The anticipation is great. From the labor summit called for tomorrow by Giorgia Meloni, the unions expect to understand what will happen to the key measure decided a year ago by the government on Labor Day: the cut in the contribution wedge. It is worth ten billion for the state coffers and one hundred euros more on average every month for the paychecks of workers who earn less than 35 thousand euros gross per year. This time it will not be easy to finance the measure with the deficit. But if the path to debt was closed, where could the money come from? There are at least two alternative routes. Istat indicated them in its hearing in Parliament on the Def: spending cuts or VAT increases. A decree implementing the tax delegation on which the Deputy Minister of Economy Maurizio Leo is working is expected, probably by the summer, on a remodulation of consumption rates. And the same also applies to the reform of tax expenditures, deductions and tax deductions, another measure that could produce revenue.
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Cutting the wedge, the government wants to confirm it
Whatever the coverage, for now the government’s intention seems to be to continue along the path of cutting the wedge. Giancarlo Giorgetti, the Minister of Economy, defined the confirmation of the tax reduction as the “number one priority”. But, as mentioned, there are ten or so billions to be found in a context in which the government itself has had difficulty in allocating even just 100 million for a 100 euro bonus for the thirteenth of single-income families. However, among the technicians there remains hope of finding a way, even in the constraints of the new Stability Pact, to raise the deficit at least a little, earning 7-8 billion to be allocated to cutting the wedge. But it is a difficult calculation to make today, on the eve of the European elections and, above all, in the absence of the “guidelines” that countries will have to follow to write the next budget law. This is the reason why the government decided not to present a “programmatic framework” in the Def, the economic and financial document, just approved. Doing so would have meant lifting the veil on the intentions for the next maneuver. Therefore, the alternative paths of spending cuts and revenue increases remain. If the first of these two ways to finance the wedge were followed, ISTAT explained, GDP would reduce marginally, by 0.1%, but family consumption would increase by 0.6% and primary spending would drop by half point (this is an important parameter, also for EU judgments on the accounts with the new Pact).
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The other path indicated by Istat is that of an increase in VAT. A measure that would push inflation back up by about one point, while reducing the deficit and primary spending. But, if the government simply raised the rates, it would probably be an unpopular and difficult measure to swallow. On VAT it is very unlikely that we will go beyond a simple rationalization of the levy, moving some goods from one rate to another. Some “moves” that could still have some revenue effect. The same goes for “tax expenditures”, deductions and deductions that reduce the tax base. Even in this case it is a difficult exercise and one in which more than one government has failed. But even here some taboos have fallen. A trap has already been introduced on deductions starting from incomes above 120 thousand euros and which completely eliminates them at 240 thousand euros. And last year an “excess” of 260 euros was also decided on deductions for incomes exceeding 50 thousand euros. But the problem risks being political rather than technical. All decrees implementing the tax reform are expected to finance tax cuts and not contributions. Diverting the funds that the Deputy Minister of Economy Maurizio Leo is collecting with the reform to the wedge (they all end up in a sort of piggy bank, the fund for the implementation of the delegation), could put the government’s fiscal plan at risk. In short, Palazzo Chigi and the Treasury find themselves faced with the dilemma of whether to bet the (few) chips available on cutting taxes or cutting contributions. During the hearings at the Def, more than one observer said they were sceptical about the usefulness of continuing along the path of cutting the wedge, starting with the Bank of Italy. Istat itself has calculated that the wedge costs half a point of GDP and increases growth by only 0.2 percent. Furthermore, with the renewal of many contracts, salaries are rising on their own. In short, a debate, even if still very under the radar, has opened.
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