Italy. The budget deficit

«The Economist», 11 gennaio 1936, p. 69

At the meeting of the Cabinet on December 20 the Finance Minister presented the final figures of the Budget for the financial year ended June 30, 1935. The deficit amounted to 2,030 million lire; or 398 millions less than the provisional figure reached on June 30th. Of the final deficit, 975 million lire is due to extraordinary expenditure in East Africa, 840 millions to a grant in aid of the State railways, and only 215 millions to the ordinary Budget. At the same Session the Minister presented the estimates for the year 1936-37, beginning on July 1st next. With revenue estimated at 20,312 million lire and expenditure at 20,291.5 millions, this Budget should close with a surplus of 20.4 million lire.

The most interesting item in the 1936-37 Budget is the disappearance of the State railways deficit. The Minister stated that this was due to two factors: (1) the increase in freight rates; and (2) the increase in the taxation of motor vehicles carrying goods. The new tax, he said, would accrue to the general Exchequer; and the Treasury would thus be enabled to reduce its financial claims against the Railways Administration. This seems to mean that the annuity for the service of a part of the railway debt created on July 1, 1905, has now been charged to the General Exchequer. The question who should pay this charge has long caused friction between the State railways and the Treasury. The Railways complained that they were burdened by a debt created for building and enlarging a railway whose purpose was mainly that of national defence and general economic progress rather than transport alone.

That a surplus was possible for 1936-37, the Minister added, was due to the exclusion of expenditure on the East Africa campaign. Only interest on the contemplated debt was included. It would be clearly impossible, he said, to provide for war expenditure in the ordinary way; and it was useless to include figures, which, at the best, would have been only guesses.

FINANCING WAR EXPENDITURE: That the Government revenue can be estimated at 20,312 million lire, against 17,998.4 in 1935-36, and 17,611.8 for 1934-35, may be taken as the effect of two causes: (1) the gradual improvement in economic condition since the bottom was touched in 1932; (2) the detailed reforms in the taxation system. During the last session there were laid on the table of Parliament – and will shortly be voted, with minor amendments – two big legislative decrees on the income tax and succession, registration, exchange, stamp, etc., taxes, which will go very far to fill any hole still remaining in the fiscal net. Various method of evading the income taxes and estate taxes will now be prevented. This means of increasing the revenue is certainly preferable to the imposition of big taxes. From time to time, especially since the beginning of the East African campaign, the air has been full of rumours of new big schemes of taxation; but the Finance Minister has so far refrained from experiments.

For the present, ways and means for financing the war expenditure are being found, so far as internal expenditure goes, in the yield of the conversion of 3.1/2 per cent. Redeemable Government stock into 5 per cent. consols. The total amount extant of 3.1/2 per cent. Redeemable stock is 61,000 million lire. It appears from statements in the daily Press that more than 30,000 millions have been converted, and applications are well on the way towards the 40,000 millions mark. This should give to the Treasury up to 6,000 million lire of new money. And, if the subscription list is not closed, a continuous rivulet of new money should be forthcoming during the whole of 1936.

Now that the conversion is in a fair way to succeed, the price of 3.1/2 per cent. Redeemable stock is improving. In November its buying and selling prices were as far apart as 62 and 68. Now, after a 1.3/4 per cent. dividend has been paid, the minimum is 64.55 and maximum 64.70; which means that the market is much more easy. The firmness of Government securities has also reacted favourably on the ordinary share market. Following the August and September slump, which resulted from legislation restricting dividends and the 10 per cent. tax on bearer dividends, the average index number of security prices (Milan Economic Board) touched bottom on November 2nd at 66.19, against 76.53 on August 2nd. On November 9th the index number of variable dividend securities had risen to 67.68. Statistical publications have since been stopped; but individual prices point to a strong market. The control of foreign trade and the exchange structure is becoming more centralised. Professor Felice Guarnieri, who was appointed last spring as Superintendent of Foreign Exchanges, was yesterday promoted to the newly created post of Under-Secretary of State for Foreign Trade and Exchanges. The National Institute for Foreign Trade and the National Institute for Foreign Exchanges are to be subordinated to the new Under-Secretary, who is, in his turn, directly dependent upon the Prime Minister. As the National Institute for Foreign Exchanges, which has the monopoly of all transactions in foreign exchanges, works through the agency of the Bank of Italy, the connection between Bank and Government is bound to become more and more close.