment. We have no objection to a political party not paying tax and being treated as a voluntary body in the ordinary course. We also have no objection if a person voluntarily during his lifetime makes a donation to a political party and that that should not be subject to donations tax. We have no problem in that regard, but giving a benefit to a deceased estate by not including a bequest in calculating the assessable amount for estate duty lends itself to creating problems. I want to deal with the major problem that we see here. If one looks at the way in which people abuse getting other people’s signatures—take for example what sometimes happens in respect of postal votes …

We bow to your superior knowledge, Harry.

Yes, I have lots of experience of the activities of the hon. members on that side and if they would like to hear it I can tell them all about what they have been up to.

If one looks at the ease with which people’s signatures can be obtained there is every reason to be concerned. There is a document which people sign which does not cause them to part with money at that stage but it will cause money to become available or to be paid when they are dead. It is so easy to get a codicil signed. It can be a piece of paper. One needs two witnesses and no other formalities are required in terms of our law. Such a codicil can be signed in a back room—in fact, anywhere. I think this lends itself to creating problems.

If somebody wants to make a donation to a political party and he does it in a proper will in a proper form, in fact, in the normal way, I have no problem with it. He can do it by will or by any other way, but why need we give an estate duty benefit? It is true that one could have the situation that sometimes the heirs might have to pay it, but one could provide that where there is a bequest to a political party, from such a bequest shall be deducted the pro rata amount of the estate duty which is payable. That would be fair in the circumstances.

I should like to make an appeal to the hon. the Deputy Minister. This affects all of us—we are all in political parties—but I think we want to be seen to be doing the correct thing with the public. I want to appeal to the hon. the Deputy Minister that he should withdraw this provision. I shall move an amendment to enable this to be done. Let us then think about it again and let us reconsider it next year. There is no urgency about this matter and therefore I appeal to him to withdraw this provision and to accept the amendment which I intend moving.

Mr. Speaker, the Bill makes provision, inter alia, for the exemption from transfer duty in respect of certain property acquired by a certain water board or irrigation board. In addition it also amends the Estate Duty Act so as to make further provision as to the determination of the net value and dutiable amount of an estate. It also makes provision for exemption from certain stamp duties.

The amendment to the Estate Duty Act made by clause 3, in terms of which the value of Land Bank stock will in future qualify for deduction of estate duty, is to be welcomed. Clause 4 increases the rebate for the purposes of the determination of the taxable value of an estate as follows: The basic rebate is increased from R37 500 to R50 000; the rebate in respect of the surviving spouse of the deceased is also increased from R37 500 to R50 000 and the rebate in respect of every child of the deceased is increased from R37 500 to R40 000. It is a pity that the latter rebate was not also increased to R50 000 per child. The proposed amendment brings about a slight increase of only 6% in this connection. I should like to ask the hon. the Deputy Minister to give serious consideration to the request that this rebate also be increased to R50 000 and to move an amendment to this effect during the Committee Stage.

I am glad the hon. the Minister is here. During the discussion of the Finance Vote I requested a comprehensive and thorough investigation into estate duty. The hon. the Minister knows that I know that he knows that my plea rests on a firm foundation. I also know that the hon. the Minister knows that I know that his answer did not rely on comparable statistics. I therefore want to repeat my previous plea and conclude by reading from a letter which I received from the Transvaal and Free State Board of Executors. I quote—

We support this legislation and trust that the hon. the Minister will again give serious consideration to my representations.

Mr. Speaker, this Bill contains a number of provisions which provide concessions to taxpayers and for this reason we will support this Bill.

I was interested to hear what the hon. member for Smithfield had to say, and I must say that I too am sympathetic towards the farmer when it comes to paying estate duty. We so often find in practice that a farm being run efficiently by a family is on the death of the father left to one or a number of children and then has to be sold or divided in such a way that the person who eventually has to manage it finds himself burdened with a tremendous debt part of which is due to the estate duty which has to be paid. We therefore welcome clause 4 as it contains some concession in respect of estate duty. I am sure the hon. the Minister will take heed of what the hon. member for Smithfield had to say.

