Considerations on the Evolution of the National Budget Functions: From Internal Relevance to External Value

Abstract

The paper is concerned with the interrelationship between the national budget, the role of the State in the economy and the public financial situation existing during different historical periods beginning with the unification of Italy. The paper examines the functions of the national budget during the Liberal, Corporatist and Republican periods, and how these have changed as a result of institutional changes, and developments in the socio-economic situation which have influenced economic policy. We focus particularly on the public accountancy reform of 1923–1924 which, in combination with administrative reform, contained some important innovations. The system that emerged is found to have been clearly connected with that of the previous period, the innovations being based on the tenets of liberal ideology and the efficiency of the public administration. In this context the centralisation of the General Accounting Office in 1923 is seen as the result of actions begun during an earlier period. On the other hand, the national budget continued to carry out the functions of regulating the relationship between the various sections of the Government. Nevertheless, although the necessity was felt at this time to control the financial flows, it is only with the advent of the Republican State that the budget takes on an instrumental role in influencing the economy. During the Republican period, the relationship between the institutions and the economy changed, with public finance becoming the hub of economic development and the national budget developing a new function, with the use of government spending for macroeconomic purposes.

Keywords:

• Italy
• public accountancy
• national budget
• economic history
• audit system
• deficit spending

Notes

1. The Albertino Charter in 1848 provided for ‘ministerial responsibility’ (see Calandra, 1978: p. 18).

2. This policy reached its aim only in 1870. Through different events the public accounts situation remained basically the same up to the beginning of the First World War.

3. On the debate between economists of the time regarding the economic policies of the period, including the views of liberal interventionists and the protectionistic measures of the end of the century, see. Cardini (1981: pp. 5–66 and 291–329).

4. On the evolution of public administration organisational formulae see Massera (1994: pp. 25–34).

5. Mussolini rose to the presidency of the council of ministers at the end of 1922 and exactly one year later administratve and National Budget reforms were initiated. Thus 1923 marks, in the accountancy area, what will later be referred to as an element of open ‘discontinuity and continuity’ of the corporatist period with that of the liberal period.

6. For further details, see Castronovo (1995: p. 252); Zamagni (1981: pp. 28 et seq.) highlights that ‘the financial tributary politics of De Stefani was undoubtedly very decisive and coherent with the declared objective of re-establishing the most favourable conditions for the formation of the free initiative’.

7. Before 1859 the various states, excluding the Duchy of Parma, each had an Audit Court. Under the 1862 law the duties of the court included the control and the ‘evaluation’ of pensions and the State accounts, thus forming the original format of accountancy control jurisdiction. In consequence, by enlarging the territories’ competence, a traditional duty would be assumed thus increasing and integrating the power of surveillance of public management.

8. Article 18 of the Cambray-Digny Law stated that ‘the central accountancy office will keep in evidence the results of the accounts of the payments and collections of the public incomings and outgoings by the double entry method. The same was to be the case regarding the variations that occur in the consistency of the heritage of State property and collateral’.

9. Article 307 of the accountancy regulation stated that ‘the accountants of the central administration will keep in mind the administrative facts in their findings considering that their duty consists of regulating the national budget even if the payments do not arrive in the same year. The acts that are State responsibility (called appropriations) will not be valid without the approval of the accountant. These accountants will complete a monthly report of the acts previously mentioned and send it to the general accountancy office’.

10. This fact appears to emerge from an analysis of Article 305 and the accountancy regulation approved with RD 5852/1870. In particular, at times the articles concerning the accountancy Office and Audit Court controls follow but indistinctly. Point no.1 of Title 7, ‘regarding state expenditures’, defines the general dispositions and states in Article 320 that ‘the accountancy office checks the legal cause and the reason for the expense and checks that the law has not been compromised. Then it files an order of payment relevant to the budget item and article’. In Article 324, with reference to the Audit Court, it is specified that ‘these orders of payment completed as described earlier are sent to the Audit Court, which will approve them providing that no law has been broken, and the expenditure is of a valid nature and the cost is correctly referring at the budget item and not exceed the appropriation’.

11. The main strategy of the time was without doubt cost leadership.

12. The ‘Menichella line’ (Menichella was a Governor of Bank of Italy who did accept Keynesian theory) favoured private investment. Menichella disagreed with the view that unemployment was structural and he opposed policies directed towards financing investment (see Zamagni, 1981: p. 67; Toniolo, 1979: p. 70).

13. It was in this period that the Italian industrial model was born, based around a few large enterprises (e.g. FIAT, Pirelli, Marzotto, etc.) and many small and medium sized firms.

14. These dualisms refer to (Graziani, 1983: p. 35):

•	Distance between the rate of development of the northern as compared to the southern regions;
•	Differences between industrial and agricultural sectors;
•	Differences between different industrial sectors;
•	Differences between private consumers and the public consumer;
•	Differences between the per-capita income of the urban and the rural areas.

15. It should be stressed that the increase in public spending arising at the end of the 1960s was caused by a re-definition of the Walfare State, reflecting a new idea of the national health care service and the social security system. In particular, this affected the current account section of the budget in relation to items such as direct transfers to household, enterprise and the public sector, excluding interest and labour.

16. This fact resulted in a revision of monetary policy, which shifted from being stable to variable, coming to be used for financing public spending in line with Keynesian thought (see Modigliani & La Malfa, 1966; on stop-go policy, see. Montanaro, 1969).

17. Moreover, with this law a classification was introduced of the expenses related to a specific target, programme or project annexed to the balance. Thus, the costs and the results for each target, programme or project was demonstrated. Over time, these rules failed to be applied, but were re-discovered in the 1990s. It is what Italian authors today refer to as the programme Budget or Budget for the programme. Moreover, with the Law no. 468 was re-introduced the balance of the Budget deleted as a result of the reforms at the beginning of the twentieth century.