In Italy there is neither the Republican Party nor the Tea Parties which in the US are keeping Obama in check to force him to reduce spending without touching taxes, with the risk of bankrupting the country. But the behavior of our government is no different. Not to mention that taxes will be increased and, indeed, in anticipation of their (impossible) reduction, the Minister of the Economy has launched a budget package full of fragmented interventions across the board. Thus it is very difficult to understand the effects of this maneuver on the economy and its real capacity to reduce the deficit permanently. I know I am saying something very unpopular in Italy at the moment, but I believe that, under these conditions, it would have been fairer and more transparent to raise taxes. Taxation, due to its nature, is progressive in nature, while the risk of a thousand interventions on spending is undoubtedly regressive, as is highlighted by many. And so it will be the weakest who will end up paying the most. This will eventually lead to a rejection of these measures with the risk of thwarting the objective of permanently reducing the public deficit.
Let's just take a few examples. Healthcare bills will increase, which will increase the contributory burden on the sick. A solidarity contribution will be requested for pensions exceeding 90.000 euros a year and indexation will be blocked for those exceeding 2.380 euros a month. From an accounting point of view, these measures are marked as a reduction in public spending, but in reality for the people they are an increase in the tax or contribution levy. Wouldn't it have been more logical to say, for example, that taxes should be raised above 90.000 euros a year? If that figure is considered high for a retiree, it must be the same for an income or annuity recipient, who also has its good deductions. If it had been chosen to raise the direct tax on all income above that figure (including pensions), it would have been fairer and more efficient from the point of view of containing the public deficit.
But, it is said, an increase in the tax burden has depressive effects on the economy. In reality, the reverse is true, at least immediately. It is the reduction in public spending that slows down domestic demand, more than the increase in taxes. If taxes are raised for those with higher incomes, they end up being paid, at least in part, with a levy on savings, while consumer demand remains unchanged.
However, it is argued that a real reduction of the public deficit has been made only by the countries that have lowered public expenditure, while those that have increased taxes have ended up increasing spending as well. Very true. But countries that cut government spending did so through structural changes to spending mechanisms that took time to translate into deficit reductions. In the short run everyone resorted to increased revenue. Italy, which would like to reduce its deficit over the next 3 or 4 years, should have intervened immediately with a tax increase and then with a change in spending mechanisms, launched today but which would have produced results tomorrow.
On the positive side, however, there is the speed with which this maneuver was launched and we need to invest in this for the future. We are still in time to implement real reductions in public spending through structural changes, such as the unification of the 8.000 municipalities and the diffusion of IT systems in the Public Administration, which elsewhere have managed to reduce the need for work and improve the quality of services to citizens .
