“The Government has passed a budget law in the name of stability and continuity with the policies implemented by Mario Draghi. Precisely for this reason it was appreciated by Brussels and by the markets as much as ours spread compared to the German Bunds it fell below 190 points. This does not mean that there are no critical aspects concerning three chapters in particular: pensions, flat tax, appropriations for the Health".
Stephen Micossi, an economist trained at the Bank of Italy, with experience as general manager in Brussels, has recently left the direction of Assonime, a position he held for 23 years. Look realistically at maneuver 2023 which certainly had to be prepared in a short time, but which nevertheless managed to give a reassuring image of the country and of the new government.
However, there was no shortage of criticism, even very harsh, from the opposition and some grumbling was also heard in the ranks of the majoritya.
“The attacks by the opposition seem to me largely hypocritical as precisely those aspects are contested that until recently were on the agenda of the parties that were part of the Draghi government. Overall, all you do is ask for more expenses. Even the changes to the Citizenship Income they were desired by the previous government and even the 5 Stars had not denied this possibility. Also in this case we will have to wait for the overall reform to pass a judgement. Perhaps the grumblings coming from the ranks of the majority are to be viewed with some apprehension because many of the promises made during the electoral campaign were not followed up. It is to be hoped that there are no battles in Parliament to obtain changes that would jeopardize the financial balance and blow up the extremely tight deadlines within which the maneuver must be approved”.
Critical points: Flat tax, pensions, health care
From the point of view of quality, however, there are aspects that raise many concerns. They are yielding to electoral promises even if small sums have been dedicated to them, a bit like in the tradition of Italian financial institutions.
“Among the most critical points is the raising of the Flat tax at 85 thousand Euros. A measure that could have much greater effects than those foreseen as there is a risk of undermining the income tax base in this way. It shouldn't be difficult for the self-employed to split their income between various people or companies, in order to stay within the cap. In short, we could have negative effects for public finances that are more than proportional to the expected increase in the ceiling. The second critical aspect concerns the new quota for the pension advance. How can we think of further increasing the already very high pension expenditure and destined to rise further in the coming years also as a result of the adjustment to inflation which for 2023 alone is worth over 8 billion? Furthermore, we have already seen that sending people into early retirement does not promote growth and does not make jobs available for young people.”
Then there is healthcare for which around 2 billion seems to have been raised, a figure that is not adequate to cover the higher costs due to inflation and to satisfy the needs of the sector.
“Our health system has certainly had merits for how it dealt with the pandemic period. Yet there is a certain hostility from sectors of the majority towards the strengthening of health care with a different presence on the territory and towards the strengthening of the workforce. In short, an open chapter to be studied carefully.”
Most of the budget resources are dedicated to limiting the effects of high energy costs on households and businesses. And yet the sum allocated ensures coverage only for the first three, maximum four months. And what can be done after that?
“I am confident that the peak in energy prices has been passed and that those prices will not be repeated. There is gas around the world, it is a matter of organizing them quickly infrastructure to download it in our country. Oil also fell to levels just above 80 dollars, high but which we had already touched in the past. We therefore hope that, even beyond the evolution of the war situation, the energy market can find its greater stability.”
Brussels' proposal on gas price ceilings does not seem to have satisfied anyone.
“A roof that doesn't bite. The EU has proposed a temporary intervention intended to take place only in exceptional circumstances which, however, do not appear probable at the moment".
Pnrr: don't ask for referrals to Brussels but simplify the bureaucracy
The real challenge to avoid the recession the government will have to play on the Pnrr with respect to which it seems that delays are accumulating due to the bureaucratic difficulties for the opening of the construction sites of all the main projects envisaged in the plan. We are therefore unable to spend the money that has already arrived and we risk not meeting the commitments to be able to take the new installments. An ancient vice is that of not being able to make public investments.
“First of all, the decision to concentrate all available European resources in the hands of Minister Fitto seems correct to me (the same Pnrr and the Cohesion Fund) in addition to Italian complementary fund of 30 billion. In this way, the minister will be able to reallocate the money among the various funds in order to keep the works ready to go ahead, overcoming the political difficulties that an operation of this kind certainly entails.
As we move towards the concrete realization of the projects obstacles, bureaucratic and judicial, they will be colossal. To overcome them, it is first of all necessary to have the courage to expand the simplifications involving all projects. It is necessary to prevent a Superintendency from blocking the works on sometimes absurd pretexts (in Piombino they said that the color of the regasification ship was not right) or from a small group of so-called ecologists contacting the TAR as happened in Bari, to block an important railway link.
Last but certainly not least, there is the question of dialogue with Brussels to change the project as the government parties had said during the election campaign. Some, like the minister for the South, think it would be appropriate to ask for a time extension within which to implement the projects of at least two years. That would be a big mistake. I hope that Minister Lease will stick to the schedule and use the flexibility already considered in the plan for the use of funds and to adapt to the increase in material prices. If we were to start with the postponement, then it means that the bet of making investments worth as much as 40 billion a year can already be considered lost.
Instead, the government, and the prime minister herself, will have to maintain very strong pressure on all the structures for the respect of the times and perhaps intervene with further decrees to simplify procedures and to overcome obstacles. On the other hand, I think it is clear that our chances of maintaining a certain rate of economic growth are linked precisely to the implementation of this plan, including the reforms associated with them. That of Justice was only postponed by two months. But there shouldn't be any further extensions."
The ECB has lost credibility: now it must send clear signals
Lastly, monetary policy and the role that the ECB is playing in containing inflation. Many think that caution will be needed in tightening the purse strings.
“This time the budgetary policies of the States, including Italy, have a moderately restrictive sign and therefore are not leaving the ECB in coping with theinflation. In addition, most of the public resources are intended to contain the effects of inflation on people's incomes with temporary aid on wages and on the reduction of energy bills. Consequently, wages' run-up to inflation is not starting, which would trigger a spiral of increases between prices and wages that would have deleterious effects on the entire economy.
And yet the current ECB suffers from a problem of credibility as it has so far not sent clear signals to the market. Until June he said that inflation was temporary and therefore there is no need to intervene. Then he said that we must continue with the restrictive policy until the price increase is defeated. Now he is debating how strong the squeeze must be to avoid too great a damage to economies beyond what is necessary to contain prices. Certainly inflation is not easy to beat, but this time there is the possibility of avoiding a serious recession, governments and the central bank must move cautiously in the same direction. “
