Wholesale Prices – Cost of Living – Stabilisation of the Lira -Abolition of Obstructive Taxes and a new Tax on Turnover -Hotel and Restaurant Taxes

«The Economist», 14 aprile 1923, p. 789

Turin, March 27

Professor Bachi’s index number of wholesale prices, calculated on the basis of 1920’s prices (100), has settled down in recent months. (See table at p. 284).

In this series a seasonal movement of prices is evident, which corresponds closely to the usual strengthening of foreign exchanges in the autumn and decreases in the paper cost of purchasing foreign goods in the spring months. It seems, however, that the worst point was in the autumn of 1920, when Italy was on the brink of a Bolshevist experiment. In recent months the general index would have been better if the Ruhr affairs had

not exercised an evil influence on the exchanges, and textiles had not gone up, according to a general world tendency. If the lira has not followed more strictly the vagaries of the French franc, the cause may lie in the increased hope that the public budget will balance, and that sales will be made of balances held by Italian business men in foreign centres. Not a few heads of trading firms used to hold balances in sterling or dollars as insurance against the risk of great and sudden increases in foreign exchanges. Today they may hope that the lira will go on improving, and, by their realisations of balances, cooperate to keep down exchanges in face of the threatening international situation.

Retail prices and the cost of living are somewhat slow in following wholesale price variations. The cost of living of a working family of two parents and three sons (on the basis of the first half of 1914=100) is calculated as follows in Turin:

We may observe here the same tendency towards maximum in the winter and minimum in summer and spring months. The average increase in the cost of living corresponds closely with the depreciation of the lira in gold; and as the gold has been depreciated itself, it seems that the purchasing power of the lira is better in Italy than in foreign countries. When the July figures are forthcoming the house rent item will rise abruptly to about 200, as the new system of rent regulation by arbitration will then begin to be applied.

At the recent meeting of the International Chamber of Commerce held at Rome, a renewed proposal by Professor Cassel for the stabilisation of exchanges met with a very cool reception by the average public opinion in Italy. The motion was shelved under the guise of a vague acceptance of the principle. Public opinion in Italy still clings firmly to the hope that in some future day the lira will be restored to the old gold parity. No proposals for fixing the lira at, say, 25 cents gold has the slightest chance of being entertained by responsible statesmen or parties, notwithstanding that no one is capable of predicting when and how the full restoration to parity will be effected, and how it will be possible to overcome the great difficulties which would arise in the balancing of the public Budget and in the dislocation of industries. Perhaps time will work its own salvation, so that when stabilisation has been reached in fact, no one will cavil at a law to sanction it.

Signor De Stefani, Minister of Finance, has taken another step in the truly gigantic task of simplifying our complicated tax system. A decree of March 18, 1923, abolishes certain taxes: 1) On production of silk textiles, which was imposed at the rate of 10 per cent, on all natural and artificial silk goods, and greatly hampered the trade and export of this our greatest national industry; 2) on sales of gems and gold and silver goods, at a progressive rate of 5 to 20 per cent. As gems and gold objects are easily smuggled, the tax was scarcely productive, and encouraged the substitution of secret deals for honest and open commerce; 3) on sales of so-called luxury goods, at the rate of 12 per cent, of the price. The high rate of the tax favoured collusion between dealer and clients. In its stead, Signor De Stefani has enlarged an existing tax of 0.36 per cent, on all sales of goods between producers and dealers, and dealers and dealers. Excepting foods, all goods sold will be subject to a tax every time they change hands. The tax is somewhat on the pattern of the French turnover tax, with this difference, that it will not hit sales direct to final consumers, but only sales between the original importer or producer and the last dealer. The tax will be at the rate of 0.50 per cent, on the price of raw materials and agricultural produce, and of 1 per cent, on all other products. A select list of a few luxury goods (gems, ivory, motor cars, Oriental carpets, choice furniture, &c.) will be taxed at 2 per cent., and in these cases alone the tax will also affect the sales direct to final consumers.