As far as the stamp duties are concerned, we are very pleased to see that the Natal Parks Boards is now also exempted from paying stamp duty. There are a number of hon. members of this House on the commission inquiring into game parks. I am sure that after having visited Natal they realize what a great job the Natal Parks Board is doing, and I sincerely hope that this is the first of many measures to assist the Natal Parks Board in carrying out its conservation practices.

We also welcome the concession made in regard to the annual duty on companies. With those words we support this Bill.

Mr. Chairman, I wish to thank the hon. members for supporting this Bill. As far as the hon. member for Yeoville is concerned, I can say that I think the Carter commission adopted the attitude that a dollar is a dollar and that, whether it is capital or not, it should be taxed. I therefore think it is a very good proposal the hon. member made, but it must be very, very carefully handled. As far as the amendment is concerned which he proposes to move in the Committee Stage, I shall deal with it then.

I also wish to thank the hon. member for Amanzimtoti. I am pleased I could do something for Natal.

*I listened attentively to the hon. member’s request for the increase of the child’s concession from R40 000 to R50 000. When the hon. member moves his amendment during the Committee Stage, I shall reply to it. I thank hon. members for supporting the Second Reading of the Bill.

Question agreed to.

Bill read a Second Time.

Committee Stage

Clause 3:

Mr. Chairman, I move the following amendments—

1. (1) On page 4, in lines 9 to 12, to omit paragraph (b);
2. (2) on page 4, in line 18, to omit “and (b)”.

I have motivated these amendments during the Second Reading.

Mr. Chairman, I listened carefully to the hon. member for Yeoville’s explanation of his amendment. I, personally, and the department as well are of the opinion that a good case can be made out for it. Since political parties can now have themselves registered, people feel the need to make donations to political parties in their estates. If I understood the hon. member for Yeoville correctly, he was also in agreement with the principle as such. Since we as political parties must arrive at a consensus on a matter such as this, I should like to say on this occasion that I am favourably disposed towards the amendment of the hon. member. However, there is no urgency in connection with this matter and I therefore think that it would be a good thing if we allowed this matter to stand over until next year when we can again take a careful look at it, particularly the implications pointed out by the hon. member for Yeoville regarding abuses that could arise in a party. I am prepared to accept the amendment of the hon. member for Yeoville.

Mr. Chairman, I just want to record our appreciation of the approach the hon. the Deputy Minister has adopted to this. I am sure we can discuss this matter between now and the next session and that, if necessary, it can be reintroduced then. I think the hon. the Deputy Minister has approached this very much in the correct spirit.

Amendments agreed to.

Clause, as amended, agreed to.

Clause 4:

Mr. Chairman, I move as an amendment—

Mr. Chairman, the hon. member for Smithfield was kind enough to telephone me this morning to inform me of his intention to move this amendment. The two of us then made a few calculations in order to ascertain what the effect of such an amendment would be. We decided that if the financial implications for next year would not be too great—for this year they are minimal—we would be prepared to consider the amendment and even agree to it.

The calculations we made were rather interesting. For the sake of the record I could perhaps point out that the statistics provide that one makes calculations of estate tax on the basis of 1,25 children per estate. I am not quite sure what one does with a quarter child. However, statistics can do strange things.

We made a calculation on the number of estates for 1980, based on the number of children per estate. This showed that such a concession would total between R4 million and R5 million next year. Seen in the broad context, this is an amount which we can in fact afford at this stage. When one considers the budget in its entirety, and therefore not separate items in isolation and on an ad hoc basis, we decided it is possible that the amount would be a little too high and that at this stage we therefore cannot agree to such a concession.

However, I want to content myself by saying that there is a great deal of sympathy for the hon. member for Smithfield’s amendment. When we discuss this matter again we shall definitely try to bring about parity as regards all these matters, but unfortunately I cannot accept the amendment of the hon. member for Smithfield at this stage.

