Auditions

Manoeuvre, Bankitalia: economy struggles, Psb targets more difficult. Istat: 2.4 million more beneficiaries of the wedge cut

On pensions, the budget bill 'envisages interventions that could have positive effects in macroeconomic terms, with even favourable implications for the resilience of the social security system'. So said Inps president Gabriele Fava at a hearing on the manoeuvre

by Redaction Rome

5 November 2024

6' min read

Key points

Bankitalia: fairness at risk with fixed threshold deductions
Bankitalia: 30% more doctors needed in next 10 years
Upb: complex tax measures in the manoeuvre difficult to understand
Upb: health funds grow less than expenditure, risks for regions
"GDP slows down, moderate recovery in last three months"
Istat: 2.4 million more beneficiaries of wedge cut
Istat: 2.4 million more beneficiaries of wedge cut
Court of Auditors: picture remains difficult, important choices will be needed
Fava: manoeuvre has positive effects on pensions

6' min read

"According to recent data, still insufficient to paint a complete and reliable picture, economic activity is struggling to regain momentum at the end of this year". This was emphasised by the deputy head of the Bank of Italy's Economics and Statistics department Andrea Brandolini at a hearing on the manoeuvre. 'Looking ahead, the reduction in interest rates and the recovery of household purchasing power could provide a positive impulse to the economy'. However, in light of the new data, "in the absence of a significant acceleration of economic activity in the final part of this year, the output growth foreshadowed in the Psb for the two-year period 2024-25 appears more difficult to achieve"

Bankitalia: fairness at risk with fixed threshold deductions

Brandolini also points out that the manoeuvre's approach on deductions 'may prove effective in reducing the amount of tax expenditures, as opposed to trying to selectively intervene only on some. However, the design based on fixed thresholds for income brackets inevitably generates discontinuities that, when fully implemented, could be significant and compromise the fairness of the levy'. In this scenario, 'the alternative choice of setting a ceiling on deductions that is as continuous a function of declared gross income as possible would avoid creating jumps in the profile of marginal effective tax rates. - he continues - Moreover, the differentiation of the caps on total deductible expenditure according to the number of children increases its complexity and risks creating an overlap with the redistribution operated through the Universal Single Allowance".

Bankitalia: 30% more doctors needed in next 10 years

Bankitalia then turns a spotlight on the healthcare system. According to the data reported in the hearing on the manoeuvre, over the next ten years the turnover of healthcare personnel and the strengthening of territorial assistance envisaged by the NRP will generate a requirement, in terms of incidence on the workforce at the end of 2022, for doctors (including general practitioners and paediatricians) equal to 30% and for nurses equal to 14%. Under current legislation, explains Via Nazionale, all personnel aged 60 years or over at the end of 2022 will cease working over the next ten years: this corresponds to more than 27,000 doctors, more than 24,000 nurses and the same number of technical staff, and 28,000 general practitioners and paediatricians. Mission 6 of the NRP on the expansion of territorial care will require at least 19,600 nurses and 6,300 socio-healthcare workers, mostly in addition to the current allocation.

Upb: complex tax measures in the manoeuvre poorly understood

The parliamentary budget office recalls, on the other hand, that the tax reform introduced by the manoeuvre, which includes Irpef, bonuses up to 20,000 euro and deductions from 20,000 to 40,000 euro, increases the already wide differences in the tax treatment of the different categories of taxpayers (employees, pensioners and the self-employed), which, however, are cancelled for incomes above 50,000 euro. The coexistence of three instruments for reducing the levy on employees, which interact with each other in an articulated manner, 'produces a complex tax architecture that is difficult for its recipients to understand'. Also on deductions and the introduction of the family quotient, 'although the reform is a step in the direction of containing tax expenditures (tax expenditures), a more organic approach to their rationalisation is needed, also to avoid increasing the complexity of the system'.

Upb: health funds grow less than expenditure, risks for regions

Not only that. The healthcare funding envisaged by the manoeuvre grows less than the spending of the National Health Service with the risk of regional deficits. In terms of incidence on GDP, explains president Lilia Cavallari, healthcare spending would return to 6.4 per cent in 2026, i.e. to the pre-pandemic level: "considering that the same spending is expected to grow at a higher rate than NHS funding, there is a risk of a significant increase in the deficit of regional healthcare services, even beyond 2027". In addition, 'despite the fact that the main problem of the SSN currently lies in the shortage of personnel, no new recruitments are financed. The financing of the next contractual rounds and the increase of a number of allowances are arranged. Another group of measures is in favour of certain private entities operating in healthcare and pharmaceuticals'.

