16' di lettura
In order to reassure the markets the implementation of the government program must not be postponed, because delays generate uncertainty. Instead, we need to start by trying to draw a progressive path, determined but without excessive leaps forward, that develops without crossing the Pillars of Hercules of the decline in public debt and of the “no worsening” of the structural deficit: these are the two key objectives already indicated to Parliament which will remain the guiding compass of the “Government of Change”. To trace this path, different from but that in some ways recalls also the “narrow path” of his predecessor Pier Carlo Padoan, is a 69-year-old economist, perfectly aware of sitting since 1 June 2018 on the government's most difficult chair. A man of good sense with polite manners, who shows a great serenity and that, convinced of his ideas, tries to mix the ambition of politics and the reality of numbers.
In a hot and deserted Rome, the charts show that, from the computer on the desk of the Minister of Economy Giovanni Tria, the spread is quietly going slightly downhill yesterday. But Tria knows very well that the August test is a delicate one, and in the two abundant hours reserved for this interview, he aims to accurately explain not only the philosophy of the budget law now in the works, but also the content of its key chapters. He also depicts a method that starts from technical charts, passes through the elaboration of a lot of graphs, tables and simulations and aims to anchor the political choices to the concrete figures thereby building a common line in a coalition with sometimes very different voices and sensibilities, as shown by the confrontation between 5-Star Movement and League on the issue of major public works.
All of this without bidding farewell to hypotheses of significant measures such as the decrease of the number of income tax rates and their level, to be financed through a mega-reduction of tax rebates (including Renzi bonus) and of cuts to public spending with the exception of crucial chapters such as health, school and research. But all of this, at least in the words of Tria, will be done without generating clashes between those who rigidly demand the respect of the fiscal boundaries and those who support the government contract, and, above all, without laying siege to the Ministry of Economy and Finance.
Q: On Friday the first political summit was held on the budget law, and today another meeting is scheduled. You strongly asked for these appointments to be scheduled. For what reason if not to curb dangerous ambitions and rash statements for the benefit of those who - like the markets - hold a large share of our almost 2.330 billion euros of public debt?
A: These meetings are scheduled to share analyses and objectives in the definition of programmatic framework of public finance. But discussions during the first summit contrast with reports of tensions over the constraints of public finance. For two thirds of the time, the discussion was centered on public investments, on the reforms needed for their recovery and on their possible impacts on growth; and for the other third of the time we discussed the several hypotheses for the draft budget to be presented in September. In the end it was I who reassured my colleagues that the main measures of the government contract can be started compatibly within the constraints of public finance, and not vice versa. And today the meeting will be extended to other ministers as to have a wider sharing.
Q: But the start is compatible with the constraints if the measures are small in size to not say mini. Or not?
A: It's not like that, because “start” does not have to rhyme with “postponement”. What scares markets and investors is not the government program, but the uncertainty over prospects, and wavering only increases the unknowns, it certainly does not reduce them. On tax reform and citizenship income we must really start, and draw a timetable that clearly indicates the measures to be implemented in 2019 and the progress to be made in the following years.
Q: On pensions, instead, is there more room to wait? In the press release on Friday after the summit, welfare and Fornero law –the unwinding of which worries also the International Monetary Fund -- were not mentioned, unlike the Flat Tax and the citizenship income.
A: No, the fact they were not mentioned does not mean they have been abandoned. We are also studying social security measures, with the constraint that they must not affect too heavily the medium and long-term expenditure curve.
Q: The idea of “quota 41” however, would definitely have an impact, and not such a light one.
A: It depends on the conditions. We are studying the case and there is not yet a definite picture.
Q: To make this issue particularly delicate are the repercussions on public debt, and the spread shows that our bonds are now again under special observation. How do we get out of this situation?
A: The spread is influenced by various factors. The first is the slowing down of the economy. A greater uncertainty about the future tends to widen the spreads because it pushes investors towards safer instruments. However, it does not seem to me that there is now a “flight” from Italian securities. There are rather transactions on futures and CDS and in August, when the markets are thinner, small movements are enough to engender price fluctuations.
