Budget Committee Report – Tax Burdens – Problem of Arrears

«The Economist», 11 gennaio 1930, pp. 69-70

Turin, December 26

Recent reports on the Budget by Signori Olivetti and Magrini, on behalf of the General Committee of the Chamber of Deputies, and by Signor Mayer for the Senate Finance Committee make interesting reading. They are more interesting because more critical than most analogous reports before the Fascist regime. Criticism is levelled, in the first place, against the increasing taxation burden. Here are reproduced the final figures of an interesting table by Olivetti and Magrini. The figures summarise the total revenue and expenditure of the State for the years from 1922-23 to 1927-28, for which accounts are closed. According to our budgeting system, the figures include all revenues and expenditures pertaining to the respective fiscal years (July 1st to June 30th), taking also into account revenue due but not received and expenditure due but not yet actually effected. The revenue figures which follow are net, and, owing to various other arrangements to make them comparable from year to year, they are not exactly the same as those published in the gross revenue accounts (in milliards lire):

Revenues were received and expenditure made in paper lire at the value current from time to time. “Present lire” figures are added, however, in order to show what would have been the burden of taxation and the amount of expenditure if the same monetary unit, the present lira at the legal rate of stabilisation, had been current throughout the period. Viewed in this way, revenue was but slightly increased from 1922-23 to 1925-26, and expenditure was diminished in no small proportion, so that the great feat of changing a deficit of 2,500 million lire (in present lire) into a small but highly significant surplus was achieved. Revaluation in 1926-27 and stabilisation in 1927-28 gave a rude shock to this process. Revenue and expenditure remained about the same, and even slightly decreased in actual paper lire; but in terms of “present lire” the burden gready increased, expenditure going up about 30 per cent, and taxation becoming more and more burdensome. Signori Magrini and Olivetti conclude that State expenditure was not appropriate to the changed value of the lira. This is indeed the crucial point of every revaluation process. Revaluation means contraction of prices and of private incomes; but State expenditure is mostly fixed and cannot be contracted, so that the burden on taxpayers increases. Years must pass before the old equilibrium between private and public expenditure is restored.

The second criticism of the Budget Committee of both Chambers of Parliament relates to “arrears”. This is probably something of a mystery for British readers, who are accustomed to their cash budgeting system. In Italy we budget on the basis of revenues which are actually received plus revenues which are due at the end of the fiscal year, and of expenditure made and remaining to be made. Therefore, side by side with the current yearly budget we carry on a separate budget of arrears to be received and expended. This double budget makes it possible, argue Parliamentary Committees, to charge a given expenditure on the arrears instead of on the current budget, making the latter appear better than it ought to be. It is not easy to estimate the importance of such a criticism; but it is certain that the condition of the exchequer is determined by the sum total of actual receipts and issues, whatever the year to which they refer, without regard to the revenue still to be cashed and expenditure to be made. The Chamber Budget Committee has made some interesting calculations, and we publish their final “adjusted” comparable figures (in milliard lire):

In the total receipts arrears play a minor part, while about a third of the total payments are in arrears. Each year the exchequer pays only about two-thirds of the current expenditure, and passes on the remaining third as arrears. To obviate such a situation, section 6 of the statute of December 9, 1928, enacted that the fiscal year, though ended as usual at June 30th, should have a sequel in July, being finally closed at July 31st. During the month of July, 1929, we had thus for the first time a double budget -the old 1928-29 budget ended at June 30, 1929, but not yet closed, and the new 1929-30 budget. It is hoped to get rid in this way of a part of arrears which are received and paid shortly after the end of the fiscal year.

A third source of criticism by the Budget Committees is the growth of the habit of spreading certain expenditure to be made in a given period over a longer series of fiscal years. According to a table published by both Chamber and Senate Committee, the sum total of the expenditure to be thus charged on the budgets from 1929-30 to 1938-39 amounts to 28,858 million lire. This is wholly apart from permanent expenses, such as public debt interest, pensions, salaries, etc., and to that extent the elasticity of future budgets is impaired. These and other minor criticisms seem severe; but the Chamber of Deputies Budget Committee observe that it is the duty of the new Corporative Chamber to restore the financial control of Parliament to its ancient traditions, which were almost forgotten in the last years of the parliamentary regime. The Committee’s strictures provoked some reaction in the Assemblies: Signori Zingali in the Chamber and Rava and Raineri in the Senate maintaining that arrears on the expenditure side had already diminished from 43.06 at June 30, 1923 to 18.97 million at June 30, 1928, and were bound to decrease further; and that the taxation burden was not so grievous as it was made to appear in the Commitee reports, as the national income had not decreased in proportion to the revaluation of the lira. Statistics are lacking on the respective variations of public expenditure and national income; but the parliamentary discussion very usefully pointed out the necessity of keeping a keen eye on the tendency of public departments to increase their expenditure. The hero of the debate was a man unknown to the public at large, che Accountant-General of the State, Signor De Bellis, to whom all orators paid homage as the man to whose lot falls the ungrateful task of saying “No” to all claiming a right to dip their hands into the public purse. Truly, in his capacity of watchdog, Signor De Bellis has saved billions to the public exchequer.

