Italy’s budget: Saving Italy
SHOWING that he is not averse to a bit of PR spin, Italy’s new prime minister, Mario Monti, called it his “Save Italy” decree: a package of fiscal adjustments worth €30 billion ($40 billion) over three years. Susanna Camusso, leader of the CGIL, the biggest trade-union federation, retorted that it risked “saving the country and finishing off the population”.
On December 12th, in a rare show of unity, the CGIL will join two other labour alliances in a strike against the decree. But it will last only three hours, and essential services will be exempt. Italians may not like Mr Monti’s emergency budget, which came into force on December 6th and is expected to win parliamentary approval (which it needs to remain in force) by Christmas. Indeed, it has lopped nine points off his approval rating, according to a poll in Corriere della Sera, a daily newspaper, whose cartoonist depicted the mild-mannered professor as a bloodsucking vampire. Yet hardly anybody is prepared to block a measure which the prime minister said was all that stood between Italy and “the Greek risk: not being able to pay salaries and pensions”.
The initial details cheered the Milan bourse and sent yields on Italian bonds, which had reached worrying levels, plunging. The package will unquestionably put Italy in a stronger position to face the capital markets next year, when it has to refinance more than €300 billion of its €1.9 trillion debt. And it is earning Mr Monti friends among his European Union peers, who have been keen to show that Italy is once again a valued partner.
The budget includes more deficit-reduction measures to add to those previously imposed by Silvio Berlusconi’s government. But Mr Monti also began to do something his predecessor had lamentably failed at: promote growth in sluggish Italy. Fully €10 billion of the savings are to be reinvested with this aim. There is a tax break to encourage firms to hire women and younger workers, a full-scale liberalisation of shopping hours and €3.8 billion for moribund infrastructure projects. Not that results are expected soon. Mr Monti’s deputy finance minister, Vittorio Grilli (Mr Monti is his own finance minister), predicts a fall in GDP of up to 0.5% next year, with the outlook flat for 2013.
There were two main criticisms of the budget. Economists decried its reliance on tax increases—around €18 billion of the total, according to Mr Grilli. A property tax on first houses, abolished by Mr Berlusconi, was reintroduced, higher excise was slapped on petrol and the government tucked away a possible 2% rise in value-added tax next September. The immediate spending cuts were more timid, and mostly foisted on the regions. The big savings will come more slowly from a radical shake-up of the generous pensions system. Italy’s unique years-in-work system of calculating pensionable age is to be phased out, and the statutory retirement age will be pushed back.
The other main criticism of Mr Monti’s package was that too much was being expected of the poor. There were measures aimed at the rich: a levy on investments and taxes on private boats, aircraft and luxury cars. But the government also scrapped full inflation-proofing next year for all but the smallest pensions. The effect that could have on more vulnerable Italians was acknowledged by the welfare minister, Elsa Fornero, who was overcome by emotion as she announced the decision. Unwittingly, perhaps, that too was an effective piece of PR: it told Italians that at least the government shared their pain.