ITALY S ECONOMIC AND FINANCIAL DOCUMENT 2017 (DEF) AGE Italy / Claudio D Antonangelo Content and comments The Council of Ministers approved on 11 April 2017 the 2017 Economic and Financial Document (DEF) 2017 and the correction of public accounts for the 2017, which amounts to 3.4 billion euros. The DEF consists of three sections, with some attachments: Section I: Stability Program of Italy Section II: Analysis and Trends in Public Finance Section III: National Reform Program (NRP) Stability program In the 2017 Stability Program the Government assesses the progress made and the results achieved so far, in order to guide future economic policy choices as well. The following data is provided: - Gross domestic product (GDP) performance: it returned positive (+ 0.1% in 2014, + 0.8% in 2015, + 0.9% in 2016). The Government's goal is to speed up the growth through the reform and investment program that will be implemented and enriched with new initiatives. - Number of jobs: + 734,000 compared to September 2013. Thanks to the Jobs Act measures, the number of inactive persons, the unemployment rate and the use of the Gain Integration Fund (CIG) have decreased. - Household consumption: + 1.3% in 2016. - Deficit / GDP: the deficit in relation to GDP dropped from 3.0 per cent in 2014 to 2.7 in 2015 to 2.4 in 2016. - Primary advancement: 1.5% of GDP in 2016. - Tax pressure: from 43.6 per cent in 2013 to 42.3 per cent in 2016. - Total tax rate for businesses: decreased. The government says it will continue the economic policies adopted since 2014 to reduce the excessive tax burden and to boost investment and employment, while respecting budgetary consolidation needs. For 2017 the growth forecast of 1.1% is confirmed, while for 2018 and 2019 a prudent forecast is adopted. In 2018, growth will fall to 1% from the original forecast of 1.3% and in 2019 to 1% rather than 1.2%, due to "a particularly stringent fiscal policy" that "is part of the European agreements. " According to recent macroeconomic estimates, debt is down from 132.6% of GDP in 2016 to 132.5% in 2017 and is expected to fall to 2018 at 131% and 128.2% in 2019. The structural deficit objectives for the coming years have been confirmed and the budget balance remains fixed in 2019.
PUBLIC FINANCE OBJECTIVES - Differences compared to previous Stability Program 2016 2017 2018 2019 TASSO DI CRESCITA DEL PIL REALE Programma di Stabilità 2016 1,2 1,4 1,5 1,4 Programma di Stabilità 2017 0,9 1,1 1 1 Differenza -0,3-0,3-0,5-0,4 INDEBITAMENTO NETTO (in % del PIL) Programma di Stabilità 2016-2,3-1,8-0,9 0,1 Programma di Stabilità 2017-2,4-2,1-1,2-0,2 Differenza -0,1-0,3-0,4-0,3 DEBITO PUBBLICO (in % del PIL) Programma di Stabilità 2016 132,4 130,9 128 123,8 Programma di Stabilità 2017 132,6 132,5 131 128,2 Differenza 0,2 1,6 3 4,4 With regard to safeguard clauses (increase in VAT), which are still foreseen for 2018 and 2019, the Government states that it intends to replace them with spending and revenue measures, including further counter-evasion measures. This objective will be pursued in the 2018 Budget Law. One element of novelty included in DEF 2017 is the inclusion of four fair and sustainable welfare indicators, "as an integral part of the economic strategy." These are the average available income, the inequality index, the rate of non-participation in work and the parameters related to CO2 emissions and other degraded gases. The government emphasizes that Italy is the first EU country to include these parameters, albeit experimentally. In fact, to plan the economic policy, the GDP-related goals are not enough anymore, we have also to consider other dimensions to value the equitable and sustainable families well-being. National Reform Program (synthesis) The National Reform Program sets out specific areas of action to achieve the Europe 2020 Strategy goals (economic growth, employment, poverty alleviation and sustainability). The structure of NRP 2017 follows a dual track, short and medium-term. Priority Actions - revitalizing the way of economic liberalizations, through the parliamentary approval of the Law for the Competition; - privatization of State-controlled companies and public property; - approval of the of the Penal process and limitation of the prescription reform; - increase the efficiency of the judicial system; - change the tax burden to boost economic growth; - productivity measures; - collective negotiation reform in competitive recovery key; - Fully implement the poverty alleviation strategy outlined in the law adopted by Parliament in March.
