Italy

«The Economist», 14 settembre 1935, pp. 515-516

THE NEW FINANCIAL DECREES. – The reaction of the markets to the new emergency financial decrees issued at Bolzano on August 28th was immediate and considerable; but the lost ground is already being gradually recovered. The market was naturally mainly interested in the decree which limits variable dividends distributed by commercial industrial companies and firms. No dividend higher than 6 per cent, of the paid capital or the average dividend paid in the last three years may be distributed in the next three years. The excess profits must be invested in State securities, which remain the property of the company or firm, but are not disposable for the next three years. It is not clear if the limitation of dividends concerns only joint stock companies, or if it will be extended to private companies with unlimited liability which do not publish and are not obliged to compile yearly balance sheets.

The reinvestment problem will perhaps be the most thorny. During the war, when a similar kmitation of dividend was enacted, companies were free to invest non-distributable profits in the enlargement of their plants or operations. What will happen now if a company has to invest in new plant? Profits not being realisable, it will be obliged to resort to the market or to the banks, and to compete with the State for the supply of new savings. Probably application will be made to the Treasury for authorisation to invest excess profits. As the establishment of new plant or the extensions of old must already in most cases be authorised by the Government, the present dividend limitation will have the effect of extending the authorisation system to all companies or firms.

Not less significant is the imposition of a tax of 10 per cent, on all dividends, interest coupons, bonuses and benefits accruing to bearer shareholders and to debenture-holders or bondholders. Only State securities are exempt from the tax. This tax reproduces the main features of the 15 per cent, war-time tax, which was abolished at the beginning of the present regime. It is not a compulsory tax, as the holder, by registering the security, can avoid the liability to pay it. Its aim cannot therefore be considered mainly and directly fiscal. But it will induce a number of holders to register; thus reducing the possibility of evading the personal income tax (supertax, as distinct from schedule income tax, for which the problem of evasion does not exist). Possibly the most important result, however, of the tax, coupled with the limitation of dividends, will be to make variable-dividend and private fixed-interest securities more similar to State securities. Savers will not discriminate between State securities, which have a fixed capital value, and fixed-interest and variable-dividend securities, the income from which many people hoped to see rising in consequence of present circumstances.

Markets proved immediately sensitive to the changed outlook for security yields. The following table shows the nominal capital, the most recent dividend and the market price of several representative variable-dividend securities:

The Bank of Italy’s shares did not move, because they are registered and therefore not liable to the 10 per cent, tax, and also because dividends were already limited to 60 lire.

THE MOBILISATION OF FOREIGN SECURITIES. – The Stock Exchange was much less interested in the third emergency decree, which made it compulsory for Italian citizens living in Italy to cede against cash all credits held in foreign countries and to sell against nine-year Treasury 5 per cent, bonds all foreign securities (at the price current on August 28, 1935) and Italian securities issued in foreign countries (at the price current on December 8, 1934). On December 8th it was declared compulsory to make a statement of these credits and securities; and a part of them has already been sold by agreement to the Treasury. The amount of the remaining part, which the Treasury can now take over, is not known. Two authoritative statements can be quoted: 1) Signor Azzolini, Governor of the Bank of Italy, in his report of March 30, estimated at about 6,000 million lire the investments made by Italians in foreign countries from 1928 to May, 1934. Investments previous to 1928 ought to be added; and investments in unsaleable securites, in frozen credits, in lands, real estate and industrial ventures must be deducted; 2) Signor Angeloni, Commercial Counsellor to the Italian Embassy in Washington, estimates at 388.5 million dollars the total amount of Italian securities issued in the United States. Reimbursements reduced the total to 282 million dollars, of which about 50 per cent, are held by foreigners. The Italian Treasury, therefore, can still purchase the rest, viz. about 140 million dollars, which are the property of Italian citizens living in Italy. A part of this has already been purchased since December 8, 1934.

The Italian economic system is being more and more controlled by State Agencies. The recent creation of a Government monopoly for coal, tin, copper and nickel was designed to facilitate purchases and payments through the State Railway Agency, and the limitation, by order of the Superintendent of foreign exchange, of private compensations between imports and exports to amounts included in the general import quotas, excludes the possibility of increasing imports against old exports. Before December 31, 1937, all motor vehicles used for public or private passenger transport must be adapted from oil or nafta to gasogenous or other substitute systems. Industrial autarky is expected to reduce the deficit in the balance of foreign payments. So far, however, the task is proving extremely arduous. In the first seven months of the year, imports decreased from 4,572.5 in 1934 to 4,412.3 million lire in 1935; but exports decreased from 3,023.5 to 2,816.6 millions, leaving an import surplus of 1,595.7 this year against 1,549 millions in 1934.

Turin, September 8.