Increased Taxes – Abolition of Bearer Securities

«The Economist», 10 luglio 1920, p. 53

Turin, July 5

As the first act of his Government, Signor Giolitti has laid on the table of the Chamber of Deputies several Bills purporting to put Italian finances in a sound condition. As I stated in a previous letter, the situation is grave. The Finance Minister has announced for the financial year 1920-21 an ordinary revenue of 9,000 million lire, and an extraordinary one of 1,500 millions from sale of war materials, &c, a total of 10,500 millions, against which the ordinary expenditure amounts to 11,545 million lire. This deficit would by itself not be very serious, as we can reasonably hope for a continuous growth of the new taxes, which in the present year will not give their highest product. To the ordinary Budget one must, however, add the extraordinary, 5,500 million lire for bread subsidy; 2,850 millions for expenses connected with War Department, the fleet, and the colonies (liquidation of war expenses); 2,000 millions for damages to be repaired in the provinces occupied by the enemy in 1917 and 1918; 1,300 millions for losses on maritime transport; 300 millions for relief to disabled men, &c; 650 millions for high cost of living subsidy to State employees; 600 millions deficit of the State railway Budget. The extraordinary Budget thus reaches 13,200 million lire. As Signor Giolitti has hitherto said nothing concerning the bread subsidy his promises of economy are somewhat vague. As a means of counteracting the huge deficit he has laid more weight on new or increased taxes. The taxes on motorcars will be greatly increased, especially on private motorcars. The tax will be composed of two parts: one fixed, which rises from 310 lire yearly for motorcars of not more than 9 h.p. to 2,500 lire for cars from 40 to 50 h.p. To the fixed tax is added a proportional tax, which is 10 lire per h.p. if the entire force is not higher than 12 h.p., 30 lire from 12 to 16 h.p., 90 from 16 to 24 h.p., 100 from 24 to 35 h.p., 150 from 35 to 50 h.p. Cars of 50 h.p. and more are put in a special class, which is taxed at the lump sum of 15,000 lire yearly. This tax will be well-nigh prohibitive, except for the very richest men.

The succession tax has been already increased four times in the present century; if this fifth increase be passed into law, the tax will weigh heavily on great fortunes. It would take too long to summarise the proposal in detail, as the rates of the tax vary in proportion to the degree of relationship between the deceased and the heir or legatee, to the amount of the inherited portion and to the estate of the heir or legatee. For instance, in the case of succession from father to son, the tariff of April 21, 1918, was of 1 per cent, if the inherited portion did not exceed 1,000 lire, and 1.50 per cent, if not 5,000, reaching 7 per cent, if the portion reached 1,000,000 lire, 8 per cent, up to 2,000,000, and 9 per cent if the portion of the heir or legatee exceeded 2,000,000 lire. A decree of November 24, 1919, had introduced new rates for inherited portions of more than 2,000,000 reaching 12 per cent, on inherited portions of 20,000,000 lire and more. The new tariff now proposed leaves untouched the rates up to 100,000 lire, for which it remains from 1 to 4 per cent. At 250,000 the rate is increased from 5 to 6 per cent, for 500,000 lire from 6 to 9 per cent., for 1,000,000 from 7 to 12 per cent., for 2,000,000 lire from 8 to 13 per cent., for 5,000,000 from 9 to 15 per cent., for 10,000,000 from 10 to 18 per cent., for 20,000,000 from 12 to 20 per cent., and for inherited portions upwards of 20,000,000 lire the rate is increased from 12 to 25 per cent. In addition, if the son was, previously to his inheritance, personally possessed of an estate of 200,000 lire or more, to the succession tax is added an additional tax of 10 per cent, on his hereditary portion, provided that this tax is not higher than a third part of the difference between 200,000 lire and the previous estate of the heir or legatee. The taxes on other relatives are construed on the same lines. As I cannot go into too many details, I will say only that the tax for successions between relatives on the sixth grade or more, or between non-relatives, rises from 18 (portions up to 1,000 lire) to 70 per cent, (portions of more than 20,000,000 lire), to which is to be added the additional tax of 10 per cent, if the previous estate of the heir or legatee was higher than 200,000 lire.

Another highly significant Bill is one by which all war profits from August 1, 1914, to December 31, 1919, are forfeited to the public Treasury. Italy had a war profit tax which from the original 1911 maximum rate of 40 per cent, was already in 1916 put up to 60 per cent., superimposed to the ordinary income-tax. By a Royal decree of November 24, 1919, to the war profit tax was superimposed an increment of wealth tax, which absorbed from 5 to 80 per cent, of the remainder. If the Bill of Signor Giolitti becomes law, as is highly probable, all the old taxes will be merged in a general confiscation of 100 per cent. This applies to war profits, as defined by the law, viz., profits above 8 per cent, on capital or above income taxed in 1912-13, of industries, trade, commerce, and intermediation. The confiscation aims at social pacification; but it is doubtful if the ruin or embarrassment of many enterprises which, with a little capital, have obtained great success, will be followed by a real pacification of the masses. They will always point to many examples of people getting rich, from whom the wealth acquired during the war has not been confiscated owing to difficulty of assessment. This confiscation is an ominous precedent in the case of future wars. Who will risk capital and labour with a prospect of confiscation? The Bill applies to foreigners, who during the war have obtained in Italy profits which may be legally termed war profits. The last momentous Bill obliges all possessors of securities to register them in their name. The Bill puts an end to bearer securities, which were until today almost the only form known to Italian investors. All securities, from the State Rentes and municipality debentures to joint stock company shares and debentures, will cease to be bearer securities, and will have to be registered in the name of the possessors. The precedent most frequently quoted in favour of this far-reaching reform is the English one. The Government aims by means of compulsory registration of all securities at knowing exactly the capital and income of all taxpayers. When taxes were principally raised by a uniform or constant rate of taxation, it was a matter of indifference to know the names of possessors of securities. But today, when income-tax, capital tax, and succession tax are made more and more progressive, it is very important to know who are the true possessors of securities. Bearer securities are able to be passed over by taxpayers when they make their returns for assessment. When the scale of graduation is very steep, the temptation to fiscal fraud is great indeed. The bourses have been very depressed in consequence of the announcement of the Bill. Almost all securities suffered a fall. Experience will show if registered securities will be marketable as well as bearer securities, and if savings will continue to be invested in public and private securities.