Mr. Chairman, in view of what the hon. the Deputy Minister has just said, and I accept his explanation fully, I withdraw my amendment with leave of the Committee.

Amendment, with leave, withdrawn.

Clause agreed to.

House Resumed:

Bill reported with amendments.

Bill read a Third Time.

Mr. Speaker, I move—

As is customary, this Bill deals with miscellaneous matters relating to the State Revenue Fund and the Railways and Harbours Fund. Since the individual clauses are explained in the explanatory memorandum that hon. members already have before them, I do not deem it necessary to explain all the clauses in detail. If hon. members require more information about any clause or other, I or the Minister concerned will provide further details with pleasure.

Mr. Speaker, we shall support the Second Reading of this Bill. However, there are a number of matters that I should like to raise. Firstly, in clause 1 there is the transfer of funds to various accounts, inter alia, the Special Defence Account. One of the problems I think we have to watch is that we do not create too many of these funds because the existence of these funds means that whatever surplus is in a particular fund is not returned to Revenue at the end of the financial year. The result is that one is to some extent able to play around with the accounting procedures of the various departments. To some extent it has been demonstrated, certainly in the case of defence, that the Special Defence Account and the ordinary account are used as one and the same thing. What happens is that if one runs short on the ordinary account, all that one does is that one supplements from the Special Defence Account. That was never the intention. In fact one cannot actually have one banking account for this. I should like to make an appeal to the hon. the Minister that we should keep accounts of this nature to an absolute minimum, to have separate accounting and separate banking accounts and see to it that they are not used as if they were a kind of overdraft facility on which one can simply draw as and when one runs short of money in respect of other accounts. I think that in particular needs to be looked at. If one reads with this the proposals in clause 8 one will see that there is a tendency developing where one is using funds temporarily in order to do all sorts of bridging operations. We have already had a situation during the current year where without the sanction of Parliament or without anybody having to be asked, amounts were drawn from the Stabilization Account in order to put money into the Exchequer. All these things tend to bring about a degree of laxness in financial administration. I think accounts should be kept separate and that they should be separately controlled. This to my mind is the principle to which we should adhere.

In so far as the International Finance Corporation and the other affiliated body is concerned, we are making money available but I hope that we shall also get something out of it from time to time, if I may put it that colloquially. If one looks at the objects of these funds one sees that it is to encourage, as I understand it, the growth of productive private enterprise in member countries, particularly in the less developed areas of the world. We have some underdeveloped areas in our own country and I assume that we will also be able to derive some benefit from this particular matter.

When we come to the question of the money that is made available to the Development Bank in South Africa, I want to draw attention to one very important matter. When one deals with project finance and one makes money available for a specific project, one knows what is going to happen to that money, one knows how it is going to be used and one can have a say in the use of that money. However, when one gives people money simply in order to supplement their revenue it gets lost in the mill, there is nothing seen for it and there is no element of control in respect of it. One of the successes that the Russians have had in regard to their aid as opposed to the form of aid that the Americans have given, is that the Russians normally give project aid. When they give money they put up something so that everybody can see that it has been established with Russian money. The Americans in the main give money which simply flows into the revenue and the people do not even know that they are being assisted. Project aid is, to my mind, a better way of actually giving aid to other people. One knows what one is giving it for and what it is going to be used for, and the people to whom it is given know from whom it comes and for what purpose it should be used. I want particularly to commend project finance to the hon. the Minister.

In so far as unauthorized expenditure is concerned, one of my colleagues will move an amendment during the Committee Stage and I do not want to enlarge on it. We had a long debate about Chris van Rensburg Publications and we are not going to be party to ratifying any payments to that gentleman or his company. I sincerely hope that the hon. the Minister of Finance will support us in this regard. This is not a gentleman who should get any money from the Exchequer because he already owes the Government a large sum of money. We will therefore move an amendment in this regard.

