Public spending: a European comparison
The review of public spending in Italy has historically been the subject of debate. In recent years it has regained strength as a result of the difficulties that the Italian economy and public finances are going through. Social and political parties, public opinion and academics are divided on the approach to follow, preferring a more expansive or more restrictive solution depending on the theoretical approach.
The European comparison allows us to draw a first conclusion regarding the Italian case. On the one hand, the level of public spending largely follows that of the other European economies. From the point of view of composition, on the other hand, it presents some evident peculiarities: a divergence in the values for interest expenditure (about double that of the main European economies) and the high value of pension expenditure can be distinguished. In particular, the latter appears to be approximately 3,5 percentage points of GDP higher than the European average, and increasing compared to the differential of 1,5 pp in 1995. As regards the expenditure of the individual Italian public administrations, it is noted a transversal tendency to reduce capital expenditure in favor of current expenditure. In fact, between 2008 and 2015, while public investments in real terms decreased by 30% (with a peak in municipalities, where they decreased by 32%), primary current expenditure increased by 1,6%.
The evolution of the debt/GDP ratio and the contribution of local authorities
The need to conduct rigorous fiscal policies has been dictated over the years by a stock of public debt which in terms of absolute value has no equal in Europe and, in relation to GDP, is second only to that of Greece. The article analyzes the dynamics of the debt/GDP ratio with a particular focus on the years of the crisis, highlighting the contribution of Local Authorities to budget consolidation policies. In particular, in 2016, Local Administrations contributed to the achievement of the national primary balance by 27,5% even though they represented only 4% of the total public debt. This consolidation inevitably had an impact on investment spending, one of the most productive items of public expenditure.
In the debt/GDP variation between 2008 and 2016, growth is precisely the element that was missing. The positive contribution of the primary surpluses, in fact, was more than offset by the joint effect of the dynamics of interest rates and the low nominal growth of the GDP. Finally, the study compared alternative scenarios for the evolution of the debt/GDP ratio, envisaging more expansive policies on the side of local public investments. In particular, if Local Authorities had been allowed to "spend" the accumulated primary surplus on new investments, the debt/GDP ratio could have been reduced by about 4 percentage points in 2016.
The financing of investments in the integrated water system
The Italian Integrated Water System (SII) suffers from important infrastructural deficiencies. Just to mention a few data: in 2016, 35% of the water introduced into the network did not reach the end users and 22% of pipelines are over 50 years old, compared with an average useful life of around 40 years. An estimated investment requirement of 25,3 billion euros is estimated to cover the modernization needs. Despite the significant steps forward made in recent years – such as the establishment of a specific independent authority (AEEGSI) and the introduction of regulatory schemes that allow tariff adjustments in line with the investments made – the diversification of investment funding sources remains a fundamental point to favor the progressive adaptation of the performance of the water sector to European standards.
Investments in new generation networks.
The crucial role of territorial administrations
In the broadband and ultra-broadband sector, huge investments are needed in high-speed and high-capacity digital networks, in order to bridge the digital gap that still distances us from most European countries. The Government Plan has already obtained the first positive results. Private investments in the two-year period 2015-2016 alone increased by 32%; public intervention has also guaranteed additional financial resources in so-called market failure areas. In this context, local administrations can play a fundamental role, favoring the reduction of bureaucratic times, promoting public-private partnerships and making the most of national financial instruments and the funding opportunities offered by the European Union.
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Attachments: Cdp Local Finance - Report 3/2017
