italy’s strategy for growth and fiscal consolidation · why is italy’s economy expected to...

Italy’s Strategy for Growth and Fiscal Consolidation Osservatorio Acquisti CartaSi 2013 Report

Milan May 9, 2013

Lorenzo Codogno

Italian Ministry of Economy and Finance, Treasury Department

Why is Italy’s economy expected to recover in 2013?

2

Monetary and credit conditions: interest rate spreads narrowing and credit growth likely to start improving soon.

Fiscal multiplier effect: 2.3pp fiscal correction in structural terms in 2012, but ‘only’ 1.2pp in 2013 on current projections.

Some stabilisation of business and consumer confidence.

No major structural imbalances (aside from high debt/GDP): it means that growth can rapidly go back to potential.

New package of measures aimed at speeding up payments of commercial debts owed by general government bodies for a total of €40bn.

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

3

10y spread between gov’t bond yields and sovereign CDS THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13

%

%

Italy

Germany

Differential (RHS)

Average (RHS)

Source: Thomson Reuters

4

European sovereign and bank CDSs THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

0

100

200

300

400

500

600

Apr-08 Feb-09 Dec-09 Oct-10 Aug-11 Jun-12 Apr-13

Ba

sis

po

ints

European sovereign 5Y CDS

European banks 5Y CDS

Source: Thomson Reuters Datastream

5

Economic impact of 100 bp spread increase THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

2013 2014 2015 2016 2017 2018

Spread BTP-Bund -1.00 -1.00 -1.00 -1.00 -1.00 -1.00

Lending rates -0.24 -0.28 -0.28 -0.29 -0.29 -0.29

GDP 0.28 0.74 1.02 1.13 1.10 0.98

Private consumption 0.46 1.20 1.76 2.14 2.33 2.39

Gross fixed investment 0.44 1.43 2.28 2.85 3.06 3.01

Gross fixed investment - machinery 0.79 2.43 3.58 4.14 4.11 3.71

Gross fixed investment - construction 0.04 0.30 0.63 0.86 0.96 0.97

Gross fixed investment - dwellings 0.15 0.56 1.18 1.91 2.63 3.27

Exports 0.00 -0.06 -0.23 -0.46 -0.68 -0.85

Imports 0.15 0.93 1.65 2.14 2.43 2.56

Value added price -0.01 0.16 0.57 1.07 1.57 1.99

Source: MEF calculations

6

Contraction in credit growth: when will it turn?


-15

-10

-5

0

5

10

15

20

25

30

35

Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

% y

ear

-on

-ye

ar

Euro Area Germany

Spain France

Italy

Source: ECB.

Interest rates on loans: the gap is still widening

7


1

2

3

4

5

6

Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

%

Source: ECB.

Germany Spain France Italy Euro area

Stock market: will Europe catch up?

8

SOLID STOCK MARKET

20

40

60

80

100

120

140

Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13

Ind

ex

Italy Europe US

Source: Thomson Reuters Datastream

Note: FTSE MIB, EUROSTOXX 50, S&P 500

9

Industrial production: stabilisation but not yet recovery THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

-30

-25

-20

-15

-10

-5

0

5

10

15

20

70

75

80

85

90

95

100

105

110

115

Apr-01 Apr-03 Apr-05 Apr-07 Apr-09 Apr-11 Apr-13

% y

ear-

on

-year

Ind

ex

Business Confidence in Industry

Industrial Production WDA (RHS)

Source: ISTAT

10

Foreign orders are resilient THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

70

80

90

100

110

120

130

Feb-08 Oct-08 Jun-09 Feb-10 Oct-10 Jun-11 Feb-12 Oct-12

Ind

ex

(3

te

rms

ma

)

Total orders

Domestic orders

Foreign orders

Source: ISTAT

11

Business survey: not yet recovering THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

0

10

20

30

40

50

60

70

-30

-25

-20

-15

-10

-5

0

5

10

15

20

Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13

Ind

ex

Se

as

on

all

y a

dju

ste

d b

ala

nc

es

Production expectations

Stocks of finished goods

PMI manufacturing (RHS)

