Budget Criticisms – Signor Volpi’s Reply – New Business Indices – Banking Affairs

«The Economist», 16 giugno 1928, pp. 1240-1241

Turin, June 8

In reply to some pertinent strictures published in the report of the Budget Commission of the House of Deputies, two most important speeches were made by the Finance Minister, signor Volpi, on May 25^th, before the House of Deputies and on June 6th before the Senate. Signor Tumedei, who had charge of the House Commission Report, brought out the necessity for retrenching expenditure if the equilibrium of the Budget is to be maintained. It would be impossible even to summarise the bewildering mass of figures with which Signor Tumedei illuminated his point. Perhaps the most striking figures were the following: – Cash incomings for the first nine months of the past two and current fiscal years: 15,627 millions lire for 1925-26, 14,586 for 1926-27, 13,578 for 1927-28; cash payments – 13,062 for 1925-26, 14,097 for 1926-27; 14,767 for 1927-28. Cash incomings are decreasing and cash payments are increasing. If a stop is not put to the rise in expenditure danger is ahead. Signor Tumedei pointed out that the increase of payments is due partly to the big sums which each year have to be paid on account of arrears of expenditure relating to past years. While in the last pre-war years the proportion of payments on account of arrears to total payments was 19.7 per cent., during the two years 1925-26 and 1926-27 the proportion has risen to 35.3 per cent. Although reduced from 15,214 millions lire at June 30, 1926, to 14,819 at June 30, 1927, the arrears to be paid still look formidable, and not being counterbalanced by arrears of credits for taxes unpaid, &c – which amount to only 3,352 millions lire at the last-named date – constitute a most unwelcome addition, not always taken account of, to the national debt.

Signor Volpi did not deny the urgent necessity for economy in the public expenditure. He pointed out that the mass of arrears to be paid is steadily decreasing, and, further, that 2,500 millions lire for interest on public debts at June 30th, which each year appears in the category of arrears, are paid in the first days of the following year. In part the arrears are merely apparent, representing, as they do in some cases, suspense accounts, which for some technical reasons cannot be written off, although the payment has already been made. A big part, finally, consists of arrears for public works expenditure, which were by law included in the estimates of a certain fiscal year, but which cannot be paid until the works in question are completed. This process may take years.

Signor Volpi is hopeful as to the future development of the yield of taxation. In the fiscal year 1921-22 the extraordinary and temporary war taxes on incomes yielded 2,980,504,000 lire, i.e., 60.76 per cent, of the total yield of income-taxes, which amounted to 4,905,621,000 lire. In the fiscal year 1926-27 the extraordinary war taxes on incomes yielded only 1,329,000,000 lire, i.e., 21.56 per cent, of the total yield of income taxes of 6,164,000,000 lire. The background of the public finance is thus much more solid than in past years, as the part played by transient war taxes is steadily declining, as against an increasing yield of permanent taxation. The increase is due to the increase of the number of taxpayers -1,770,901 in 1927, against 1,340,110 in 1923 for the tax on incomes other than land and houses – and of the total of the income-tax, namely, 8,342 million lire in 1927, against 3,676 millions in 1923. The average individual income of industrialists and tradesmen subjected to tax rose from 3,882 lire in 1925 to 5,875 lire in 1928, and the average for professional men from 3,686 to 5,661 between the same dates. The increase of the average taxed income taking place during the devaluation crisis has made taxpayers complain, but if economies in public expenditure are forthcoming, good results may be hoped from the tightening of the screw. To the old sets of figures of unemployed, a new feature has been added in the last number of the Bulletin of the Central Institute of Statistics. Taking the figure for September, 1926, as the basic figure of 100, the number of men employed in 4,443 industrial establishments in the week from February 27 to March 3, 1928, was 91.5; and in the week from March 26c to 31st was 91.1. In the last week of March, 1928, the index was 129.7 for the artificial silk industry, 103.9 for macaroni and other pastry factories, 102.9 for railway materials factories, 101.9 for hat factories. The lowest employment indices were found in superphosphates (72.1), motor-cars (73.4), cements (76.8), engineering (82.3), knitting works (82.6), iron and steel (81.5 and 81.1), silk spinning (86.4).

Bank deposits have been growing since stabilisation. Taking as 100 the figure for December, 1913, deposits in postal savings banks rose from 465.7 at the end of November, 1927, to 486,5 at the end of March, 1928; in ordinary savings banks from 499.9 to 537.2 between these same dates, in ordinary banks from 569.1 in October, 1927, to 600.4 in February, 1928; and likewise between these dates in people’s banks from 657.0 to 665.5; in local banks from 761.0 to 791.3. The increase of deposits can be interpreted as an index of an increase in the saving habit, but may also signify a certain slackening of business. The continuous decreases of the figures of discounts of the Bank of Italy from 6.520.4 million lire at the end of 1925 to 5,356.2 at the end of 1926, 3,809.5 at the end of 1927, and 2,980.7 at May 10, 1928, are significant in this respect. When we add that the advances of the Bank of Italy also decreased from 3,915 million lire at the end of 1925 to 2,683.6 at the end of 1926, to 1,604 at the end of 1927, and to 874.0 at May 10, 1928, we may appreciate how difficult it is at present for the Bank of Italy to control the credit market. Ordinary banks are large creditors of the Central Bank at present, and the private discount rate for good commercial paper at 5.25 per cent, is lower than the 6 per cent, official rate. Until there is a true revival of business, commercial paper will not go to the Bank of Italy, and deposits accounts will go on increasing.