it’s budget time for the state
TRANSCRIPT
IT’S BUDGET TIME FOR THE STATE FROM THE STABILITY LAW TO THE NEW BUDGET LAW: APART FROM THE NAME, WHAT REAL CHANGES ARE THERE IN THE TOOL GOVERNING THE COUNTRY’S ECONOMICS
October 2016
CHANGES TO THE CONSTITUTIONAL TRIGGER CHANGES TO THE LAW
28 July 2016: the Senate of the Republic approved Draft Law “Changes to Law n. 196/2009, concerning the contents of the budget law, implementing art. 15 of Law n. 243/2012” (L. 163/2016).A new law. Why?To give effect to Art. 81 of the Constitution which in 2012 obliged Italy to fulfil the balanced budget rule. Only the political movement M5S said NO because the new law complies with the rules imposed by the EU in the Fiscal compact (Treaty on Stability, coordination and governance of the European Union of 2 March 2012), i.e., that Member States introduce the balanced budget rule “through binding, permanent and preferably constitutional provisions”.So beginning in 2016 envisaged budget borrowing has to comply with this new provision.
The new regulation incorporates:the old annual budget law;the more recent stability law.
For additional details about the budget cycle before this reform just click here.
THE FINANCIAL PLAN IN A SINGLE MEASURE
A cold temperature fusion or a real reform?The new Law not only merges pre-existing norms, it is a new tool to plan the State Budget based on real income/borrowing. Parliament will be able to make political choices vis-à-vis borrowing and decide priority regarding public interventions.
THE FIRST ADJUSTMENT: THE TIMESCALE
The deadline to present the budget cycle documents has been postponed (by just a few days, but nevertheless it’s an important change):
the note updating the Multiannual Financial Framework (MFF) has been shifted from 20 to 27 September in order to take into account the latest updated figures regarding public finance, notified by ISTAT (Italian National Institute of Statistics) to the European Commission before 30 September;as a result, the draft budget bill is postponed from 15 to 20 October.
The other deadlines remain the same:30 January, the draft bills linked to the budget law;30 june, presentation of the MFF to Parliament.
The MFF indicates the envisaged income/borrowing trend for the next three years and whether or not it is in line with the pre-established goals; hopefully from next year it will also take into account the Fair Wellbeing indicators (in Italian, BES) determined by an ad hoc Committee composed of the following members:
Minister of Economy and Finance President of ISTAT Governor of the Bank of Italytwo experts
Committee members, nominated by a Prime Ministerial Decree, provide their expertise free of charge.
THE ECONOMY ISN’T JUST NUMBERS: INTRODUCTION OF THE BES
To ensure that the economic forecast of the Multiannual Financial Framework (MFF) is based on realistic premises, a technical report will be attached to the document. The report will:
calculate the financial effects of every provision in the MMF; define and illustrate the criteria used to establish the provisions;describe the coherence between programmatic net borrowing and programmatic debt, specified in the Note updating the MFF.
WILL THE MFF PASS MUSTER?
THE SAFEGUARD CLAUSE
The safeguard clause is a legacy of the Letta Government. It was established to reassure the EU that Italy would achieve a balanced budget (initially in 2015, then in 2017, and now who knows!).
The clause stated that if in 2017 the annual public finance objectives were not met then the clause would automatically be implemented, i.e. an automatic increase in VAT – to 13% (reduced VAT rate) and 25.5% (ordinary VAT).
ELIMINATION OF THE SAFEGUARD CLAUSE
The new budget law has eliminated the safeguard clause. However, if expenses exceed envisaged borrowing, funds will be found either by reducing borrowing or by increasing income, to be decided on a case by case basis:possible reduction of the funds earmarked for a Ministry (by means of government decrees requiring an opinion by the Chamber of Deputies and the Senate); in any event it will no longer be possible to use either the eight per thousand income tax devolved to the State, or the five per thousand income tax freely assigned by the taxpayer.
A MORE FLEXIBLE BUDGET
Some parts of the new budget law will be more flexible, for example: Ministers will be able to modify resource allocation for their ministry in order to achieve the latter’s objectives but without being obliged to compensate, i.e., without having to re-establish financial balance exclusively between programmes that are part of the same mission (i.e., the objective to be achieved); it will be possible to insert measures to refinance, disinvest and re-programme, even for a multiannual period, the current account and capital account appropriation envisaged by current legislation, but only as regards legislative expenses, i.e., the expenses authorised by a law indicating the exact amount and the period when it will be inserted in the budget.
OTHER PROVISIONS
31 December 2016 to 31 December 2017.Every MP will be able to access the databases of the Public Administration.Gender equality: the Ministry of the Economy and Finance is required to send Parliament a report regarding the impact of gender equality measures.
Bank/postal accounts: the State Administration will be able to open new bank and postal accounts only if envisaged by law or authorised by the State General Accounting Office after a well-reasoned request by the administration in question. Interest on these deposits must be paid to the State which will reassign them to the Ministry in question.New Accounting Code: the deadline to adopt a single Text vis-à-vis State accounting and the Treasury has been postponed by one year, from
CONSTITUTIONAL REFERENDUM ON 4 DECEMBER: CHANGES ON THE HORIZON?
How will the system to approve the budget law change if the YES vote wins?A brief summary on the new parliamentary procedures.The legislative function of both the Chamber and the Senate (the so-called double conformity reading) would be used only as regards constitutional laws and laws revising the Constitution, plus several other laws.All remaining laws will be approved only by the Chamber of Deputies (unicameralism procedure).
It is possible for the Senate to intervene during the legislative process, but said intervention must be initiated no longer, than ten days after the law is approved by the Chamber and after a request by one third of the Senate members. The proposed changes, debated by the Senate during the following 30 days, will be examined by the Chamber of Deputies which has the final say.
CONSTITUTIONAL REFERENDUM ON 4 DECEMBER: AND THE BUDGET LAW?
The unicameralism procedure will be applied to the budget law. The review by the Senate is automatic, and any proposed changes have to be approved within 15 days from the day the text is transmitted by the Chamber of Deputies. The latter, however, will always have the last word.
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