Source: ISTAT, Markit

12

Firms’ expectation on employment THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

0

10

20

30

40

50

60

-30

-25

-20

-15

-10

-5

0

5

10

May-03 Apr-04 Mar-05 Feb-06 Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12

Ind

ex

Se

as

on

all

y a

dju

ste

d b

ala

nc

es

Employment expectations (services)

Employment expectations (manufacturing)

PMI composite (employment; RHS)


13

Firms’ expectation on prices THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

-20

-15

-10

-5

0

5

10

15

20

25

0

10

20

30

40

50

60

70

80


Se

as

on

all

y a

dju

ste

d b

ala

nc

es

Ind

ex

PMI composite (input prices)

PMI composite (output prices)

Selling prices in next 3 months (manufacturing)


14

Demand is deeply split THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

-6

-4

-2

0

2

4

6

4Q 92 4Q 94 4Q 96 4Q 98 4Q 00 4Q 02 4Q 04 4Q 06 4Q 08 4Q 10 4Q 12

Perc

en

tag

e p

oin

ts

Domestic demand Foreign demand

Source: ISTAT

Contribution to GDP growth

15

Private consumption (% of GDP): same % since EMU THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

90

92

94

96

98

100

102

104

106

108

110

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ind

ice

s 2

00

0=

10

0

Euro Area Germany Spain France Italy

Source: Eurostat and Ameco

Note: 2012 data for the Euro area, Spain and France are referred to European Commission Autumn Forecasts

2012.

16

Households’ expectations: some stabilisation THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

60

70

80

90

100

110

120


Ind

ex

Consumer confidence

Current economic climate index

Future economic climate index

Source: ISTAT

17

Household income and consumption to recover gradually THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

0

2

4

6

8

10

12

14

16

-6

-5

-4

-3

-2

-1

0

1

2

3

4

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

%

% y

ea

r-o

n-y

ea

r

Real disposable income

Real private consumption

Saving rate (RHS)

Source: ISTAT

Note: 2013 and 2014 referred to MEF forecasts.

18

Private wage growth likely to ease further

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

-4

-2

0

2

4

6

8

10

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

% y

ea

r-o

n-y

ea

r

Source: ISTAT Note: MEF calculation on 2013 data.

Total economy Private sector

Public sector

Compensation per employees per full-time

19

Energy and VAT-induced inflation on the mend THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13

%

year

- o

n -

year

Differential Euro area, HICP IT, HICP

Source: Eurostat, Istat

Real house price: no need for further correction

20


70

90

110

130

150

170

190

210

230

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ind

ice

s 2

00

0=

10

0

Germany France Italy UK Spain Ireland Euro Area

Source: OECD

Note: For Italy, 2012 is calculated as average of the first three quarters.

21

Households’ balance sheet is in good shape SOUND PRIVATE SECTOR BALANCE SHEET

Q2 2001 Breakdown of Total Debt

(% of GDP)

Source: Simmons & Simmons,

McKinsey Global Institute

Net wealth of households is 8

times their disposable income (8.2

UK, 8.1 FR, 7.8 JP, and 5.3 US).

Italian households are less

leveraged: 71% of disposable

income (100% FR & GE, 125% US

& JP, and 165% UK). Source: Bank of Italy, Anno XXII, December 13, 2012

Bulletin based on 2010 data.

Private debt remains low

22

SOUND PRIVATE SECTOR BALANCE SHEET

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.01

99

52

00

52

00

92

01

02

01

1

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

20

11

19

95

20

05

20

09

20

10

AT BE DK FI FR DE EL IE IT NL PT UK ES SW

Pe

rce

nta

ge

of

GD

P

Non financial corporation

Households

Source:Our calculations on Eurostat data

23

Italian households’ wealth and its components

SOUND PRIVATE SECTOR BALANCE SHEET

Real

Estate

(62.8 % in 2011)

Financial

Assets

(37.2% in 2011)

Financial

Liabilities

(9.5% in 2011)

Net Wealth Euro

million

Houses

Source: Bank of Italy, Anno XXII, December 13, 2012 Bullettin

24


Debt-to-income ratio about the lowest

Source: Eurostat, 2011 data. Note: Data for LU and PO refer to 2009 and 2010 respectively. Gross debt-to-

income ratio of households is defined as loans (AF4), liabilities divided by gross

disposable income (B6G) with the latter being adjusted for the change in the net

equity of households in pension funds reserves (D8net). Non-consolidated figures.

