Revival in the Stock Exchange -New Regulations about Confiscation of War Profits -Suspension of the Compulsory Inscription of Private Securities

«The Economist», 3 settembre 1921, p. 375

Turin, August 28

After mid-August holidays, the Stock Exchange re-opened with a better tone in regard to industrial securities. It is too soon to say whether the movement will be a short-lived one, but the undertone is distinctly improved. Two facts stand out to explain the more roseate vision of the bourse. The first is the partial surrender of the Finance Minister in the face of the strong opposition encountered in financial and trade circles against the too severe interpretation of the law of September 24, 1920, which confiscated all war profits from August 1, 1914, to June 30, 1920. Several criticisms were formulated as to consequences of the law of confiscation, the first and most important of these being the fixation at June 30, 1920, of the end of the war period. At that date prices touched in Italy their highest mark. Suppose an industrial concern, at August 1, 1914, had a stock of, say, 1,000 tons English coal, valued at 40 lire per ton, or a total value of 40,000 lire; if at June 30, 1921, the some company had the same stock, at 700 lire per ton, was to suffer a valuation of 700,000 lire, with a war-profit of 660,000 lire, to be confiscated. The same thing happened to all stocks of raw materials, machinery, &c. If, after June 30, 1920, prices of assets went down, the taxpayers may be ruined, having to pay the confiscation tax on values very much higher than the present. A recent order of the Finance Minister prescribes that the valuation shall be made only after December 31, 1921, when the prices will have perhaps settled down. When made, valuation shall take account not only of the prices current at June 30, 1920, but of the possibility for the taxpayers of utilising the various assets. And so, machinery, of the value of 100,000 lire, at June 30, 1920, will be valued only at 30,000 lire, if its future utilisation is capable only of this minor capitalisation. Various other devices are prescribed, so that the confiscation of war profits may not result in the ruin of taxpayers.

The Stock Exchange heard even more gladly the announcement that the Government had resolved to suspend the by-law regulating the compulsory inscription to the name of the possessor of all private securities. This was one of the principal planks of the Giolitti Cabinet’s platform. The fundamental reason for compulsory inscription or registration of securities, in a country like Italy, where nine-tenths of securities were to bearer, was that the bearer securities made it very easy for taxpayers to evade the succession taxes, capital tax, and income surtax. All these taxes have a progressive rate, increasing with the increase of the capital or income of the recipients, so that it is imperatively necessary to know the name and the total fortune or income of the taxpayer.

Protests were in vain. The law of September 24, 1920, made compulsory the inscription or registration of all State or private securities, excepting only Treasury bills (Buoni del Tesoro). The consequences were rapidly felt. The issue of State loans was made impossible, the war loan 5 per cent, tumbled down from 82-83 to 67 lire, and stands today only at 75 lire. The Treasury was obliged to have recourse to short-dated bills. At the close of the financial year 1920-1921, of a total external debt of 84,000 millions lire, only 50,000 are funded debt, 25,000 millions lire being Treasury bills at short dates, and 9,000 paper notes, issued by the banks for Government account. Last spring, when the Government sought to float a loan of 1,000 millions lire for the reconstruction of invaded provinces, banks advised the Treasury Minister that the public would not touch a loan liable to compulsory inscription. For this reason, the loan was launched under the nominal disguise of seven-year 5 per cent. Treasury bills. As “Treasury bills”, they were exempted from inscription or registration, and the issue was therefore rapidly absorbed. One may add that the Treasury was wholly unprepared to the gigantic task of inscribing and transferring 90 billions lire of funded debt, apportioned among a million at least of individual possessors. For these two reasons, the by-law which should have regulated the inscription of State securities was never published. The section of the law of September 24^th is thus suspended, and no one knows when and if it will be put into execution.

The other section, relating to private securities (stocks and shares of joint-stock companies, land bonds, loans of local authorities, &c.) seemed, at one moment, to be ready for institution. In the last days of the Giolitti Cabinet a by-law was published in the Gazetta Ufficiale of July 2, 1921, which purported to give the rules under which all private securities were to be compulsorily inscribed before January 2, 1922, and all issues of bearer securities were forbidden. Feeling ran high in financial circles; in the Senate a sort of revolt took place. The impending economic crisis, which was developing somewhat late to Italy, made doubtful of the wisdom of the abolition of bearer securities in a country where no other kind of securities can easily find a market, even those men who, for fiscal reasons, were favourable to the inscription system. The bourses, which had been for many months very apathetic, went down. The new Minister of Industry, Signor Belotti, who, during Parliamentary debates, in July and August of last year, was among the few members who opposed the Bill, took the opportunity of suspending the by-law with the consent of the Cabinet. That is how things stand at present. The law of September 24, 1920, is not repealed, but the by-laws, which are necessary to its practical application, do not exist. The one relating to State securities, was never published; the other, relating to private securities, was first published, and afterwards suspended. The bourses, which had always been fiercely opposed to the inscription system, hailed the suspension as a token of the final repeal of the law. Perhaps the law will not be repealed, for we in Italy are apt to follow the dictum of our greatest poet, Dante Alighieri: che leggi son, ma chi pon mano ad elle? There are the laws; but they are not applied if they prove a nuisance.