Budget Committee Report – Tax Burdens – Problem of Arrears

«The Economist», 11 gennaio 1930, pp. 69-70

Turin, December 26

Recent reports on the Budget by Signori Olivetti and Magrini, on behalf of the General Committee of the Chamber of Deputies, and by Signor Mayer for the Senate Finance Committee make interesting reading. They are more interesting because more critical than most analogous reports before the Fascist regime. Criticism is levelled, in the first place, against the increasing taxation burden. Here are reproduced the final figures of an interesting table by Olivetti and Magrini. The figures summarise the total revenue and expenditure of the State for the years from 1922-23 to 1927-28, for which accounts are closed. According to our budgeting system, the figures include all revenues and expenditures pertaining to the respective fiscal years (July 1st to June 30th), taking also into account revenue due but not received and expenditure due but not yet actually effected. The revenue figures which follow are net, and, owing to various other arrangements to make them comparable from year to year, they are not exactly the same as those published in the gross revenue accounts (in milliards lire):

Revenues were received and expenditure made in paper lire at the value current from time to time. “Present lire” figures are added, however, in order to show what would have been the burden of taxation and the amount of expenditure if the same monetary unit, the present lira at the legal rate of stabilisation, had been current throughout the period. Viewed in this way, revenue was but slightly increased from 1922-23 to 1925-26, and expenditure was diminished in no small proportion, so that the great feat of changing a deficit of 2,500 million lire (in present lire) into a small but highly significant surplus was achieved. Revaluation in 1926-27 and stabilisation in 1927-28 gave a rude shock to this process. Revenue and expenditure remained about the same, and even slightly decreased in actual paper lire; but in terms of “present lire” the burden gready increased, expenditure going up about 30 per cent, and taxation becoming more and more burdensome. Signori Magrini and Olivetti conclude that State expenditure was not appropriate to the changed value of the lira. This is indeed the crucial point of every revaluation process. Revaluation means contraction of prices and of private incomes; but State expenditure is mostly fixed and cannot be contracted, so that the burden on taxpayers increases. Years must pass before the old equilibrium between private and public expenditure is restored.

The second criticism of the Budget Committee of both Chambers of Parliament relates to “arrears”. This is probably something of a mystery for British readers, who are accustomed to their cash budgeting system. In Italy we budget on the basis of revenues which are actually received plus revenues which are due at the end of the fiscal year, and of expenditure made and remaining to be made. Therefore, side by side with the current yearly budget we carry on a separate budget of arrears to be received and expended. This double budget makes it possible, argue Parliamentary Committees, to charge a given expenditure on the arrears instead of on the current budget, making the latter appear better than it ought to be. It is not easy to estimate the importance of such a criticism; but it is certain that the condition of the exchequer is determined by the sum total of actual receipts and issues, whatever the year to which they refer, without regard to the revenue still to be cashed and expenditure to be made. The Chamber Budget Committee has made some interesting calculations, and we publish their final “adjusted” comparable figures (in milliard lire):

In the total receipts arrears play a minor part, while about a third of the total payments are in arrears. Each year the exchequer pays only about two-thirds of the current expenditure, and passes on the remaining third as arrears. To obviate such a situation, section 6 of the statute of December 9, 1928, enacted that the fiscal year, though ended as usual at June 30th, should have a sequel in July, being finally closed at July 31st. During the month of July, 1929, we had thus for the first time a double budget -the old 1928-29 budget ended at June 30, 1929, but not yet closed, and the new 1929-30 budget. It is hoped to get rid in this way of a part of arrears which are received and paid shortly after the end of the fiscal year.

A third source of criticism by the Budget Committees is the growth of the habit of spreading certain expenditure to be made in a given period over a longer series of fiscal years. According to a table published by both Chamber and Senate Committee, the sum total of the expenditure to be thus charged on the budgets from 1929-30 to 1938-39 amounts to 28,858 million lire. This is wholly apart from permanent expenses, such as public debt interest, pensions, salaries, etc., and to that extent the elasticity of future budgets is impaired. These and other minor criticisms seem severe; but the Chamber of Deputies Budget Committee observe that it is the duty of the new Corporative Chamber to restore the financial control of Parliament to its ancient traditions, which were almost forgotten in the last years of the parliamentary regime. The Committee’s strictures provoked some reaction in the Assemblies: Signori Zingali in the Chamber and Rava and Raineri in the Senate maintaining that arrears on the expenditure side had already diminished from 43.06 at June 30, 1923 to 18.97 million at June 30, 1928, and were bound to decrease further; and that the taxation burden was not so grievous as it was made to appear in the Commitee reports, as the national income had not decreased in proportion to the revaluation of the lira. Statistics are lacking on the respective variations of public expenditure and national income; but the parliamentary discussion very usefully pointed out the necessity of keeping a keen eye on the tendency of public departments to increase their expenditure. The hero of the debate was a man unknown to the public at large, che Accountant-General of the State, Signor De Bellis, to whom all orators paid homage as the man to whose lot falls the ungrateful task of saying “No” to all claiming a right to dip their hands into the public purse. Truly, in his capacity of watchdog, Signor De Bellis has saved billions to the public exchequer.