Too debt it's too much deficit: Italy continues to present "excessive macroeconomic imbalances". In particular, "although there have been some improvements, vulnerabilities related to high public debt and weak productivity growth persist, in a context of labor market fragility and some weaknesses in financial markets, which have cross-border relevance". But there are also other dark sides, starting from delays on the Recovery and Resilience Plan (PNRR) and on tax reform, that despite the recent measures for the EU nothing has changed.
That's what we read in Recommendations for Italy attached to the European Semester spring package presented today, Wednesday 24 May, by European Commission. On the basis of these recommendations, governments prepare their budgetary and economic policy choices for the coming years. And although Italy, like other countries including France and Finland, do not meet the debt criterion, Brussels believes that this is not a problem "given the prevailing economic conditions". And he does not consider it justified to open an excessive deficit procedure for the current year. But the Commission said it would propose to the Council to "launch deficit-based excessive deficit procedures in spring 2024, based on outturn data for 2023". And he warns "Italy should take into account the implementation of the 2023 budget and the preparation of the draft budget for 2024".
So, nothing infringement procedure for this year (also given that the Stability Pact is still suspended) but perhaps for next year yes. And it's not a warning empty.
Italy should reduce its deficit and debt if it wants to avoid the procedure
Il public deficit of Italy fell from 9% of GDP in 2021 to 8% in 2022, while public debt fell from 149,9% of GDP at the end of 2021 to 144,4% at the end of 2022. “On 24 May 2023 the Commission published a report discussing Italy's fiscal situation, as in 2022 its general government deficit exceeded the Treaty reference value of 3% of GDP, while its public debt exceeded the 60% of GDP reference value treaty of XNUMX% of the GDP value and did not respect the debt reduction parameter. The report concluded that the deficit and debt criteria were not met,” the Commission writes.
As regards the debt/GDP ratio remains elevated, and will increase further without measures. “The debt-to-GDP ratio further declined in 2022 along with the economic recovery. However, it remains high and poses a substantial challenge to fiscal sustainability. The ratio is expected to decrease further by 2024 but increase in the medium term in the absence of consolidation measures”, continues in the document.
For 2024 comes the cap on spending
And then the roof on primary expense within 1,3%. In any case, the EU recommendations indicate that "with unchanged policies, the Commission's estimates predict that national primary expenditure is expected to grow by 0,8% next year, ie below the recommended level". The expenses that Italy will bear to deal with the consequences of the bad weather in Emilia-Romagna will in principle be considered temporary measures and, therefore, will not be counted as such in the total expenditure for the purposes of European surveillance.
High tax wedge, doubts about the flat tax
The Commission is also clear on the front of fiscal policy: this will have to be prudent and invites Italy to "further reduce taxes on labor and make the tax system more efficient by adopting and duly implementing the enabling law on tax reform", preserving the progressivity of the system and improving equity, in particular rationalizing and reducing tax expenditures, including VAT and environmentally harmful subsidies. And the EU urges once again to "align the cadastral values with current market values". And then he expresses his own doubts about the flat tax. “The extension of the flat-rate scheme to self-employed workers raises concerns about the fairness and efficiency of the tax system. The introduction of a new flat-rate scheme on pay increases for 2023 has also added complexity. In March 2023, the government adopted a new enabling law for a general reform of the tax system".
PNRR remains priority, push on green transition
“The implementation of PNRR remains the fundamental political priority as it includes global reforms and significant investments”, with these words Brussels takes back our country on the funds of the PNRR. Then the recommendation to "ensure effective governance and strengthen administrative capacity, in particular at the subnational level, to allow rapid and constant implementation of the recovery and resilience plan. Quickly complete the chapter REPowerEU to quickly start its implementation. Proceed with the rapid implementation of cohesion policy programmes”. Finally, the call to “reduce dependence on fossil fuels. Streamline authorization procedures to accelerate the production of additional renewable energies and develop electricity interconnections to absorb them. Increase internal gas transport capacity to diversify energy imports and strengthen supply security”. The European Commission calls for "increasing energy efficiency and promoting sustainable mobility" by accelerating the introduction of recharging stations.