0

50

100

150

200

250

300

SK

SL IT FR

BE

DE

AT

EE

EA

-17 FI

ES

PT

LU IE NL

LT

CZ

PO

HU

LV

UK

SW DE

% o

f D

isp

osab

le i

nco

me

euro area non-euro area

Households

0

200

400

600

800

1000

1200

1400

1600

SK

EE

DE

EL

NL IT AT

EA

-17 FI

SL

ES IE FR

CY

BE

PT

MT

LU LT

PL

RO

CZ

LV

BG

HU

DK

UK

SW

% o

f G

ross o

pera

tin

g s

urp

lus

euro area non-euro area

Non financial corporations

Source: Eurostat., 2011 data Note: Data for LU refer to 2009, while for BG, MT and PO data are

available for 2010. Debt includes loans and securities other than shares.

Non-consolidated figures.

No major imbalances (apart from high public debt)

25

No major macroeconomic imbalances: no major bubbles

in the housing market, low household debt, fundamentally

sound banking system, no major external imbalances.

No increase in discretionary spending during the crisis:

prudent fiscal policy; automatic stabilisers allowed to work.

Competitiveness issues are contained; although

admittedly high public debt/GDP is a major hurdle.


26

Economic impact of 100 bp spread increase THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

-4

-3

-2

-1

0

1

2

3

4

5

2013 2014 2015 2016 2017 2018

%

Source: MEF calculations

Spread BTP-Bund Lending ratesGDP Private consumptionGross fixed investment Gross fixed investment - machineryGross fixed investment - construction Gross fixed investment - dwellingsExports ImportsValue added

Official macroeconomic projections (April 2013)

27

Source: September 2012 Update to Economic and Financial Document.


Source: 2013 Economic and Financial Document, April 10, 2013

2012 2013 2014 2015 2016 2017

Real GDP -2.4 -1.3 1.3 1.5 1.3 1.4

Domestic demand net of inventories -4.8 -1.9 1.4 1.3 1.2 1.2

Inventories -0.6 -0.11 0.1 0.1 0.0 0.0

Net export 3.0 0.7 -0.2 0.1 0.1 0.1

Nominal GDP -0.8 0.1 2.2 2.9 3.2 3.2

GDP deflator 1.6 1.8 1.9 1.8 1.8 1.8

Labour cost 1.0 1.0 1.2 1.5 1.6 1.6

Productivity (on GDP) -1.3 -1.0 0.7 0.7 0.6 0.5

Unit labour cost (on GDP) 2.3 2.0 0.5 0.8 1.1 1.1

Employment (FTE) -1.1 -0.3 0.6 0.8 0.7 0.8

Unemployment rate 10.7 11.6 11.8 11.6 11.4 10.9

Current account balance -0.6 0.1 -0.2 -0.1 -0.1 -0.1

Higher growth rate with structural reforms

28

Source: September 2012 Update to Economic and Financial Document.



-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

%

Baseline scenario/EC Scenario - excluding reforms

Scenario - including reforms

29

No major macroeconomic imbalances MACROECONOMIC IMBALANCES AND COMPETITIVENESS

Source: MEF elaboration on Alert Mechanism Report 2013 (European Commission, November 2012)

External imbalances Internal imbalances

Current account

Net international investment

position

REER Export

market share Nominal ULC

House price index

Private credit flow

Private debt Public Debt Unemployme

nt rate

Financial sector total

non-consolidated

liabilities

3 year on CPI

5 year 3 year Year/year 3 year level

Year/year

variation variation variation Variation variation

% GDP % GDP % GDP % GDP % GDP % GDP

-4/+6% -35% +/-5 (EA);

