Budget Deficit and the Bread Subsidy

«The Economist», 26 giugno 1920, pp. 1395-1396

Turin, June 19

The great event of recent days has been the fall of the Nitti Cabinet and the return to power of Signor Giolitti. Signor Nitti fell in an honest, even if ill-conceived, attempt to stop the fearful gap in the Budget originated by the bread subsidy. As in most belligerent countries, the Government endeavoured during the war to give bread at a fixed price to consumers. The price was eventually raised from 60 to 85 centesimi (from about 6 to 8 pence) per kilogram; but this last price was well below the cost of production. The situation may be briefly stated thus. Against the total cost of 7,000 million lire the Government may reckon, as things are today, only on a selling price of 65 lire per metric quintal – i.e., on a total receipt of 2,600 million lire. The difference, 4,400 million lire, is the expenditure which the bread subsidy throws on the 1920-21 Budget. It is an appalling loss, which has gone on increasing as the exchanges depreciated. The bread subsidy has cost the Italian Treasury about 10,000 million lire from 1915 to end of 1919; today the loss is estimated nearly at half that amount for a year only. The problem was rendered difficult to tackle by an unfortunate resolution of the Legislative Chamber, which said that the price could not be increased at the expense of the working classes. Nitti’s Cabinet endeavoured to round off the corner by increasing the Government selling price of wheat from 65 to 115 lire per metric quintal, and consequently the bread price from 85 centesimi to 1.50 lire per kilogram, and at the same time putting an obligation on all employers of increasing salaries and wages by 25 centesimi daily for every person dependent upon workers. The system was clumsy, as it obliged every firm to have a list of their men, with particulars as to family, dependents, &c. Frauds were obviously possible. A further complication and a source of discontent was the proposal of a bread tax on all who had an income of more than 12,000 lire per annum. The tax was to be 300 or 500 lire, according as the taxpayer had less or more than 20,000 lire yearly income.

The proposal, in the face of a well-nigh general opposition, was given up. Soon after, the Cabinet resigned, and in their place Signor Giolitti has formed a Cabinet. But the bread subsidy problem remains as acute as before. The gravity has even increased, as recently the season has been very adverse to the crop, and the wheat production threatens to be only 40 million quintals instead of 48 millions. If so, we should be obliged to import another 8 millions, which would cost the Government 2,000 million lire, and would be sold at 520 millions. The charge is unbearable indeed. The ordinary Italian Budget for 1920-21 closes with a deficit of 2 to 2V2 billion lire. This figure, though displeasing, is not appalling; as the revenues are increasing. New taxes are already in being, which in due time will balance the Budget. The true problem, is how to manage the extraordinary Budget, which for 1920-21 can be summed up:

1. Past Budget expenses to be liquidated, 1,000 million lire.

1. Bread subsidy loss, 4,000 to 6,000 million lire.

1. Public employees’ cost of living subsidy, 600 to 1,000 million lire.

1. War expenses liquidation, 2,000 million lire.

1. Compensation for war losses in Venetian provinces, yearly instalment 1,500 million lire.

1. Loss on railways, 500 million lire.

1. Loss on maritime State navigation, coal, &c, 1,000 million lire.

This extraordinary Budget of about 16,000 million lire is a big stone around the neck of Italy, and a great task awaits the new Treasury Minister, Signor Meda. With a firm hand suppressing all unnecessary expenses, putting an end to bread subsidy, and finally liquidating all expenses connected with the war, we might hope in a few years to be rid of this extraordinary Budget. But the task is truly formidable, and the Cabinet and Minister who will perform it will merit great praise.