The words of Bankitalia and Parliamentary Budget Office do not inspire optimism about the health of the Italian economy. A new round of hearings in Parliament on Budget law highlighted the difficulties of economic activity and the need for effective measures to stimulate growth. In a context of uncertainty and concern, experts warn that, without a significant acceleration, the development goals set for the future may remain unattainable.
Risks to economic growth
“According to recent data, which are still insufficient to paint a complete and reliable picture, economic activity would struggle to regain momentum in the final part of this year,” he said. Andrea Brandolini, deputy head of the Economics and Statistics Department of the Bank of Italy during the hearing on the budget law in the Budget Committees of the Chamber of Deputies and the Senate. However, there is a light at the end of the tunnel: "Looking ahead, the reduction in interest rates and the recovery of households' purchasing power could provide a positive boost to the economy." But not everything is rosy: Brandolini warned that "in the absence of a significant acceleration of economic activity in the final part of this year, the growth in output envisaged in the PSB for the two-year period 2024-25 appears more difficult to achieve."
The analysis by the Upb also highlighted the risks related to economic growth. During the hearings, the President Lilia Cavallari stressed that the macroeconomic picture shows signs of slowing, with Italian GDP showing signs of stagnation in the third quarter of 2024 and a moderate recovery expected in the fourth quarter. However, the Upb warned that these forecasts are subject to several downside risks. According to simulations carried out with the Upb's MeMo-It econometric model, the impact of the maneuver on GDP will be in line with government forecasts, but with a slightly different temporal distribution, highlighting lower margins in 2025 and more marked effects in 2027.
Tax Reform: Confusion and Inequality
Brandolini then analyzed the theme of tax wedge cut, stating that “the definitive confirmation of the cut to the tax wedge on dependent work eliminates an element of regulatory uncertainty. In its new version it does not affect social contributions and therefore avoids producing imbalances in the social security accounts, a concern raised in the past by us and other observers”. However, he warned that “the overall effect of the intertwining of the new rules with the pre-existing ones and the use of different calculation bases (income from dependent work and total income) for the determination of benefits will have to be studied carefully”.
In parallel, Cavallari analyzed the fiscal maneuver, calling it “complex” and at times “not very intelligible”. The tax reform, which includes Irpef, bonuses of up to 20 thousand euros and deductions from 20 thousand to 40 thousand euros, seems to widen the already notable differences in tax treatment between the various categories of taxpayers such as employees, pensioners and self-employed workers. In particular, for those who earn more than 50 thousand euros, the differences in tax treatment are eliminated, while the complexity of the tax measures makes it difficult for recipients to understand. The president warned that “the tax reform, while being a step in the direction of containing tax expenditures, would require a more organic approach to their rationalization to avoid increasing the complexity of the system”.
Focus on deductions
Brandolini then analyzed the maneuver's approach on deductions, stressing that it “may prove effective in reducing the amount of tax expenditure, compared to attempting to selectively intervene only on some.” However, he warned that the design based on fixed thresholds for income brackets “inevitably generates discontinuities that could be significant and compromise the fairness of the tax.” Furthermore, he added: “The measures aimed at reducing the tax burden for low-income employees, the changes and additions to the set of transfers in favor of families and the interventions on deductible charges do not, however, make the system of personal income taxation and social transfers simpler and more transparent.”
The president of the Upb also spoke about deductions and the introduction of the family quotient. “Although the reform is a step towards containing tax expenditures, a more organic approach to their rationalization, to avoid increasing the complexity of the system". And although the maneuver seems in line with the objectives of the Stability Plan, the Upb has highlighted some critical issues: "The full implementation of the part of the fiscal delegation that concerns businesses seems not to have started yet", Cavallari stated, expressing concern for the lack of a clear plan that supports the companies and promote the investments.
Health service financing: risks and critical issues
Bankitalia has addressed a crucial issue: the Health. Over the next decade, the turnover of healthcare personnel and the strengthening of territorial assistance envisaged by the PNRR will give rise to a significant need, with a demand for medical personnel (including pediatricians and general practitioners) equal to 30% and for nurses at 14%. These data, presented at the hearing, highlight the imminent challenges, especially in the South, where the dynamics are even more marked.
The Upb also shared concerns about the financing of the NHS. Despite an expected increase, this will grow at a slower pace than health spending, leading at risk of regional deficits. In 2026, health spending will return to 6,4% of GDP, the pre-pandemic level, but the Upb has warned that without adequate financing there will be a significant increase in the deficit in regional health services, even beyond 2027. Despite the lack of staff remains the main criticality, "no funding is planned for new hires", Cavallari noted. The funds will be mainly allocated to contract renewals and some allowances, to the detriment of a strengthening of staff. "Another group of measures is in favor of some private entities that operate in healthcare and in the pharmaceutical field".
Pensions: measures with limited effect
With regard to pensions, the budget bill confirms the main temporary channels for early exit from the labor market and introduces a tax incentive for remaining in work beyond reaching the ordinary retirement requirements. Cavallari stressed that “the effectiveness of these measures will depend on workers' response to the incentives,” while Brandolini highlighted that the conditions for accessing these measures remain stringent, suggesting limited participation.
Territorial Authorities: Opportunities and Risks
Finally, the maneuver concerns the Territorial bodies on two levels: on the one hand, measures that ensure their contribution to public finance balances and compliance with the new European rules; on the other, rules for the strengthening of certain types of current expenditure. However, according to Cavallari, the tightening on current spending could translate into inefficiencies, with the risk that the accumulation of constrained resources leads to suboptimal use. The challenge therefore remains to ensure that resources are used effectively, for the benefit of local communities.
