IMF: Italy resilient but increase productivity and cancel the flat tax

The Italian economy has shown 'resilience' in a context of global economic uncertainty thanks to investments and the 'rigorous implementation of the National Recovery and Resilience Plan'. But it should 'redouble its reform efforts' to increase productivity and boost labour force participation, so as to help growth held back in part by an ageing population.

The picture of Italy is taken by Lone Christiansen, the head of mission for the Belpaese of the International Monetary Fund, explaining that the IMF "recommends that Italy proceed with a larger fiscal consolidation than planned for this year and next", because "the interest rate on public debt is expected to exceed economic growth" and the ageing population is expected to increase pressure on pension and health spending. "Last year's good fiscal performance resulted in a primary surplus of 0.4%, which is a very good start. Looking to the future, the government is determined to bring down the high debt, and the medium-term fiscal-structural plan confirms this commitment,' Christiansen added, noting that achieving a primary surplus of 3% of GDP by 2027 would be the target. Achieving it "will help reduce debt and increase investor confidence," he explained.

An increase in fiscal consolidation could be achieved by focusing efforts on 'correcting distortions in the economy. It would be necessary to persevere towards strengthening tax compliance, rationalising tax expenditures and eliminating the preferential flat-rate scheme applicable to the self-employed. Limiting public guarantees would strengthen resilience and reduce risks,' Christiansen noted.

To compensate for the decline in the number of people of working age and revive productivity, Italy - according to the Washington-based institute - should promote women's participation in the workforce, adopt policies that enhance human capital, and devise others that support the private sector in production and faster adoption of innovation. "A package of reforms aimed at increasing women's participation, raising skill levels, and strengthening productivity could result in an increase in annual growth of between 0.1 and 0.4 percentage points" between 2025 and 2026, Christiansen highlighted.

Italian companies, the IMF further noted, find it difficult to expand or generate new ideas and this is the result of a combination of national and EU factors, such as the fragmentation of the European market. "That is why it is important to consolidate the single market and the union of financial markets. The combined benefits of national and European interventions,' Christiansen concluded, 'could be decisive in lifting Italy's growth prospects.