Differentiated autonomy: because it risks increasing inequalities and ruining public finances. CPI Report

The debate ondifferentiated autonomy, sanctioned by Calderoli law, is inflaming the Italian political landscape. The central idea is simple: allow richer regions to retain more of their taxes, instead of transferring them to the state. But this change, apparently advantageous for the Northern regions, hides pitfalls that could destabilize the public accounts and hit hard the Noon, potentially deprived of resources and services. The effect could be an accentuation of inequalities and a threat to the country's economic balance.

What, then, are the real economic and political implications of this law? And how could it affect public finances? One answers these questions studio ofObservatory on Public Accounts (CPI) of the Catholic University, led by Giampaolo Galli.

What is differentiated autonomy?

The Calderoli law is based on a principle established byarticle 119 of the Italian Constitution, which provides that the regions can manage a part of the taxes collected and participate in the revenue from state taxes. In practice, the law provides that regions with greater fiscal capacity can retain a higher share of the taxes collected in their territory.

This principle, although clear on paper, faces several challenges in practice. In fact, each region must guarantee the Essential Performance Levels (Lep), i.e. minimum standards of public services. This could limit the ability of richer regions to accumulate excess resources. Furthermore, a joint State-Region Commission will monitor and adjust the tax sharing rates to maintain the balance between the needs of the different areas.

Application challenges

THElegislative process for differentiated autonomy was characterized by intense political discussion. The reasons of the South and the needs for equalization between more and less developed regions were strongly represented, even within the government majority. This has created a complex and nuanced picture, with detractors warning of the risks of inequality and disadvantages for the southern regions.

Furthermore, there are two reasons main ones that make this law problematic. First, Italy has a problem public accounts: a centralized system allows the State to manage resources and guarantee a balanced distribution which reassures the markets and the Minister of Economy regarding the maintenance of accounts. Without centralized management, the risk is of compromising economic stability. According to GDP of the South it is only 22% of the national total. If the Northern regions reduced transfers to the South, the South could find itself in serious economic difficulties.

Differentiated autonomy: the effects on public accounts and the South

To evaluate the potential impact of the law, the simulation proposed by Cpi uses data on tax residues calculated by the Bank of Italy for the year 2019. These data offer a cross-section of public revenues and expenditures by region and show how the Center -The North contributes significantly to the state budget, while the South receives resources from other regions.

Here are some key observations:

1. According to data from the Bank of Italy relating to 2019, i tax residues – i.e. the difference between public revenues and expenditures in different regions – show a clear disparity. Regions with negative residuals contribute positively to the state budget, while those with positive residuals benefit from it. There Lombardia, for example, contributes with a budget surplus of 56,8 billion euros, a figure that represents almost 60% of the positive fiscal residue of the Center-North and 90% of that of the Noon. This indicates a significant contribution of the richer regions to the state budget.
2. La Campania it has the highest positive fiscal residue among the southern regions, with 16 billion euros. They follow Sicilia e Puglia with positive residuals of 14,2 billion and 12,7 billion euros respectively. At an aggregate level, the Centre-North contributes almost 100 billion euros to the national public budget, while the South receives around 64 billion euros in net transfers. This creates a national primary balance of 31,7 billion euros, equivalent to 1,8% of GDP.
3. Impact of withholding: if the regions of the Centre-North retained their entire fiscal residue, the cost to the State would be approximately 95,9 billion euros, equivalent to 5,3% of the national GDP and 24% of the GDP of the South. This scenario clearly illustrates how difficult it would be for the State to manage such a large reduction in transfers without seriously compromising the Southern regions.
4. Screenwriting realistic: in a more moderate scenario, where the Central-Northern regions with negative fiscal residues decided to retain two points of their regional GDP, the national primary balance would worsen by 1,4 percentage points of gross domestic product. This worsening would be permanent and could translate into a reduction in spending for the South equal to 6,2% of its GDP, with potentially disastrous effects.

Simple arithmetic shows that any attempt to increase resources for the Central-Northern regions, penalizing the South, could have devastating consequences for the economic and social balance of the country. The Calderoli law and differentiated autonomy must address these problems carefully avoid compromising stability andequity of the national tax system.