Italy. Stock exchange crisis over. Weakness of the lira. Inter allied debts New super tax. The increase of taxation since the war. Comparative burdens of taxations

«The Economist», 13 giugno 1925, pp. 1188-1189

Turin, May 31

Stock Exchange excitement entirely subsided during May. The last occasion for trouble was removed when the guarantee (cauzione) to be deposited by brokers was reduced by one-half. Securities are rising from the bottom prices reached in April, but it is as yet too soon to say if the recovery movement is to be short-lived or permanent. The rise of the foreign exchanges is depressing quotations of State securities, and pushing up those of variable dividend shares. The rise, as such, is violently resented in Italy, where the opinion is generally held that we do not deserve to follow the French franc in its down-ward course. Why the price of dollar, which averaged 21.83 lire in 1923, 22.95 in the first half of 1924, and 23.105 in the second half, should rise to the present 25 lire is not clear.

The pressure exercised by the United States for a settlement of our debt is accounted among the chief causes of the bad plight of the lira. Opinions of prominent American politicians, such as Senator Borah, do not take into account the true Italian case. Senator Borah seems to think that French and Italian taxpayers are very lightly taxed and able to bear new charges towards repayment on inter-Allied debts. Italian taxpayers are in a very different mood. To-day is the last day on which Italian taxpayers are called upon, for the first time in the history on united Italy, to hand to the revenue authorities forms for the declaration of income. Income-taxes hitherto were of the British income-tax type: scheduled, with deduction at source taxation, and a proportional constant rate. On the top of these income-taxes, taxpayers will this present year begin to pay a progressive, personal super-tax on total income. The taxation of incomes in Italy will therefore be as follows:

All income of whatever amount, however small, from land, houses, and capital pay the above rates; other incomes pay it when they exceed 435 to 800 lire yearly (at the present rate of exchange, when they exceed 4 to 7 pounds sterling yearly). Practically, as the minimum exempted is too paltry a sum to be noticed, all incomes are subject to the above taxes. In addition, incomes from land and houses pay heavy local rates, which send the total rate up to 25 per cent. of income. Incomes derived from other sources also pay local rates, but not to so great an extent.

On the top of the universal, proportional taxation sketched above there comes the new super-tax (complementare), which falls on the total of all incomes received by the taxpayer, his wife, and his sons of less than 21 years of age. The taxable income is the total of various incomes, less other taxes paid, national and local, insurance premiums, interest on debts, and less a deduction of 1-20^th of the net income for each dependent person (excluding himself and wife). The 1-20^th deduction cannot exceed 3,000 lire. The rate of taxation is as follows (the figures in parentheses are the equivalent in pounds sterling at the present rate of exchange, 120 = £ st. 1):

All the rates are to be increased by 20 per cent., as the municipal authorities have the right to superimpose a fifth of the State tax for their own benefit. If we add to the old universal tax on incomes, which takes from 5 to 24 per cent. of all incomes, the new super-tax, we get at a very nice total, especially on incomes below £ 166 sterling, which English and Americans usually exempt entirely from direct income taxation. As the great bulk of Italian incomes are under the £ 166 sterling limit, it is easy to compare the pressure of income-taxes between our countries.

As to incidence of total taxation (income, stamp, and consumption taxes), it is very difficult to make exact calculations. The effective yield of State taxes was as follows:

Ordinary taxes on incomes have increased sevenfold; taxes on consumption also have been multiplied almost by seven, while taxes on transfer of wealth are to-day more than nine times as high as in 1913-1914. The fall of the lira goes a long way toward explaining the rise in the yield, but something remains which is a true increase of final charges.

Total taxation (State and local), apart from the yield of public services, and the cost of goods sold by State monopolies, was calculated in pre-war days at about 2,500 million lire on a national income of about 20,000 lire. This is the most accurate estimate which I have seen. The rate of taxation in Italy in 1913-14 was therefore 12.50 per cent. What is the present rate? Calculating at 16,000 million lire the total State taxes (apart from the yield of public services, & c.) and at 4,000 million lire, the total local (municipal and provincial) taxes and rates, we get at a total taxation of about 20,000 million lire. A part of these 20,000 million lire are extraordinary taxes, but for practical purposes they are paid out of annual income; and they will be substituted by permanent taxation of some sort or other. What is the national income at present? In a time of fluctuating money it is almost impossible to arrive at an exact estimate, but I think that Professor Mortara’s figure of 90,000 to 100,000 million lire is as exact and scientific an estimate as can be made. On that basis the present rate of taxation (State and local) would work out at from 20 to 22.50 per cent. of national income. In a country where the average individual income is, always on the same basis, from 2,250 to 2,500 lire (from £ 19 to £ 21 sterling), a taxation burden of 20 to 22.50 per cent. (four-fifths State and one-fifth local) is indeed very high. An increase from 12.50 per cent. in pre-war days to 20-22.50 per cent. to-day is the utmost increase bearable by the average taxpayer. It seems very unlikely that even keen-eyed Senator Borah can discover revenue devices which our Finance Ministers have not already fully utilised. Perhaps super-tax rates on incomes above £ 2,000 sterling could be increased; but I fear that in a country of low average incomes, such as Italy, increasing of super-tax rates will not bring a farthing toward repayment of American debt, and only favour the flight of new savings away from the lira. The only asset known at present with which Italy – apart from the moral, political, economic aspects of the inter-Allied debts problem, which the Economist has frequently discussed – could pay something to British and American Treasury is the expectation of German Reparations. Unlike their French colleagues, Italian Finance Ministers have never made much capital out of German Reparations in balancing their Budget; and so it would not be very difficult to come to an understanding if both parties were persuaded to regard them as the only practical transferable asset.