The budget that will be examined next autumn, relating to the year 2025, will be the main challenge for the Meloni government. Which will have to recover at least 20 billion just to confirm the cut in the tax wedge, the three-rate Irpef and the interventions included in the so-called unchanged policies. Then, another 10-12 billion will have to be put into the budget for debt reduction, as required by the rules of the new European stability pact. In the presence of Giancarlo Giorgetti, Minister of Economy, the Parliamentary Budget Office presented its annual report. The assessments of the accounts of Italy and the Italians, included in the report, are particularly delicate due to XX Settembre. Also because they revise the MEF estimates on GDP downwards: «The full and timely implementation of the interventions envisaged by the Pnrr would lead – in 2026 – to a higher GDP level of around 3% compared to the basic scenario, below than what was estimated by the Mef by around half a percentage point.”
An annual correction of 0.5 – 0.6% of GDP is needed to comply with the new stability pact. That is, an adjustment to the deficit that will have to be implemented for seven years. This means that to extend the current measures such as the decontribution or the remodulation of IRPEF rates, the government will no longer be able to resort to flexibility on the deficit, but will have to identify suitable coverage. That is, also to implement the tax reform and ease the pressure of taxes and duties, the new rules “will have to find financing within the tax system itself”. Giorgetti followed up on the exhortation of Paolo Gentiloni, who was also present, but via video link. The European Commissioner called for prudence on budget policies, also because Italy is among the countries that will be subjected to infringement proceedings for excessive deficit (along with France, Belgium, Hungary, Malta, Poland and Slovakia). The minister shared the need to “maintain a responsible approach in budget planning and management”.
The chances of the Italians are declining
In addition to Italy’s accounts, the Parliamentary Budget Office adds, in the report, a look at the accounts of Italians: «From 2014 to 2024, the purchasing power lost for families ranges from 160 euros for families with more than 3 children at 328 euros for those with only one child.” The analysis also focuses on the single allowance and how its introduction has especially rewarded large families. For the 20% of the poorest families, the effect “is still positive” thanks to the extension of child support payments to families who previously did not benefit from it because they were incompetent or were not employed. «The effect of “devaluation” of benefits begins to be significant from the third decile, decreasing the average unit benefit of the introduction of the single allowance». Finally, for the 20% of the wealthiest families, the benefit of the single allowance is negative, if compared to the revalued value – to date – of what would have been obtained by applying the 2014 legislation. «For these families the positive effect of the regulatory changes is not such as to compensate for the negative impact of the loss of purchasing power”.
Early pensions
The Parliamentary Budget Office dedicates a chapter to pensions. Specifically, regarding the easing of social security requirements, “it does not appear plausible that these measures could be self-financing in the short-medium term without weighing on budget balances, taking away resources from other institutions in the welfare system”. And therefore, all that remains is to think about recalculating the allowances. We read in the report: «A possible revision of the exit requirements towards a flexible structure with age and seniority ranges within which the worker can choose, should be accompanied by the application of actuarial corrections for allowances and allowance quotas based on the rules of salary calculation”. The Parliamentary Budget Office acknowledges that the government has taken this direction already in the 2024 Budget Law, “which renewed Quota 103 for a further year, but with the significant modification of the contributory recalculation of allowances”.
GDP estimates and the slowdown in construction
There is no marked difference between the macroeconomic projections of the Parliamentary Budget Office and those of the government. They are slightly “more cautious”. The PBO expects GDP growth of 0.8% this year, an acceleration to 1.1% in 2025 and then a slowdown in 2026, to 0.8%, and in 2027, to 0.6%. . A sign of the slowdown was already reported in the second quarter of 2024, compared to the first: the contraction of the construction sector was added to the systemic weakness of the industry, probably due to the remodulation of incentives for the residential sector. The growth of service activities persists, with a boost coming from the tourism sector.
Photo by Jason Goh from Pixabay
