Interest Reduction – Supertax – Commercial Retaliations -Cartellisation – Crops

«The Economist», 15 ottobre 1932, pp. 688-689

Turin, October 3

A most important agreement was reached during August between all ordinary and savings banks under the auspices of the Governor of the Bank of Italy and the Finance Minister. The rate on current accounts, deposits and correspondents’ balances was reduced as from October 1st to a maximum of from 2 1/2 to 3 per cent., and on time deposits to 3 to 4 per cent. Signor Olivetti, Secretary to the General Confederation of Industry, states that the agreement aims at putting an end to the unwholesome practice which arose during the war of paying high rates of interest for current and time deposits up to 4, 5 and even 6 1/2 per cent. Banking deposits thus changed from temporary utilisations of uninvested resources to permanent investments of new savings; and banks were forced to incur the risk of investments, with ominous consequences during times of crisis. The reduction of bank interest rates will aid the general policy of freeing banks from the investment business so that they can go back to the time-honoured tradition of current liquid discounts and advances to trade and industry.

This is a sound move, but it is doubtful what its consequences will be in the present mood of savers. Even before the reduction of interest rates a certain shifting of deposits from higher to lower interest paying banks was noticeable. Putting banks in the order of the rates of interest presumably paid, we get the following results:

The increases in deposits in ordinary and regional banks, which paid the highest rates, were negligible; and even popular banks, many of which erred in a less degree on the same side, increased their deposits by less than 5 per cent. Only savings banks and postal banks markedly increased their holdings. The comparison is not wholly correct, inasmuch as ordinary, regional and popular banks do not put, for fiscal reasons, the greatest part of the sums received under the deposits head, but classify them instead as correspondents’ balances; but the figures are significant of the savers’ trend in favour of banks which pay low rates.

Investments in Consols, other State securities and securities to bearer enjoyed until today a practical exemption from supertax, as fiscal authorities were bound to calculate the income subjected to supertax exclusively by adding incomes already assessed in virtue of taxes on land, houses, industry, professions and other incomes. Incomes from Consols, being exempted from the income tax, could therefore be assessed for supertax purposes only on the basis of voluntary confessions by taxpayers, and such confessions were, as it appears, exceedingly rare. In virtue of a recent decree, fiscal authorities will be able, henceforward, to make supertax assessments on the basis not only of direct taxation, but also of other assumptions, mainly that of the taxpayer’s standard of living. As the chain leading from investments in Consols and other “securities to bearer” to supertax assessments is long and loose, it is thought that the new taxation system will not react unfavourably on Consols quotations. The Treasury hopes for an increase in revenue of from 300 to 500 million lire, owing to this change.

Restrictions on the slaughtering of foreign cattle having provoked complaints from export countries, especially from Hungary, Jugoslavia and Roumania, negotiations have been entered into with the interested States. The outcome is that restrictions are revoked, but new duties are imposed. Obstacles to international trade are progressively intensifying. The German restrictions on payments to foreign importers have immediately provoked retaliation by the Italian Government. As soon as the German Government notified their intention not to prolong the validity of current agreements after September 30th, a Decree was issued in virtue of which importers of German goods can make payments to their creditors only through the agency of Italian banks. Banks will grant orders on reichsmark accounts held in Germany to the credit of Italian creditors, thus freeing those frozen credits to the benefits of Italian exporters. If these accounts are not sufficient to allow full payment for German imports to Italy, banks can provide devisen to the maximum of 25 per cent, of the sums due. The balance must be paid by the importers and deposited by the bank in a suspense account, without interest, opened by the Exchange Institute. These sums may be disposed of only as far as new accounts to the credit of Italian citizens in Germany can be utilised. Reichsmark transfers on suspense credits into the Institute’s fund are held to be legally valid against foreign creditors. Violation of these restrictions renders the offender liable, in addition to the usual sanctions, to a fine equivalent to the full value of the imported goods. On September 22nd another Decree extended the above rules to Jugoslavia. On September 24^th the Official Gazette published a Decree of September 19th in retaliation against the special turnover tax on foreign imports enacted in France. As the new French tax increases progressively from raw materials to intermediate and finished goods, the Italian retaliatory tax was likewise arranged. At the same time a refund of the internal turnover tax was granted on all Italian goods exported to France. All these measures, while suited to the militant logic now prevalent in international economic relationships, certainly do not pave the way to the next Economic Conference and are not helping the re-establishment of normal conditions in business.

Cartellisation or rationalisation of industry seems to be progressing in a haphazard way. The dissolution of the sulphur consortium seems to have been short-lived. A new voluntary consortium, having as its scope the sale of sulphur produced in Sicily, has already been constituted among all the bigger Sicilian producers. In the cotton industry there are authoritative demands for cartellisation. Roughly the situation may thus be summarised: spindles in existence, 2,860,000 double shift and 3,223,000 single shift; spindles in activity, 1,656,000 and 2,263,000 respectively. Looms are 150,000, of which half are idle. Even before the war 600,000 spindles and 40,000 looms were idle. The addition of 1,000,000 spindles and 30,000 looms during the war and the immediate post-war years made the situation much worse. Reorganisation is now widely regarded as essential in order to save the industry, but opinions differ as to the means. Some people advocate the abolition of double shifts in order to spread employment; while others are in favour of concentration of production in the best equipped mills.

In the beer industry, on the other hand, there are angry protests against the present reservation agreement. In 1926 an agreement was reached by brewers, in which they bound themselves not to encroach upon one another’s customers. The retailers sought escape from this dependence, and they took in many instances to selling wine and other beverages and to importing foreign beer. Consumption thus decreased from 1,500,000 hectolitres in 1923-24 to about 400,000 in the current year; a decrease not wholly due to bad times, but said to be partly the result of the discontent of retailers with the brewers’ agreement.

Contrary to pessimistic forecasts, Signor Mussolini was able to announce to the last meeting of the Wheat Committee that the wheat crop for 1932 had reached the record figure of 7,515,000 tons, with an average product per hectare of 1.52 tons. The average production for 1909-16 was 4,927,300 tons, with a yield per hectare of 1.04 tons, the corresponding figures for 1919-22 being 4,528,000 and 0.99, and those for 1926-31 6,160,721 and 1.26. Prices, too, are good. Thanks to a 750-lire per ton duty on foreign imports and to a scale of variable proportions of maximum mill-able foreign wheat, the price, which in August, 1931, was 940 and 1,020 lire per ton for soft and hard wheat respectively, reached in August, 1932, a level of 1,100 and 1,250 lire. Maize production is estimated at 3 million tons, against 2 millions in the past year and an average of 2.27 millions in 1927-31. The yield and prices of cocoons were bad, but the vintage, if somewhat belated, is held to be 15 per cent, over that of past year. The increase in the cereal production is not due to any appreaciable increase in the area sown (4,952,00 hectares in 1932, against 4,737,000 in 1870-74 and 5,099,000 in 1905-09), but to better yields: 1.52 tons in 1932, against 0.86 and 0.92 in the above said periods. The self-sufficiency ideal is no longer beyond the realm of realisations, but it may involve a fall in the price to a level wholly unremunerative to agriculturists. To maintain prices at the present level a system of bounties on exports must be evolved, with what reaction on foreign policies it is difficult to foretell.