The Italian budget (II)

«The Economist», 23 gennaio 1909, pp. 161-162

A brief examination of the Italian Budget will help to give a clear idea of our finance. It is necessary to say that the Italian Budget is divided into four sections (categorie). The first section (Categoria L: Entrate e spese effettive) comprises the actual income and expenditure; on the side of income are included the yeld of taxes and other revenue from State domain and public services, and in the expenditure all the sums disbursed for the current public services. A surplus or a deficit in this section is, therefore, a real surplus or a real deficit. All the income is gross income save for a very few exceptions, of which the only important one is that of the State railway administration, the income from which is put down as net in the general Budget. The second section (Categoria II.: Costruzione di strade ferrate) includes in the item of income the sums which the State has borrowed for the construction of new railways, and in the item of expenditure the sums spent for the same purpose. The surpluses and deficits of that section are not, therefore, real surpluses and deficits, for a surplus means that a large sum has been borrowed which has not been utilised for the construction of new railways, while a deficit means that some railways have been built (without incurring debt) with the surpluses of the first or the third section. It would have been clearer if this second section had been amalgamated with the third section (Categoria III.: Movimento di capitali), which in the item of income comprises the whole sum borrowed for capital expenses (such as harbours, canals, improvements of malarial land, and, in the last years, also railway construction not executed directly by the State, but by the special State railways administration, &c), or for the repayment of old debts, and in the item of expenses the sum actually expended, as above said, on public works and on the repayment of old debts. A surplus or a deficit in this section has the same meaning as in the second section. The fourth section (Categoria IV.: Partite di giro) comprises those items which appear twice in the Budget, for book-keeping and other purposes, in the same sum, as income and again as expenditure. It has no real importance, and will be omitted here.

In the following table we have set out the public expenditure from the final accounts for the year ending June 30, 1908, and from the estimates for 1908-9 and 1909-10. We have added the sum total of income for each section, so as to bring out the special and the total deficits or surpluses. (See table at p. 23).

It will be remarked at once that the final accounts for 1907-8 and the estimates for 1908-9 and 1909-10 close with surpluses of 61, 33, and 22 millions respectively, whereas the surpluses are stated above in the article to be only 36, 3, and 5 millions for the same years. The difference is accounted for by the effect of a device, by which a given sum appears two or three times over augmenting the surpluses, and of new Bills involving expenditure, which it has been impossible to take into account in the estimates. The true surpluses are, therefore, the last-mentioned ones of 36 (actual) 3, and 5 millions (estimated).

Another observation may be made: the surpluses of the last and next years are obtained only by resorting largely to borrowing, as the income in sections II. and III. is income from loans. The same thing cannot be said with regard to the years immediately preceding July 1, 1905, as in the years from 1897-8 to 1904-5 the new railways and other public works were mainly built by means of the surpluses of the first section. July 1, 1905, brought a new (it is doubtful whether it is a better) spirit into Italian finance. The State took over the railway service, and inaugurated a period of huge debts for railways and other public works. The practice of resorting to debt for capital investments is frequently necessary, and is not objectionable in itself, provided that the public works and railways are reproductive. Is that the case with the 1,500,000,000 lire or thereabouts which have been and will be expended on so-called reproductive purposes in Italy in the five years from 1905-6 to 1909-10?

That is the question. And it is as yet too early to give any certain reply. The piling up of huge debts has been hitherto an easy thing, as the Government has had at its disposal the funds of the Deposit and Loan Bank (Cassa Depositi e Prestiti), a Governmental banking institution in which is centred the administration of the postal savings banks (with its 1,468,939,437 lire on June 30, 1908, of small deposits) and of numerous other public or semi-public funds. But the Deposit and Loan Bank appears to have been too hard pressed by the Government’s absorbing policy of debt; and as the local authorities (towns and provinces) are also calling urgently on the same bank for aid, it has been necessary to decide on the emission of a new State loan by the State. A Bill (of December 11, 1908) has already been voted by the Chamber of Deputies, and will shortly become law, which provides for a new loan at 3 1/2 per cent., redeemable in 50 years. The new loan will be offered for public subscription up to a maximum of 150 million lire per annum. As the 3 3/4  Perpetual Rentes, which in 1912 will be reduced to 3 1/2, are 4 points above par, and as in Italy there is a relative dearth of gilded stocks (so that some capitalists are beginning to buy foreign stocks – Swiss, Prussians, and Spaniards), there is no doubt that the new 3 1/2, redeemable will be readily taken up. The question remains if the debt will in the end prove remunerative. A negative reply would be given if one looked only at the net revenue of the State railways. Prior to July 1, 1905, the net revenue oscillated between 70 and 96 million lire. After the railway service was taken over by the State and heavy capital expenses net by loans, the net revenue has been reduced to 79 million lire in 1905-6, 52 in 1906-7, 43 in 1907-8, and is estimated at 37-7 and 40 millions in 1908-9 and 1909-10. A definite conclusion from these figures would, however, be unwarrantable, as many conditions are being changed in the meantime. That the epoch of great surpluses has come to an end is, indeed, certain, and it is certain also that our Governors must exercise great caution if the delicate fabric of our national credit is not to be shaken.