The hearings on the Psb

Manovra, Bankitalia: "GDP 2024 +0.8%. With relief on labour at risk balance of pension system". Upb: "Insufficient information on expenditure and coverage".

Head of Bankitalia's Economics and Statistics Department Nicoletti Altimari: 'Encouraging accounts but Psb not free of risks'. Court of Auditors: "Psb challenging, difficult choices necessary". Upb: 2024 growth target more uncertain, risks increase

by Redaction Rome

7 October 2024

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5' min read

Key points

With ISTAT revision, GDP in 2024 is at 0.8%
The effect of the manoeuvre on GDP is achievable
Encouraging accounts but Psb not risk-free
In the Psb insufficient details on reforms
Upb: 2024 growth target more uncertain, risks increase
Court of Auditors: Psb challenging, difficult choices needed
Istat, on GDP we are in a steady state

5' min read

The growth target set by the government at 1% for this year is receding, and finding the resources for the 2025 manoeuvre is becoming increasingly complicated. The cold shower on the government's estimates comes during the hearings on the structural budget plan in Parliament: for Bankitalia, the 2024 GDP will stop at 0.8%, and even for the Parliamentary Budget Office the 1% target becomes more uncertain. There is the external context, with the world economy cooling down, and there is the post-Covid propulsive thrust that has run out in Italy. The weakened framework weighs on the composition of the manoeuvre, and the Bank of Italy warns about the next moves: making the contribution relief on labour structural puts the balance on pensions at risk. Economy Minister Giancarlo Giorgetti has always considered the 1% target 'realistic'. But after the revision of the quarterly economic accounts published by ISTAT on Friday, the Bank of Italy made a 'mechanical correction' downwards by two-tenths of a percentage point, which compresses the GDP to 0.8%.

'With regard to the expansionary measures outlined, while a full assessment requires more details, the intention to make labour contribution relief structural is relevant. As already emphasised during the DEF hearing, the balance between contribution receipts and benefit outlays that, in the medium term, characterises our social security system and represents one of its strengths, would be lost at the aggregate level'. These were the words of Sergio Nicoletti Altimari, Head of Bankitalia's Economics and Statistics Department, at the hearing before the House and Senate Budget Committees on the Budget Structure Plan.

With ISTAT revision GDP 2024 is at 0.8%

"In the forecast framework at current legislation of the Psb, GDP grows by 1.0 per cent this year, 0.9 per cent next year and 1.1 per cent in 2026. The revision of the quarterly economic accounts published last Friday by ISTAT, which is not included in the framework, would lead to a mechanical downward correction of two-tenths of a percentage point in the estimate for the current year,' the head of the economics and statistics department of the Bank of Italy said.

The effect of the manoeuvre on GDP is achievable

The measures in the manoeuvre, including the stabilisation of the reduction of the tax wedge, and the measures to support larger families 'will mainly deploy their effects in 2025, raising GDP growth to 1.2 per cent. These expected effects are in principle achievable, but a more complete assessment requires information that is not yet available' on allocated resources and implementation methods, stressed Sergio Nicoletti Altimari.

Encouraging accounts but Psb not risk-free

"The accounts during the year show an encouraging trend," but "the programme outlined in the Psb is not without risks," explained the representative of Bankitalia, at a hearing on the Psb. The first risk is that, to finance part of the manoeuvre, the plan 'exploits the margin determined by the higher revenues now expected for 2024, with the implicit assumption that they are entirely permanent'. Secondly, given the 'high uncertainty' in the macro framework, 'even small deviations from the budgetary plans could make it difficult to bring' the deficit below 3 per cent in 2026.

In the Psb insufficient details on reforms

On the front of the reforms indicated in the Psb "it would be desirable for the plan to provide a greater level of detail on the timing and methods of implementation," said the head of the economics and statistics department of the Bank of Italy, at a hearing in Parliament on the Psb. For Altimari, 'the plan contains insufficient detail for an overall assessment of the interventions envisaged in it, in particular the framework law on SMEs and the measures to strengthen capital markets. They should be based on a correct identification of the main factors hindering the growth in size of companies, including disincentives arising from the regulatory framework and the tax system'. "A prudent approach to public finance management must be combined with strong reform and investment action in order to raise growth potential. On this front, the document indicates areas that are relevant for the future prospects of the Italian economy. Much will depend on how the reform measures will actually be designed,' he added.

Upb: 2024 growth target more uncertain, risks increase

After the revision of the accounts by Istat, the growth target for 2024 set by the government at 1 per cent 'becomes more uncertain' because 'risks increase. We can expect a few tenths of a point less'. This was emphasised by Upb president Lilia Cavallari at a hearing on the Psb to the Budget Committees of the House and Senate. Speaking of the following years, Cavallari explained that the estimates are 'subject to downside risks linked to geopolitical tensions'.

"In 2025 manoeuvring space of 8-9 billion"

The Budget Structure Plan shows a room for manoeuvre of about 0.4 points or EUR 8-9 billion in 2025. This was emphasised by Cavallari. The Psb, he explained, indicates that those spaces can be used to finance measures such as the reduction of the tax wedge also next year.

"Weak information on expenses and coverage"

The UPB points out that the Psb provides 'deficient information on the consolidation strategy with regard to the main expenditure programmes and revenue sources'. "Even for the programme scenario there are shortcomings compared to the information usually reported in the Nadef". "The medium-term planning would require highlighting the strategy to achieve the consolidation targets with more detailed indications on the expected dynamics of the main expenditure programmes and revenue sources and the link with the implementation of investment and reforms. This would further strengthen the credibility of the consolidation effort,' underlines the Parliamentary Budget Office.

Court of Auditors: Challenging Psb, difficult choices needed

In the Psb a 'challenging' path is outlined and in the manoeuvre 'difficult choices will have to be made on the allocation of resources': this was stated by the representatives of the Court of Auditors at a hearing before the budget committees of the House and Senate. "On many fronts there are growing needs arising from structural problems, cost trends, the growth of areas of social distress, the emergence of new economic and production challenges to which are added needs posed by new critical issues related to the national and international context," the Court explains. But for the 'full assessment and implications' of the Psb it refers to the detail of the policy framework that will come with the Dpb. In general, the Psb presented by the government 'offers a framework of budgetary management for the next seven years that appears consistent with the requirements of the new European Stability Pact, describing a path of gradual debt reduction and faster deficit reduction compared to the framework presented in last April's Def.

Istat, on GDP we are in a steady state

"We cannot comment" on the growth scenarios in the Psb, but "for now on the GDP growth side we have returned to a steady state or 'steady state' phase with fairly modest growth rates that are struggling to demonstrate the situation of an economy developing in a consistent form": this was said by ISTAT's director for accounting, Giovanni Savio, at a hearing in Parliament. "Some of the causes that generated, in previous years, after the Covid crisis, this propulsive thrust have died out, and so we have to wait for other forces that can increase this growth," he added.