The six areas of NRP 2017 in the medium term Debt and public finance - public debt reduction strategy (privatizations, public property sale, rationalization of holdings and revenue from public concessions); Taxation, fight against evasion and spending review - reducing the tax burden on production factors; - efficiency of the tax system; - reinforcing action against tax evasion; - third phase of spending review. Work, welfare and productivity - active labour policies; - stimulus of research; - targeted interventions on lower family incomes; - measures to support family welfare; - policies to stimulate growth and productivity; - sustainability of pension expenditure; - the protection of young people's future pensions; - strengthening of the pension second pillar. Credit system - adoption of European best practices in the management; - improvement of the legislative framework on insolvency. Competitiveness, the judicial system and the public sector - Implementation of the justice reform measures already in place; - Harmonization and implementation of court performance in qualitative and quantitative terms; - completion and implementation of the Public Administration reform; - rapid approval of the Annual Competition Law; - development of Italy's competitiveness with the measures contained in Industry Plan 4.0. Investments, territorial rebalancing and Mezzogiorno (South of Italy) - public investment increase; - security of the territory; - simplification and transparency of public procurement procedures; - Strengthening the fight against corruption; - policies for territorial rebalancing. On these issues, in accordance with the European guidelines on the National Reform Programs, the Italian NRP provides an assessment of the reforms and the specific European Commission recommendations implementation, outlining also the actions to achieve the results. NRP - Inclusive growth and reduction of inequalities
The NRP devotes a paragraph to actions for inclusive and equitable growth, starting from the fact that the economic crisis has increased the inequalities within society both in terms of income and opportunities. The government identifies among the factors of this process the globalization of the economy, technological change, demographic trends and migratory flows. These are complex phenomena that involve challenges for all, institutions to businesses, Workers and citizens. It is necessary to promote policies for more inclusive growth. The reform actions introduced in the NRP 2017, such as the National Poverty Plan, support for women and youth employment, the saving guarantees, the support for entrepreneurship, the right to study and health, Family and disability assistance and care, equal opportunities and more, have been integrated into a strategic context based on three main components: the definition of the National Strategy for Sustainable Development; periodic monitoring of objectives through performance indicators such as those of "well-being", introduced experimentally in Economic and Financial Document 2017, which represent a key resource for monitoring progress in reducing inequality in multidimensionality of "well-being"; Gender budgeting, which allows to check annually and in the budget cycle the policy action effort and to share it with the various actors involved in implementing gender inequality reduction policies. NRP - Focus on the fight against poverty To address the poverty problem, the Government has implemented a strategy based on the law on the Poverty Reduction Act, definitively approved by Parliament in March 2017. It represents a "historical step" towards the introduction of a universal measure of economic support to families in poverty. The law authorizes the Government to intervene in three areas: A) Adoption of Inclusion Income (REI), as a national measure of poverty reduction, with a progressive widening of the number of beneficiaries, reaching more than 400,000 households for a total of 1 million and 770 Thousands of people, and a redefinition of the economic benefit (however affected by participation in social inclusion projects); (B) Reallocation of welfare benefits aimed at the fight against poverty (purchases card and unemployment allowance); (C) Strengthening the coordination of social services interventions. The total resources allocated are 1.18 billion for 2017 and 1.704 billion for 2018. Inclusion Income is primarily intended for families with children in absolute poverty and will be assigned only by adhering to a personalized project of social activation and inclusion. It is envisaged to strengthen territorial services, even utilizing the resources of the European Social Fund. Further law measures are also envisaged to reorganize the welfare benefits and the coordination of social services interventions. About the elderly in poverty, PNR mentions the measures contained in the 2017 Budget Act, which provide for the strengthening of the lowest pensions through an increase of the
14th retirement monthly and the extension of the no tax area to pensioners less than 75 years aged. NRP - Focus on Welfare and Pension The Economic and Finance Document also takes into account the aging of the population and the sustainability of the social security system, focusing in particular on the measures introduced by the 2017 Budget Law on pensions and welfare. As far as pensions are concerned, the NRP recalls the measures taken with the latest Budget Law to make the social security system more flexible than the rules introduced by Legge Fornero in 2011, as well as those aimed at increasing the low retirement benefits and those that go in the direction of supporting the labour market through contributory reductions. Such measures, however, would not modify the structure of the pension system and the long-term sustainability of the system is preserved. PUBLIC EXPENDITURE FOR PENSIONS IN% OF GDP (Forecasts) From 2015, in the presence of a more favorable growth trend and the gradual continuation of the process of raising the minimum retirement requirements, the ratio between pension expenditure and GDP decreases for a period of about fifteen years, standing at 15.1 percent around 2028. In the following 15 years, due to the strengthening of the negative trends of demographic dynamics and the effects on retirement benefits, the ratio between pension expenditure and GDP grows until 2044, reaching 15.6 percent.
