Italy

«The Economist», 22 gennaio 1938, pp. 165-166

STATE EXPENDITURE. – Turin, December 26. – Recent debates in Parliament have thrown interesting sidelights on the condition of Italian finances. The general accounts for the financial year from July 1, 1935, to June 30, 1936, the accounts for 1936-37 and the estimates for 1938-39 have been discussed.

Effective revenue (not including debt items) and expenditure have been as follows in recent years:

In the effective revenue for 1936-37 were included the gain obtained from the alignment of the lira in October, 1936, part of the gold offered to the Treasury in December, 1935, and the yield of the redemption-price of the compulsory land and real estate loan of 1937. The amount of these three items was not stated; but from previous ministerial statements they can be estimated at about 3,000 million lire. The estimated revenue for 1938-39 also includes a non-recurrent item, i.e. the yield of the extraordinary 10 per cent, tax on the capital of joint stock companies.

These non-recurrent items can be regarded as temporary devices to smooth over the transition from past Budgets balanced at or about 21,000 million lire to future Budgets which will be balanced at from 25,000 millions to 28,000 millions, including all expenditure, normal and not recurrent.

The alignment of the lira involved a reduction in the purchasing power of the lira of about 41 per cent., which is equivalent to a rise in the general level of prices of 69 per cent. Thus a Budget of 21,000 million 1927 (Volpi) lire should be reckoned as equivalent to a Budget of about 35,000 million 1936 (Thaon di Revel) lire. Taxpayers will bear no greater burden under the Budget of 35,000 million new lire than under a Budget of 21,000 million old lire – though there are bound to be many frictions in the process of transition.

The level of prices in October, 1936, was probably higher than was warranted by the legal level of the lira; and in so far as the alignment legalised only facts already in being, the increase in the price level and therefore in the national income will not come up to the hypothetical 69 per cent. On the other hand, State expenditure is largely fixed, as in the case of interest on public debts, contractual payments and subsidies, or only partially variable, as in the case of pensions and salaries. The future Budget level can thus be estimated at half-way between the old 21,000 millions, and the hypothetical 35,000 million levels.

NATIONAL INCOME. – Before the war, when total taxation amounted to about 3,000 million lire, statisticians used to estimate the national income at 20,000 millions; the share of taxation was thus about 15 per cent. Present estimates of the national income are very uncertain. In the prosperity years, from 1922 to 1926, a figure of 120,000 millions was quoted. At the bottom of the depression, round about 1931-32, pessimists reduced their computation to 60,000 millions – which was unduly low. Probably the total national income is not less than the higher figure of 120,000 millions. How otherwise could the Italian people have paid about 30,000 million lire in taxes to the State and other public bodies in 1936-37, and at the same time have increased their savings?

Total time and current account deposits of all banks, including postal and ordinary saving banks and other deposit-receiving bodies amounted to 78,153 million lire at the end of 1933, and decreased to 74,245 millions at the end of 1935; they have now signally recovered to about 84,000 millions at the end of August, 1937. If we add in sums subscribed to State loans, Treasury bills (amounting now to 7,800,000 millions) and other loans, we reach a figure of from 25,000 millions to 27,000 millions as the estimate of total savings between January 1, 1936, and August 31, 1937.

Even if we deduct sums which are not properly new savings but merely reductions of trade stocks, there remains a substantial residuum of new savings. To this should be added the unknown sum of private investments in land improvements, new houses, new industrial plants and their enlargement. Even the hard-working and thrifty Italian small land-holders and artisans could not pay taxes up to 30,000 million lire in a year, and at the same time save not less than 15,000 to 20,000 million lire, if the total national income were less than 120,000 millions.

THE CAPITAL LEVY. – The Stock Exchanges do not appear to be unduly anxious about the extraordinary levy of 10 per cent, on joint-stock companies’ capital. Land and real estate companies, already hit by the compulsory 5 per cent, loan, will be able to deduct from their capital the whole value of the land and houses possessed. All companies are authorised to deduct the sums invested in State loans and also up to 75 per cent, of other companies’ shares which they happen to possess. Banks and companies receiving deposits are not subject to the capital levy, since their assets are fixed-interest bearing securities and did not benefit from the devaluation of the lira.

Joint-stock companies were authorised to issue new shares to raise the money to pay the levy. They are also authorised to transfer from reserves (even if hidden) to capital account a sum double that raised by shares issued against cash, giving to shareholders an equivalent number of free shares.