+/-11% (Non EA)

-6% +9 (EA);

+12% (Non EA)

6% 15% 160% 60% 10% 16.5%

BE -0.3 65.7 -0.5 -10.2 6.2 -0.1 11.6 236.0 98.0 7.8 4.7

DE 5.9 32.6 -3.9 -8.4 5.9 1.4 4.8 128.0 81.0 6.9 2.1

IE 0.0 -96.0 -9.1 -12.2 -12.8 -15.2 4.0 310.0 106.0 13.3 -0.6

EL -10.4 -86.1 3.1 -18.7 4.1 -5.1 -5.5 125.0 171.0 13.2 -3.4

ES -4.3 -91.7 -1.3 -7.6 -2.1 -10.0 -4.1 218.0 69.0 19.9 3.7

FR -1.6 -15.9 -3.2 -11.2 6.0 3.8 4.0 160.0 86.0 9.6 7.3

IT -2.9 -20.6 -2.1 -18.4 4.4 -2.0 2.6 129.0 121.0 8.2 3.8

LU 7.5 107.8 0.8 -10.1 12.5 1.5 2.5 326.0 18.0 4.8 11.3

NL 7.5 35.5 -1.6 -8.2 5.8 -4.0 0.7 225.0 66.0 4.2 7.2

AT 2.2 -2.3 -1.0 -12.7 5.9 -8.0 4.1 161.0 72.0 4.4 -0.3

PT -9.1 -105.0 -1.9 -9.5 0.9 -3.6 -3.2 249.0 108.0 11.9 -0.7

FI 0.6 13.1 -1.3 -22.9 9.1 -0.3 4.6 179.0 49.0 8.1 30.8

DK 5.0 24.5 -1.7 -16.9 4.7 -4.9 -2.2 238.0 47.0 7.0 4.7

SE 6.6 -8.3 3.9 -11.6 1.2 1.0 6.3 232.0 38.0 8.1 3.6

UK -2.2 -17.3 -7.1 -24.2 8.1 -5.4 1.0 205.0 85.0 7.8 8.5

Modest deterioration in competitiveness over time

30


Source: MEF elaboration on Alert Mechanism Report 2013 (European Commission, November 2012)

Current account

Net international investment

position

REER Export market share

ULC House price

index Private

credit flow Private debt Public debt

Unemployment rate

Financial sector

liabilities

2001 0.4 -5.8 -5.7 -18.5 4.8 5.4 8.4 87.0 108.0 10.0 -3.0

2002 -0.1 -12.4 -2.0 -14.2 7.0 6.5 6.4 90.0 105.0 9.2 3.9

2003 -0.3 -13.6 8.8 -13.4 10.7 7.4 7.0 93.0 104.0 8.6 11.6

2004 -0.5 -15.8 9.9 -7.4 9.8 7.1 8.3 98.0 103.0 8.3 7.2

2005 -0.7 -16.8 6.9 -5.2 8.7 5.2 9.4 104.0 106.0 8.1 12.1

2006 -0.9 -22.2 1.1 -12.5 6.5 3.2 10.9 110.0 106.0 7.5 10.5

2007 -1.2 -24.5 0.7 -9.3 6.1 2.6 13.1 118.0 103.0 6.9 0.5

2008 -1.9 -24.1 3.2 -16.3 8.3 -0.4 6.7 122.0 106.0 6.5 -2.7

2009 -2.0 -25.3 3.9 -17.9 10.5 -0.3 1.3 128.0 116.0 6.9 5.7

2010 -2.8 -24.0 -0.9 -19.2 8.1 -1.5 3.8 129.0 119.0 7.6 1.7

2011 -2.9 -20.6 -2.1 -18.4 4.4 -2.0 2.6 129.0 121.0 8.2 3.8

Threshold +6 %/ -4

% -35%

+/-5 %euro area; +/-11 % non euro

area

-6%

+/-9 % euro area; +/-12 % non euro

area

6% 15% 160% 60% 10% 16.5%

31

Is competitiveness really deteriorating in line with ULC? MACROECONOMIC IMBALANCES AND COMPETITIVENESS

Source: Italian Ministry of Economy and Finance calculation on Eurostat data

Note: Preliminary data for 2012 and Eurostat estimates for 2013 and 2014

90

100

110

120

130

140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Ind

ice

s 2

00

0=

10

0

Germany Ireland

Greece Spain

France Italy

Portugal

Unit labour costs: key Italian features versus EU partners

Excessive growth in ULC: mainly due to unfavourable

developments in labour productivity.

