The Italian budget (I)

«The Economist», 9 gennaio 1909, pp. 56-57

The terrible disaster which has befallen one of the most beautiful regions of Italy has called forth the sympathy and assistance not only of Italians, but of foreigners. Large voluntary subscription funds have been raised, but they are not enough; and it seems probable that the Government will devote to the most urgent cases some thirty million lire, part of the surplus realized in the last financial year (1907-8). But the sums needed are vastly larger than that figure, and as the current Budget and next year’s will close (apart from the disastrous earthquake) with small surpluses, it is evident that Italy will have to take one of these three courses: retrenchment of expenses, new taxation, or debt. Any one of these courses would be readily accepted, as in these days of misfortune the patriotic feeling of the nation has been aroused to the highest point. It is a pity that the Italian Budget is no more in the brilliant situation which, from 1901 to 1907, would have permitted the application of thirty or forty millions of lire for several years to the aid of the desolated provinces.

The Budget speech of the Minister of Finance and the publication of important Parliamentary documents make it possible to give a picture of Italian finance up to date. We are at a turning point in the financial history of our country, as will be seen from the following tables, which set out the Budget surplus or deficit for the last 18 years:

The years from 1890 to 1898 were among the worst in our national finance. The Abyssinian War, the banking crisis, the Protectionist tariff, the riots in Sicily, in the Southern Provinces, and in Milan exercised a sinister influence on the State Budget. The surpluses were few and small, and the deficits great. But the deficit taught our governing classes the beneficent lesson of parsimony and curtailment of expenses. The Opposition papers ridiculed the Cabinets, which courageously tried to reduce expenditure, with the nickmane of “compagnia della lesina” (“skin-flint company”), but their work proved beneficent. In the meantime, despite the Protectionist tariffs which surrounded us in foreign countries, and despite the national tariff, which drew our capital into unnatural channels, agriculture and industry made great progress in Italy; the banking crisis was overcome, the Italian Rentes were again quoted at 100 and over, and as the paper circulation, not covered by metal reserve, was reduced, the agio insensibly dwindled. These facts reacted favourably on the State Budget, and the following were years of surpluses:

The acme of prosperity was attained on June 29, 1906, when the Italian Parliament, amidst loud cheers, voted the conversion of the Rentes from 4 per cent, to 3 3/4, and after five years to 3 1/2 per cent. The conversion of this enormous debt of 8,000,000,000 lire was accomplished without difficulty, and, indeed, with such success that it enhanced the credit of the Italian State.

But the great surpluses were a danger. Year after year the income of the State went on increasing, making it tempting to incur new expenses. The contemporaneous increase in private incomes and the progress in industry and commerce led to a crisis, which culminated last November, the full consequences of which have not yet been seen (see Economist, July 25 and August 22 and 29, 1908, on “Italian Bourses”). In State finance we have not had a crisis, but undoubtedly the situation calls for great prudence. The Budget for 1906-7 closed with a surplus of 89,999,285 lire. Some of this was not real, having been obtained by artificial devices, on which it would take too long to dwell. The fiscal year 1907-8 closed with a surplus of only 39,857,850 lire, from which sum must be deducted 3,310,094 lire, representing the accounts remaining over from past years, so that the real surplus must be put at 36,547,757 lire. The first estimate of the Budget for the current year 1908-9 closed with a surplus of 43,613,757 lire. Various subsequent Parliamentary votes introduced variations in income and expenditure, so that in the revised Budget the estimated surplus is reduced to 16,092,632 lire, from which before the end of the year various items will have to be deducted, in consequence of Bills involving expenditure not yet voted by Parliament. The Minister of Finance is compelled, therefore, to estimate the real surplus at only 3 million lire. Probably the surplus would have been greater, as the figures of the items of income are calculated too low, but the extraordinary expenses and the reduction of income consequent on the ruin of Messina and Reggio Calabria render the surplus very doubtful. Nor are the estimates for 1909-10 better, as it is calculated that the final surplus will not exceed the sum of 5 million lire.

The chief cause of the progressive dwindling of the surpluses is the continuous increase in public expenditure in the years after 1897-8. The actual expenditure, which had been reduced from 1,774,983,122 lire in 1890-1 to 1,669,168,155 lire in 1898-9, went on increasing afterwards, till in 1907-8 the figure of 2,251,747,240 lire was attained. The all-important cause of this increase in expenditure has been the raising of the salaries of public servants. One after another, all classes of public servants, from the highest State Councillors down to the humblest letter-carrier, have clamoured for a higher salary, to meet the enhanced cost of living. In the years 1905-9 this cause alone has produced an increase of 115 million lire in public expenditure. Another cause of increased expenditure has been the clamour for public works. In the same years there were voted: 1) 31,975,100 lire for land drainage and improvement in malarial regions, highways, &c; 2) 25,000,000 lire in State aid to the building schemes for transforming the capital (Rome); 3) 137,043,000 lire to harbour works; 4) 15,000,000 lire to land and hydraulic works in Sardinia; 5) 28,500,000 lire in aid to regions damaged by earthquake in Calabria, by the eruption of Vesuvius &c; 6) 551,500,000 to new railways construction.

Who can wonder that Mr Carcano, Minister of Finance, in his last Budget speech, dwelt at length on the urgent necessity of putting a stop to the increase of unnecessary expenditure?

(To be continued)