In the final part of the forecast period, the ratio declines significantly to 13.7 percent in 2060. The decrease is mainly due to the completion of the shift from the mixed calculation to the contributory system. To "make the pension system more equitable and flexible while guaranteeing the sustainability of the social security system" the National Reform Program envisages the following action: "Enforce the implementation rules of the measures contained in the Budget Law. Interventions on disadvantaged workers' contribution paths to ensure adequate retirement coverage. Strengthen and facilitate the second pillar of supplementary pension." Concluding remarks Despite some progress made by the government in terms of employment, recovery in consumption, GDP growth - which remains the lowest among the European Union countries - the economic recovery in Italy is still too fragile and is heavily influenced by the huge public debt, the unfinished reform process and the uncertainty and instability of the political-institutional system. DEF 2017 is in such a difficult situation, and despite the intention of the Government to continue in the ambitious reform action launched in 2014 for the structural change in the country's economic and social context, the choices made in terms of interventions and Investment appears to be weak and hardly able for a stable and propulsive recovery towards the competitiveness of businesses, employment and the well-being of citizens. Moreover, programming remains strongly conditioned by the presence of safeguard clauses, Which is worth EUR 19.6 billion for 2018, although the government's intention to disband them partly is due to the 2017 Maneuver and partly to the 2018 Budget Law. In such uncertain framework, especially at the political and institutional level, Italy appears more vulnerable to international eyes, and this is reflected, for example, in the recent decision of the Rating Fitch Agency, which without valid contingent reasons has lowered the Italy s rating, and the position of the International Monetary Fund, which has given to Italy the last place in the growth rate among European countries. Obviously, this also affects the prospects for the well-being of the Italian citizens and - as far as we are concerned - of the elderly, as there are no real and decisive measures in the DEF to bring an important part of the population out of a situation of great social and economic discomfort. The Government demonstrated some sensitivity to the problem by the introduction in the DEF of some fair and sustainable welfare indicators as elements to monitor economic and social trends in order to guide policies. The adoption of the law for the fight to poverty and the implementation in the National Reform Program of the DEF are an important step towards establishing a fair, universal, inclusive national measure for disadvantaged people, with the goal of their social and work integration. And the effort to finance the law is important (1.18 billion for 2017 and 1.704 billion for 2018).
But this effort is largely inadequate and the elderly are currently excluded from the benefits of the law. This while ISTAT points out that 11.9 percent of Italians, 7.2 million people, live in families who experience "severe material deprivation" conditions, and the index of deprivation has deteriorated for older people (over 65 years), moving from 8.4% to 11.6%. We appreciated the recent measures contained In the 2017 Budget Law for Retirees (14th Monthly Pension and No Tax Area), but they are not exhaustive to alleviate the conditions of elders. Much more is needed and a comprehensive project of integration in society is required. With regard to the social security component, it is positive that pension expenditure remains sustainable after the changes to the Fornero law and it is right the government's willingness to go ahead with the rapid implementation of legislation on retirement flexibility. Lastly, with regard to health, the programmatic spending forecast for the three-year period 2018-2020, which indicates an average annual growth rate of 1.3 percent, could lead to further resource constraints and lower performance of the public health. It is also worrying the private consumption in healthcare increase, as families, including many older people, have to pay the costs directly to safeguard their health. In this regard, we can take the Senate Health Committee's opinion on the need for more resources for Health in the DEF and the Budget Law. The Committee has put forward some proposals, including the identification of one or more individual and collective health indicators, uniform health protection from North to South of the country, and the restoration of the nature of tickets as a tool to regulate demand and not as a source of funding for the National Health Service.