Basic income, flat tax, anti-Fornero pension reform. How much space will there be in the next budget law for the three pillars of yellow-green contract? Not much, judging by the numbers that Treasury technicians have to deal with.
Completed the Via XX Settembre team with the appointment of Alessandro Rivera to the general management and the confirmation of Daniele Franco at the top of the Accounting Department, the Ministry of the Economy must already tighten the times on the Def. The update note must be presented by September 20, and it will not be easy.
The problem is that compared to the beginning of spring – when the Gentiloni government had presented an economic and financial document made up only of numbers and devoid of political commitments – the situation has worsened.
GROWTH SLOWS DOWN
First of all, Italian growth slowed down and estimates for next year have been revised downwards. In the March Def it was written that in 2019 the Italian GDP would grow by 1,4%, while now the forecasts fluctuate between the +1% calculated by the IMF and the +1,1% which the OECD agrees, European Commission and Parliamentary Budget Office.
The slowdown in the economy causes a drop in tax revenues and therefore, barring corrective measures, an increase in the deficit. According to Treasury calculations, in the best scenario – three tenths of growth less than forecasts – the slowdown will weigh on the state coffers by around two and a half billion.
THE SPREAD GOES UP
Then there are the interest on public debt. At the time of Gentilonia's Def, the spread floated around 120 basis points. Today it is over 230, almost double. A surge that will cost dearly: according to calculations by the Parliamentary Budget Office, 100 points more can be worth between 3,6 and 4,5 billion in additional interest expenditure.
THE THREAT OF VAT
After that you have to take into account the VAT safeguard clauses and unavoidable expenses. Only to prevent value added tax from increasing from 2019 January 10 (the reduced rate would rise from 11,5 to 22%, while the ordinary rate would rise from 24,2 to 12,4%), Italy will have to allocate in the next maneuver XNUMX billion.
THE UNDEFERRED EXPENSES
As for mandatory expenses – including the refinancing of missions abroad – the account for next year should amount to at least 3,5 billion.
THE 22 BILLION AND THE DEFICIT PROBLEM
Let's recap:
- 2,5 billion for lack of growth;
- 4 billion for additional expenses on public debt interest;
- 12,4 billion to defuse the VAT increase;
- 3,5 billion for non-deferable expenses.
Calculator in hand, basically the next maneuver already costs almost 22 and a half billion, equal to 1,2 points of GDP. If this sum were financed entirely in deficit, next year public administration debt would rise to 2% of GDP, while our country has pledged not to exceed 0,8%. The Treasury Minister, Giovanni Tria, has already explained that negotiations are underway with Brussels to revise the Italian deficit target for 2019, but a flexibility surplus equal to 1,2% appears completely unlikely.
It is true that, in all likelihood, the budget law will contain spending cuts and anti-evasion measures to reduce the impact on the deficit as much as possible. But it must be emphasized that that sum of over 22 billion – already the value of an entire maneuver – does not include none of the measures provided for in the government contract: neither the flat tax, nor the basic income, nor the anti-Fornero pension reform.
FLAT TAX, CITIZENSHIP INCOME AND PENSION REFORM
The flat tax, in the original version conceived by the Northern League, would cost between 40 and 50 billion, while the new M5S subsidy would require 17 billion to become fully operational. Sui costs of the pension counter-reformhowever, the most absolute uncertainty reigns: in the yellow-green contract there is talk of five billion, but according to Tito Boeri, president of INPS, "the overcoming of the Fornero reform through the 100 quota between age and contributions or with 41 years of contributions to any age would have an immediate cost of 15 billion and, when fully operational, 20 billion a year”. Whoever's right, finding this money is going to be the real fall puzzle.
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THE SUMMIT AT PALAZZO CHIGI
Just today, a government summit is being held at Palazzo Chigi on the contents of the next maneuver. Around the table, in addition to Prime Minister Giuseppe Conte and Treasury Minister Giovanni Tria, the two Deputy Prime Ministers Luigi Di Maio and Matteo Salvini and Foreign Ministers Enzo Moavero Milanesi and EU Affairs Paolo Savona. The Undersecretary to the Prime Minister, Gian Carlo Giorgetti, is also taking part.
"The maneuver - Salvini told Sky TG24 - will not immediately contain all the measures envisaged, but there will be the first steps towards the flat tax and a radical reform of the social security system".
Updated at 9:21am Saturday, August 4, 2018