In regard to the question of the release of loans, there is a tendency to give loans and then suddenly to turn them into grants. If we look at the various activities in this regard, I think we should start off right at the beginning by deciding what is going to be capital or fixed capital. To go through the whole issue of first making it a loan and then turning it into a grant or into capital, does not seem to make sense.

Which clause is that?

This is in regard to the remission of loans in respect of National Parks, Posts and Telecommunications, South West Africa and the S.A. Railways and Harbours. There are four different categories here where, in fact, loans are being turned into either fixed capital or grants. One does not object to the reasons why these grants are given but it seems as if we do not have the courage at the outset to deal with them in the correct way.

One of my colleagues will deal with the question of the community councils and the facilities in that regard.

The last thing I should like to mention is that in so far as the Auditor-General is concerned, we approve of the provision. However, I wonder whether, in fact, Parliament and particularly the public are aware of the importance of this work and how valuable the services of the Auditor-General and his staff are to South Africa as a whole. In terms of this clause relief is being given to a particular personality occupying a particular position, and I should like not merely to pay tribute to him but to say that the office of Auditor-General is in fact one of the most important posts in the whole structure of Government. He is an agent of this Parliament and is invaluable to the taxpayers of South Africa.

Mr. Speaker, I rise to say that the NRP will be supporting the Second Reading of this Bill. We are very pleased to see that the loans that were granted to the National Parks Board of Trustees are now being remitted, and I should like the hon. the Minister to tell us what the total of these loans is.

We are very pleased to see the provisions contained in clause 10 included in the Bill. It is something for which my leader has asked for many years. Of course, the amount of money is quite considerable, namely R854 million, but this amount of money was loan capital and is now to be considered as permanent capital, free of any interest burden, and I do believe that this now strengthens the capital base of the Railways.

Hear, hear!

I see the hon. the Minister of Transport Affairs is here. There is no doubt that he welcomes this measure.

Finally, Sir, in regard to clause 11, we find that authority is now being given to community councils to raise loan funds to an amount of R250 million. This is a very good measure because we must all appreciate today that a number of the community councils are going to be faced with very heavy expenditure as the country endeavours to raise the level of their amenities to that of those that one finds in other sectors. This is going to cost a considerable amount of money and we are pleased to see that this facility is now available, and take pleasure in supporting this measure.

Mr. Speaker, once again I want to thank hon. members most sincerely for their support of this Bill. I appreciate it. The hon. member for Yeoville apologized for not being able to be present. I was aware that he had to leave, and I quite understand it.

†The hon. member for Yeoville in dealing with clause 1 said that we must be careful not to play around—I think that was the term he used—with departmental accounts. He referred in particular to defence and the Special Defence Account. I can, however, assure the hon. member and the House that the last thing we would ever countenance would be any irresponsible or careless playing around with accounts of any kind. It is a policy approach. There is a surplus, and we thought it would be a good thing to use that surplus to show the country what we regard as real priorities by immediately using that money for certain specified things. The House may remember that R172 million of that surplus was allocated for defence, for South West Africa an extra R80 million and for the proposed development bank an amount of R17 million.

When will that bank be started?

We are working on it with some intensity at the moment and we hope to make quite some progress with its constitution, within the next month or two. I hope to be able to deal with the legislation aspect some time early next year. The amount of R17 million for this bank is simply an initial amount to get the whole project going and to finance the earlier stages.

I think the hon. member also made a critical reference to drawing on the Stabilization Account to bring that money back to the Treasury. The Stabilization Account is after all really our only reserve account. What we did when we had a good year last year was to take money from the Exchequer and put it into the Stabilization Account, amongst other things to facilitate the stockpiling of oil and for procuring certain other important strategic materials. It could happen that, with money in the Stabilization Account, one might urgently need money for some other purpose that does accord with the use of reserve funds. I therefore think that the Government should certainly have the necessary flexibility to draw on that account if necessary. That is, after all, the whole purpose of a reserve account. We do not, however, do these things lightly. We only do it when our records show that it is absolutely necessary to do so.