"GDP slows, moderate recovery in last three months"

Italy is slowing down, sees the 'post-pandemic rebound' of the three-year period 2021-2023 coming to an end and growth is back in line with previous values. The Upb's short-term models see a moderate recovery in the last three months of the year and considers that the Dpb's macroeconomic forecasts are 'exposed to several downside risks'. In the Dpb, GDP growth strengthens next year to 1.2 %, while slowing to 1.1 % in 2026 and 0.8 % in 2027. The most recent quarterly national accounts data have worsened the expectations for 2024 by at least a couple of tenths of a percentage point, but the official forecasts are close to the range of the external forecasters' estimates. According to simulations carried out by the UPB, the GDP impacts of the Manoeuvre would be similar over the whole period to those of the government (0.3 pp in 2025, zero in 2026 and a barely positive impact in 2027), albeit with a marginally lower distribution in 2025 and a slightly stronger one in 2027.

Istat: 2.4 million more beneficiaries of the wedge cut

An additional 2.4 million workers will benefit in 2025 from the new wedge cut provided by the manoeuvre in the form of a bonus up to 20,000 euro and a deduction from 20,000 to 40,000 euro, bringing the total number of beneficiaries to 17.4 million. This is what emerges from the calculations presented by Istat in a hearing before the Budget commissions. In detail, the new beneficiaries will be 2.9 million and will receive an average benefit of €576 per year. On the other hand, about 500,000 individuals will lose it: these, the Institute explains, are those who have a reference income for social contributions of less than €35,000 and a total income of more than €40,000 and who benefited from the decontribution in force in 2024.

Istat: extension of hiring bonus benefits 5.6% of companies

Ista also estimates that the extension of the increase in the cost allowable as a deduction for new hires for companies benefits 5.6% of companies, particularly in the manufacturing and construction sectors and larger companies. The cut in the labour tax wedge for the employer is 0.9% (-1.3% in cases of workers belonging to categories considered disadvantaged by the rule). "In terms of aid intensity, the measure is comparable to previous tax reliefs introduced for the same policy objective for IRAP purposes (notably the measures adopted in 2014). The relief can be cumulated with other measures having as their object the reduction of employers' contributions'.

Court of Auditors: picture remains difficult, important choices will be needed

The framework envisaged in the manoeuvre, although "not without its own intrinsic organic nature", remains "difficult" and "will require important choices since it passes through a structural reduction and reallocation of expenditure, a compulsory path to achieve sufficient budget surpluses to bring the debt back to a plausibly downward profile". Thus the representatives of the Court of Auditors during the hearing in the Budget Committee of the Chamber of Deputies on the budget law. The budget for the next three years in fact 'moves within the path traced by the medium-term budget structural plan'. Within the framework of the spending constraints set in the SGP to 'orient the public debt on a path of reduction, the set of proposed measures aims to combine different needs, in particular: to make structural the measures to reduce the tax wedge and to revise the IRPEF rates introduced on a temporary basis in previous years; to ensure the financing of the health services system; to identify the resources for the adjustment of public wages in a medium-term perspective; to continue to encourage recruitment and investment policies of enterprises. This design is pursued by using the margins for further recourse to the deficit made available by a better trend picture than the April 2024 estimates, in particular for the cyclical trend of revenues, a trend that the Government estimates will continue in the future,' they pointed out.

Fava: manoeuvre has positive effects on pensions

With regard to pensions, the budget bill 'envisages interventions that could have positive effects in macroeconomic terms, with even favourable implications for the resilience of the social security system'. This was the position of Inps president Gabriele Fava at the hearing on the manoeuvre before the budget committees. According to Fava, the bill 'marks a solution of continuity with respect to the transitional measures to mitigate inflationary tensions in the years 2022-2023, moreover with the further provision of temporary measures to support the categories of pensioners who are in a more fragile condition'. From this point of view, 'the return to the ordinary equalisation regime of pensions with respect to inflation, which cannot be excessively disregarded except to deal with situations characterised by temporariness, as happened above all in the Covid years, assumes importance,' Fava continues. The full recovery of inflation, which "is estimated to be 0.8% for the year 2024, makes it possible to overcome the cooling implemented for the two-year period 2023-2024 for higher pension incomes. While for the two-year period 2025-2026, the extension of interventions in favour of pensioners with pension income below the minimum INPS treatment (Article 25) allows for a gradual return from support for pensioners in greater difficulty. In any case, it should be borne in mind that while the level of inflation recorded puts less pressure on public finances, it also means that benefit increases are limited'. According to Fava, with the measures of retention in service (Article 23) and flexibility in exit (Article 24) 'the Bill provides a coherent framework, through interventions that concern both permanence in the labour market and greater gradualness in the transition to retirement'.