Limited downward adjustment in wages: not enough to

compensate for poor productivity growth and to address

unemployment challenges.

Wage dynamics: (a) changing composition of employment,

(b) severance payments included in labour costs, (c) time

lag in renewing collective agreements, (d) extended working

life of higher-paid older workers due to pension reforms.

32


33

Sharp improvement in Italy’s trade balance MACROECONOMIC IMBALANCES AND COMPETITIVENESS

-40

-20

0

20

40

60

80

100

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

€ b

n

Total trade balance Total trade balance excl. energy

Source: ISTAT

Note: Energy includes oil and natural gas.

Current account deficit narrowing fast

34


-4,0

-3,5

-3,0

-2,5

-2,0

-1,5

-1,0

-0,5

0,0

0,5

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

% o

f G

DP

% o

f G

DP

Goods Services Incomes Transfers Current Account (RHS)

Source: Bank of Italy

Current account and savings by sector

35


-8

-6

-4

-2

0

2

4

6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

% o

f G

DP

Note: For Households and Corporate 2012 data are estimated. Source: DEF 2013, MEF calculation on ISTAT and Bank of Italy data

General Government Households Corporate Current and capital account

How much of the adjustment is structural?

36

Note: The underlying current account is derived according to the methodology described in: Salto M., A. Turrini,

2010, Comparing alternative methodologies for real exchange rate assessment, European Economy, Economic

Papers, n. 427.

Source: EU Commission, AMECO DATABASE, 2012 Autumn Forecast.


-5

-4

-3

-2

-1

0

1

2

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% o

f G

DP

Headline vs underlying current account

Underlying Current Account - (EU Commission methodology)

Headline Current Account

Key public finance projections: policy scenario (April 2013)

37

FISCAL CONSOLIDATION

(1) Net of one-off measures and cyclically adjusted.


% of GDP 2012 2013 2014 2015 2016 2017

Net Borrowing Requirement -3.0 -2.9 -1.8 -1.5 -0.9 -0.4

Cumulated change in net borrowing

2015 -2017 0.2 0.4 0.6

Cyclically-adjusted NBR (1) -1.2 0.0 0.4 0.0 0.0 0.0

Change in Cyclically-adjusted NBR -2.3 -1.0 -0.4 0.4 0.0 0.0

Primary Balance 2.5 2.4 3.8 4.3 5.1 5.7

Public Debt 127.0 130.4 129.0 125.5 121.4 117.3

Public Debt (net support to EZ) 124.3 126.9 125.2 121.8 117.8 113.8

38

Primary surplus close to 5% of GDP in 2015



85

90

95

100

105

110

115

120

125

130

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

% o

f G

DP

% o

f G

DP

Net borrowing (LHS)

Primary balance (LHS)

Debt/GDP gross (including aid, RHS)

Debt/GDP net (excluding aid, RHS)

39

2011-2012 measures: a rebalancing over time


0

10

20

30

40

50

60

70

80

90

100

2012 2013 2014 2015

%

Higher net revenues Lower net expenditure

Source: MEF estimates

40

Moderate increase in interest payments


0

2

4

6

8

10

12

0

2

4

6

8

10

12

141995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

%

% o

f G

DP

Interest payments (RHS) Average yield at issuance


41

Lengthened maturity of public debt reduces risks


0

1

2

3

4

5

6

7

8

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

ye

ars

Average life Duration


Italian public debt held by foreign investors: less vulnerable

42


25

27

29

31

33

35

37

39

41

43

45

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

% o

f to

tal d

eb

t

Source: Bank of Italy

According to the EU Commission, no sustainability gap

43


Source: European Commission, Fiscal Sustainability Report 2012, EUROPEAN ECONOMY, 08/2012

Initial budgetary position (IPB % of GDP)

Lo

ng

te

rm C

os

t o

f A

ge

ing

(L

TC

% o

f G

DP

)

44

Reduction in the stock of public debt

€8.9bn from sale to CDP of SACE, SIMEST and Fintecna.