When the hon. member for Yeoville was referring to clauses 3 and 4 and the question of development aid, he said that we should increasingly apply this aid in the form of project development. I fully agree. In fact, that is exactly what we are doing. One only has to look at the funds being made available to Transkei, Bophuthatswana or Venda. We are increasingly putting the funds into development projects. I therefore do not think there is any problem in that regard.

Although I am dealing with points very generally, I do want to refer to clause 5 and the question of the National Parks Board specifically. The hon. member for Amanzimtoti rightly expressed his appreciation for his fine province with its very fine natural resources and very fine game parks and said that they wanted to keep it so. In referring to clauses 5, 6, 7 and 8 the hon. member for Yeoville said that we must not release loan funds too easily. I think, however, we must be very careful not to generalize here. Let us look at each clause. In respect of clause 5, for instance, one cannot generalize, because that is a specific thing. We changed our policy. Nature conservation is now for the account of the Exchequer. I think we had the very broad support of the House when we made that change, and here we are putting it into effect. Therefore I think that is a separate case. Clause 6 is also a very special case, referring to the Department of Posts and Telecommunications. South West Africa is now assuming more and more responsibility for these services. What we have done is that we have written that money off because the South West Africa postal service cannot afford that amount. From the point of view of the Exchequer however, that amount will be recovered in the sense that the amounts which we make available to South West Africa in future will take into account each year an amount in lieu of redemption of and interest on that amount. It may well be that we will have to spread it over a long period, but we will certainly do it. Therefore it is not simply a case of releasing loans, of writing them off, and that is then the end of it. That does not apply in this case. I do not want to go into too much detail in respect of clause 7, but the point is that here we have an amount which the Administration for Whites of South West Africa wrote off in respect of the debt of Walvis Bay. The Government felt quite clearly that we should recompense the Administration for Whites of South West Africa. An amount of R8,7 million was in fact owing, and that could therefore be set off. That left a balance of R5 588 000, and this difference between the two amounts will be paid to the Administration for Whites of South West Africa by the Exchequer in five annual interest-bearing instalments. Therefore the only amount involved on balance is approximately R5,5 million.

As far as clause 8 is concerned, I do not want to go into that in detail. It is a technical matter. What happens is that the Government has to pay out amounts at short notice. The Paymaster-General has an account, and from time to time it happens that there is a balance in that account. One cannot provide for his exact requirements from day to day, and that is why one gets that sort of balance which is then put to proper use. All these things are extremely carefully watched and the Auditor-General is kept in the picture at every point.

Finally, the hon. member for Yeoville expressed his appreciation for the Auditor-General’s position. I heartily endorse that. I think I can show examples where in practice I have also very strongly supported the Auditor-General. He is a key man in our whole administration.

I have already referred to the hon. member for Amanzimtoti and the question of the National Parks Board under clause 5. Clauses 10 and 11 were singled out by the hon. member. He had no problem in respect of those clauses. In clause 10 the Railways and Harbours Administration is given what one can call aid in respect of uneconomic services which are sometimes undertaken at the request of the Government. We try to get an idea of the capital invested in these uneconomic services, and we now want to exempt the Railways from paying interest on that part of the capital. That is what is involved. As far as clause 11 is concerned, one can think, for example, of a large township like Soweto which has its own community council. We envisage that the community councils of these large Black townships ought to be in a position from time to time also to borrow money, just as the City of Johannesburg, of Cape Town and of Durban can do. In this clause that is made possible. We of course realize that the Government will have to guarantee such loans will then be part of our public debt. That is what it amounts to. In this clause proper provision is made for interest and redemption and the servicing of such debts.

I think I have now covered most of the points raised. I thank hon. members for their support.

Question agreed to.

Bill read a Second Time.