Shipping Subsidies – Financial Assistance to Shipyards -Public Revenue

«The Economist», 10 marzo 1923, pp. 544-545

Turin, February 27

Two Royal Decrees have been issued this month regulating shipping services and shipbuildings, two main causes of huge after-war expenses to the Treasury. Before the war shipping services cost the Italian Exchequer in subsidies 25,980,400 lire for annual voyages of 3,920,469 miles; to which were to be added an annual subsidy to the “Neerland” Company for a bi-monthly call at Genoa of one of its regular lines. The Austro-Hungarian Monarchy paid a subsidy of 13,803,630 kronen to companies now Italianised for a total yearly mileage of 3,760,232. The rise of costs during the war threatened to bankrupt all the companies; so that, after various experiments, the State requisitioned subsidised ships, paid all expenses, and received all freights. Companies became mere agents for Exchequer account, and received, in addition to the reimbursement of the current actual expenses, a percentage from 10 to 17 per cent, of freights and other revenue. Although the companies were thus interested in increasing revenues, expenses soon greatly exceeded receipts. The last two financial years closed thus:

For the current financial year 1922-23 the loss was estimated at 160 million lire for Italian services, and 140 for ex-Austro-Hungarian services, making a total loss of 300 million lire. The late Cabinet had made plans for returning to the old system of definite subsidies; the present Cabinet has carried this out. In virtue of agreements with the several companies (18 in all), the State will pay, as from January 1, 1923, an annual total subsidy of 147,290,000 lire for a total mileage of 3,522,820 miles. Of these 2,029,802 miles are said to relate to lines between the Continent and Italian Isles and colonies and other similar postal lines, while 1,493,018 miles relate to commerce. It is very difficult to say whether the cost to the Exchequer, especially of the commercial lines (postal lines are naturally to be run at loss), will be compensated by indirect advantages to the public. Where figures bearing on the question are available they make us doubtful. On the Genoa-Bombay line passengers were 3,478 in 1910-11, and after going to a maximum of 5,484 in 1912-13 relapsed to 3,014 in 1920-21. Goods carried at the same dates were 53,214, 63,290, and 41,355 tons. Not very good figures for justifying the huge subsidy paid by the State for the apparent purpose of promoting trade between Italy and India.

Another Decree regulates the difficult matter of encouragement to shipbuilding. Before the war there existed in Italy 10 shipyards, with a maximum building productivity of 80,000 tons yearly. The union of new provinces (Trieste and Istria and Litoral) added to this number six ex-Austro-Hungarian shipyards, some of them very good. Unfortunately, the after-war fever and some injudicious encouragement given by the Government added to the said number 11 other new shipyards. The productivity of all these old and new shipyards together can be now estimated at 250,000 tons yearly. The offer of new ships is thus much in excess of the maximum demand on the part of Italian shipowners, which, including demand from abroad, is well below 200,000 tons.

The new Decree has the great merit of not having accepted the request made by some shipyards, that the Government should order directly new ships for its own account, and should order them proportionately to the productivity of the shipyards, so that all could remain in existence. This would have been the best way of continuing the present unsafe state of things, as all 27 shipyards would have survived. As 27 are too many, some of them are bound to be dismantled. The sooner this happens the better. But the Decree has not accepted the conclusions of a Naval Engineering Congress held at Genoa in the last days of December, which were in favour of the unlimited freedom of import of all material for shipbuilding. The Genoa meeting held that Italian shipyards would be capable in the main of meeting the competition of British or other foreign shipyards, if only they were enabled to buy materials in the best market. The Government apparently was not persuaded that this was the case as yet. After July, 1926, freedom will be granted to all imports needed for building ships, and at the same date premiums and other encouragements will cease. But for the intermediate period an intermediate system is to be maintained. Freedom of imports is only granted to metallic materials needed for the hulls of the ships, up to a maximum of 480 kilograms for every gross ton of ships. If, however, shipbuilders buy the same materials on the internal market, they will receive a premium of 120 gold lire per ton of material. As compensation for the higher cost of building in Italy, as compared with foreign countries, a premium of 55 gold lire is granted for every gross ton and for metallic hulls. If hulls are to be made in cement the premium is of 20 gold lire; if in wood of 15 gold lire. Exemption from the income-tax is granted for five years to all ships coming into effective navigation not later than December 31, 1923. The period of exemption is reduced to three years if ships enter into effective navigation as from January 1, 1924, to December 30, 1926. Special regulations are enacted for minor points. These grants will cost to the Exchequer 34,700,000 lire in the financial year 1922-23, 42,700,000 lire in 1923-24, and in 1924-25, and 29,900,000 in 1925-26.

That public revenue is stationary is the first impression made by figures of the first seven months of the financial year 1922-23, from July, 1922, to January, 1923:

But the figures, if justly interpreted, tell a more encouraging tale. Decreases in the yield of the income and stamp and registration taxes are due to transient reasons. In the income-tax category the decrease of 182.4 millions lire is the net result of a decrease of 435.6 millions lire in the war-profit tax yield, and of an increase of 253.4 millions lire in the various permanent taxes on incomes. That the war profit tax yield is gradually disappearing is natural, but that other income-taxes give so much more is an encouraging fact in view of the difficult economic period through which Italy, as other countries, is passing. The decrease of 75.3 millions lire in the yield of stamp and registration taxes is also the net result of a huge decrease of 151.5 millions lire in the stamp tax on bank of issue circulation, and a rise of 76.2 millions lire in all other stamp and registration duties. As a rise in the stamp tax on currency can only be the result of inflation, so the decrease is the result of deflation. So far the deflation is limited to one or two billions of lire, but none the less it is a gratifying fact, and therefore the corresponding decrease in the revenue is to be regarded also without regret.