Further payments are expected by early 2013. Proceeds go to

the Public Debt Sinking Fund or to pay off commercial debt.

Real estate assets will be transferred from central and local

government to real estate funds, which have mandates to

create value and/or dismiss assets.

The Government expects proceeds from dismissals to reduce

public debt by at least 1pp of GDP per year. 3-5bn of state-

owned assets ready for 2013; the rest requires strong

cooperation with local government.


Constitutional reform: a new fiscal framework

Balanced budget rule included in the Constitution: it will

enter into force in FY 2014.

In December 2012, Parliament approved the ‘reinforced’ law

defining the mechanism by which the balanced budget will be

achieved and clarifying the functions of the independent body

(established by Constitutional amendment) within the

Parliament in charge of monitoring public finances and

checking compliance with fiscal rules.

45



Public sector shrinking since 2007

Since 2007 the number of public employees and their

compensation has declined by 4.3% and 2.3%,

respectively. Labour cost has decreased by 3.3%.

This is the result of 2010 and 2011 policy changes:

extension of freeze in turnover and national wage

bargaining.

46

Increasing success in the fight against tax evasion

47

Source: Ministry of Economy and Finance - Revenue Agency


0

2

4

6

8

10

12

14

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Eu

ro b

illi

on

Key achievements of the pension reform

Enhances the medium and long-term sustainability of

Italy’s pension system.

Guarantees fairness across and intra generations.

Increases the minimum retirement age and contribution

period required to be entitled to pension benefits.

Links retirement age and contributory periods to changes in

life expectancy.

Improves transparency by merging entities providing

pensions (INPDAP and ENPALS into INPS).

48


49

Sizeable effect on pension spending as % of GDP

Source: Update of 2012 Economic and Financial Document, September 20, 2012. Demographic projections from

ISTAT, central demographic scenario 2012


12%

13%

14%

15%

16%

17%

18%

19%

2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058

Current Legislation Legislation before DL. 201/2011

Legislation before DL. 98/2011 Legislation before DL. 78/2010

Legislation before L. 243/2004

A significant lengthening of the retirement age (OECD)

50


Source: OECD

Lower tax wedge on labour

51


Higher tax allowances for families with children: From

2013 the tax credit is €1,220 (currently €900) for each child

under the age of 3 and €950 (€800) for those older than 3.

Reduction in taxes on labour: effective 2013, tax deduction

for employers on IRAP to increase from €4,600 to €7,500.

Even higher deductions for women, workers under 35, and

firms located in ‘disadvantaged’ Regions.

Structural reforms: some examples

Reduction in the administrative burden for firms: elimination of

ex-ante controls, limits, permits, licenses for start-ups.

Substantial simplification for SMEs.

Professional services: abolition of minimum fees, easier

access to professions with reduction in compulsory traineeship,

increase in the number of pharmacies and notaries.

Reform of Civil Justice: Reorganisation of judicial districts to

reduce public expenditure.

52

LIBERALISATION, COMPETITION AND COMPETITIVENESS

A more dynamic and inclusive labour market

More (regulated) flexibility on the hiring and firing side.

More comprehensive unemployment benefits (ASPI).

More efficient active labour market policies improving

services and incentives to work.

Shared agreement among Italian trade unions and

employers’ associations to help boost labour productivity

by providing for labour contracts that better reflect the

needs of individual companies.

53

LABOUR MARKET REFORM

The presentation as well as a note on reforms are updated

regularly. You can find them at:

http://www.dt.mef.gov.it/en/analisi_programmazione_

economico_finanziaria/strategia_crescita/

54

italy’s strategy for growth and fiscal consolidation · why is italy’s economy expected to...

Documents