Budget Control – Taxation and Debt – Reforms

«The Economist», 21 maggio 1932, pp. 1137-1138

Turin, May 16

Parliament has been busy in both Chambers in passing budgets – every department has its own expenditure budget – and if private members’ speeches were not remarkable, the reports of committees were, as usual, of great interest. The report of Signor Mazzini on behalf of the General Budget Committee of the House of Deputies on the revenue and general expenditure budget makes rather sad reading. Assuming a reduction of 33 per cent, since 1928, Signor Mazzini estimates the present national income at between 60 and 70 milliard lire, say 68 milliards, if Professor Mortara’s estimate be adopted. The tax revenue of the State, provinces and municipalities – exclusive of miscellaneous items and public services -amounted in 1913-14 to 2.5 milliards, in 1925-26 to 20 milliards, and is estimated in 1931-32 at 20.5 milliard lire. The significance of this burden can best be gauged if we translate these lire into lire of stable purchasing power. This gives a total tax revenue rising from 9.2 milliard lire in 1913-14 to 11.1 milliard lire in 1925-26 and to 23 milliard lire in 1931-32. The proportion between taxation and national income, which was about 12.5 per cent, in 1913-14, thus rose to 20 per cent, in 1925-26 and to 30 per cent, in 1931-32.

The crisis is playing havoc with general branches of revenue. Comparing ascertained results of 1929-30 with estimates for 1932-33, the yield of income tax has fallen from 5,192 million lire to 3,905 million lire, and the budget has therefore had to rely more and more upon indirect taxation. Stamp, registration and sales taxes rose from 3,168 million lire to 3,868 million lire, Excise and Customs duties from 5,321 million lire to 5,568 million lire, and salt, tobacco, matches and lottery monopolies from 3,493 million lire to 3,712 million lire. As the estimates for 1931-32 appear largely in excess of realised revenue (for the first eight months Excise and Customs duties were estimated at 3,860.3 million lire and realised only 3,073.6 million lire), Signor Mazzini fears that estimates for 1932-33 may be in some respects too optimistic.

On the other hand, many items of expenditure are growing; for instance, the burden of public debts has risen from 4,572.7 million lire in the estimate for 1931-32 to 4,895.9 million lire in the estimate for 1932-33, exclusive of the interest and premiums appropriations for the last issue of 3 milliard lire fresh Treasury bonds, which will bring the total to about 5,150 million lire. The main cause of the increase in the annual cost of the public debt is the growth of the floating debt, in its turn caused by the difficult Treasury situation. Some comfort may be drawn from the fact that the Treasury position is, in part, due to the payment of arrears of expenditure budgeted for in past years. Further comfort is to be found in the thought that the State is keeping the floating debt at a high level in order to maintain a big cash account at the Bank of Italy, thus keeping down the note circulation.

Signor Mazzini is, however, gravely concerned at the outlook, and insists strongly on two points: – 1) No new burden in the budget shall in future be created except by law. The system of executive decrees should be stopped, to keep expenditure within strict bounds. 2) An end, or, at least, a very severe limitation, must be put to the system of State grants in aid of industry. The report quotes the instances of the Cogne Mines Company, a relic of the Ansaldo vertical industrial system, which was inherited by the State. The Cogne Co., directly or by subsidiaries, has absorbed several hundred million lire of State money, and now plans the utilisation of 500,000 h.p., instead of the present 60,000 h.p., and the building of a big thermo-electric plant of 200,000 h.p. for the utilisation of the anthracite mines situated in the mountain fields of La Thuile. The budget rapporteur is horrified at such grandiose expenditure of State money in the face of 2,000 millions unsold kw.h., which the electric industry vainly endeavours to put on the market. In the Senate, Senator Ciccotti strongly opposed a Decree, dated February 3, 1932, which appropriated yearly one million lire as grant in aid for the fiscal years from 1931-32 to 1945-46 to the Larderello Borace Co. Such criticisms are a good omen. Economy, and very strict economy, is the only way to bridge the big and, we hope, transient gulf between revenue and expenditure.