The need to redefine the maneuver, launched a few weeks ago with the aim of achieving a balanced public budget in 2014, could have been an opportunity not only to correct the previous and unreliable postponement of most of the adjustments to a post- electoral but also to introduce changes capable of eroding the widespread areas of income of our economy and to relaunch its growth.
This would have allowed the Italian government to achieve two significant results: to react positively to the substantial commissioning, suffered last week by the European Central Bank (ECB) and the 'strong' members of the European Monetary Union (EMU); implement the consolidation of the public budget and those structural reforms, which have been called for for some time to improve the competitiveness of our economic system and the fairness of our social system. On the other hand, caught between the vetoes of its main exponents, the government limited itself to carrying out the minimum task imposed by the ECB and the EMU (that is, the alleged bringing forward to 2013 of the balanced public budget) without worrying about the recessionary impact of the new measures. It has thus missed a unique opportunity to increase our growth potential and to recover internal and international credibility.
The new manoeuvre, which should lead to an adjustment of approximately 20 billion euros in 2012 and 25,5 billion euros in 2013, is centered on four cornerstones: a two-year increase in the IRPEF rates of 5%, for the part of gross income exceeding 90.000 euros per year, and 10% for those exceeding 150.000 euros per year in addition to the increase in the Irpef quota for the self-employed with incomes exceeding 55 thousand euros; a cut in transfers in favor of the regions and local authorities, which should also lead to a significant reduction in the number of public seats; the unification of the 20% tax rate on financial returns; an advance in the implementation of the tax and welfare delegation, capable of producing adjustments as early as 2011. I do not have the technical details to verify whether these four interventions are sufficient to approximate the quantitative objectives that characterize the new manoeuvre. It is certain that each of them raises some perplexities.
Due to the high tax evasion present in Italy, the two-year increase in IRPEF will mainly affect employees who belong to the middle class and who have a single-income family and the small group of those who report a medium-high and high income . In addition, this increase will further incentivize tax evasion and avoidance by the self-employed and entrepreneurs; which risks nullifying the government forecasts in terms of recovery of the tax evasion itself for well over two years. Alternatively, excluding a high one-off tax on movable and immovable assets, the Italian government could have reinstated the ICI tax on first homes, tighten up the ICI tax on second homes and return to that inheritance tax which represents a necessary condition for guarantee an “equality of opportunity”.
Furthermore, the indistinct cut of transfers to regions and local bodies risks translating into a weakening of the services and social protections provided in a phase of high unemployment and great hardship for the weakest sections of the population. If our government had really wanted to tackle the problem of the 'costs of politics', it could have suppressed useless bodies, proceeded with more selective efficiency recovery within the public administration and started a drastic and immediate reduction in the number of local bodies; by doing so, it would also have laid the foundations for a reform of the domestic stability pact and built a powerful incentive for the privatization of part of local companies. Finally, the adjustments, which should arise from the assistance delegation, remain entrusted to initiatives that still lack a well-defined content; and the linear reductions of the exclusion and tax exemption regimes, which should continue to take place within 2013 to compensate for the failed or inadequate implementation of this delegation, would be so regressive as to be difficult to implement.
The government has opportunely decided both to unify the tax rate on financial returns and to bring forward a marginal part of the reforms already approved in the field of social security. In both cases, however, the initiatives were too timid. The single rate on financial income should have been set at 23% instead of 20%; and the time advances on social security matters should have concerned all the decisions already taken, even if applying them only to workers belonging - in whole or in part - to the regime in force before the Dini reform, i.e. to the pay-sharing regime.
In addition to these four cornerstones, the new maneuver includes initiatives that can also be shared. This is the case, for example, for the commitments undertaken with respect to the disposal of publicly owned shares and the liberalization of some professional activities and some markets. However, these commitments remain so generic as to be unrealistic. Above all, they are unable to reverse the recessionary impact of tax hikes and indistinct spending cuts.
The new maneuver was, however, launched. The hope is that the ECB and the 'strong' members of the EMU are at least willing to acknowledge to the Italian government that it has carried out the task assigned to it, with the minimum vote sufficient to merit the temporary confirmation of the European protective umbrella over the securities of the sovereign debt. The quality of the maneuver is, however, such as to diminish the already low growth potential of the Italian economy and to reproduce the need for a European commissioner of our government. The doubt is that, for Italy, the most effective boost to growth and consolidation of the public budget remains the replacement of the current government with an institutional government capable of regaining our lost reputation at the European level.
* Professor of financial intermediaries at the University of Rome Tor Vergata and former president of Assogestioni
