Italy’s major parties haven’t formally spelled out their election economic programs, but early hints have politicians sniping and economists questioning their feasibility.
Proposals range from Silvio Berlusconi’s 23% flat tax for individuals to the Five Star Movement’s minimum income for the poorest households—all costly ideas, particularly for a country with already-strained finances.
The measures could push public spending and revenue out of control just as a more robust economy was starting to cut the country’s debt load, Bloomberg reported.
Tax promises are a staple of elections (to be held in March), but Italy has less room than most for fiscal profligacy given its strained coffers and a debt ratio that’s second only to Greece in the 19-nation eurozone. Extravagance is also unlikely to sit well with the central bank, which just last week renewed its call for fiscal responsibility.
Even after the fastest growth since 2010 last year, Italy’s economy is still smaller than it was a decade ago. Debt as a percentage of output fell “slightly” last year, but remains over 130%, the central bank estimates.
On Friday, it said Italy needs a “continuation of economic policies capable of fostering long-term economic growth, by supporting investment and consumption choices, while also lending credibility to public-debt reduction objectives.”
While any fiscal measures would take time to implement and probably only start to hit the treasury after 2018, economists say the major promises seen so far would widen the deficit. Credit Suisse said last week that pre-election uncertainty “warrants some risk premium”, and Italy’s 10-year bond yield has risen since early December. The anti-establishment Five Star’s earlier call for a referendum on Italian membership in the euro did not feature in a 20-point program tweeted by its premiership candidate Luigi Di Maio on Sunday. Instead the party wants to concentrate on cutting taxes, reducing the public debt and promoting investments to spur the economy.
Milan’s FTSE MIB stock index was little changed. The yield on 10-year government bonds was down 2 basis points to 1.95%.
Some of the Ideas Raised
A 23% flat-tax-for-all proposed by Berlusconi’s Forza Italia and its allies. Raffaella Tenconi, founder of London-based consultancy ADA estimates it would lower tax revenue by around €40 billion ($49 billion) per year.
Former premier Matteo Renzi of the Democratic Party says he’ll eliminate an unpopular television user tax, though he hasn’t detailed how state network RAI should be funded instead.
There’s speculation over an €80 a month tax rebate for the low paid passed in 2014 by Renzi. At about €7.5 billion annually, it could be a tempting saving.
Among several proposals to tackle poverty, Five Star lawmakers have long pushed for a “citizens’ income” of €780 and are likely to keep up the pressure. A Renzi economic adviser claims it would cost more than €70 billion a year, though the head of the pension agency disputes this and sees a high of €30 billion.
Berlusconi’s bloc proposes increasing the minimum pension to €1,000 a month and canceling a regional business tax. ADA estimates a cost of €18 billion and a revenue loss of €13 billion respectively.
The Berlusconi-aligned Northern League also wants to repeal an entire pension reform of six years ago, but it’s unclear whether it will have sufficient support. It also comes with a significant cost, estimated at about €140 billion by 2020, if workers start retiring earlier than currently allowed.