Q: International agencies, which are much-read by investors, often talk about the positions of Eurosceptic politicians such as Alberto Bagnai, president of the Senate Finance Committee, or Claudio Borghi, who leads the Budget Committee of the Chamber, as well as the famous invocations of the “plan B” on the part of the Minister for European Affairs Paolo Savona. Are you concerned that these statements risk stoking fears over Italy?
A: Not really, we need to separate Eurosceptic positions at the academic level, such as those of Bagnai, with the fact that the official line of the government does not in any way questions our staying in the Euro. And since the government was formed, I have not seen any statements in that direction. Then the fame that surrounds some people is often far from reality: Minister Savona, for example, on the importance of being compliant with the constraints of public finance, is even more rigid than me. This is not the real problem however: in order to increase the confidence of the markets, it is necessary to show that we are able to grow more.
Q: You have spoken repeatedly of “endogenous stimulus” stemming from public investments, but in recent years there have been several attempts at activating it without results. How do we move from programs to facts and results?
A: We are studying an overall plan to mobilize all the existing resources already available in the public budget but that are stuck for one reason or another. I often find out by chance during my meetings that there are investments blocked, for example in large social security institutions, because the projects are missing, not the resources. Or again that at the Ministry of Justice the plan for new jails, implemented with Cassa depositi e prestiti, was stuck and now we have been able to reactivate it. Therefore we need, first of all, a central and precise monitoring to understand, about each program, at what point they are at and what cause is blocking them. But obviously this is not enough. In the last few years in several administrations planning capabilities have disappeared for various reasons, and yet this is an essential precondition for activating investments. In particular local authorities no longer have these skills, and it is necessary to rebuild a structure that becomes a sort of updated version of the Civil Engineers and whose task would be to provide final projects to the bodies that have to build or renovate houses, schools or hospitals. There is also fear at signing off evanescent projects because it is risky to approve costs based on a limping design. But at this level a strong effort is necessary to simplify the rules: in September we will make the first modifcations to the Procurement Code, with a view to a subsequent general revision.
Q: But a strategy that aims at reviving public investments does not contradict the all-round opposition of the 5 Star Movement towards major projects that puts all the main projects at risk, from the TAV high speed train to the TAP gas pipeline to the Third pass?
A: I understand the concerns of the business world, especially as we are in a delicate phase in which we are building the political identity of a completely new government that is also played out at the symbolic level. Regarding the TAV, for example, I think there is a clash around symbolic facts, which will be resolved, without forgetting that this, like other great public works, is part of European infrastructural plans that should not be questioned. But to get the economy going again, we need to look at the mass of public works and investments that are widespread throughout the nation. On major works, it is necessary to envision a more active role on the part of large companies with state participation such as Enel, Eni and Ferrovie and Cassa depositi e prestiti.
Q: Many unknown factors however are related to private investments, as shown by the universal criticism from the business sector over the new constraints on temporary job contracts introduced by the “Dignity decree”. Is there a risk they might defeat the purpose?
A: I can see the reasons for these concerns, but also in this case it is important not to rush to conclusions. First of all, I am convinced of the fact that we should see the effects at full speed, within a broader framework of measures which in the budget law may translate into new incentives for permanent work. It should not be ignored, moreover, that in recent years there has been an abuse of fixed-term contracts, and even from a macroeconomic point of view such a strong increase in fixed-term employment is a problem because it does not allow for an investment in human capital and therefore in an increase in productivity, which remains the great Italian problem. The problem exists, and if the answer is adequate we will see it.
Q: In all cases, it takes a long time to re-ignite investments, provided that the process is successful. Or are you counting on it to start improving budget margins as early as next year?
A: Of course, it is not possible to assume already in September an increase in growth compared to the trend simply based on the fact that we are focusing on public investments. We are perfectly aware of this, and it is precisely for this reason that the issue of funding coverage is fundamental, and so is to define a strategy that implements the government program within the constraints of public finance. Our discussions for the upcoming budget with other ministers are based on this assumption.
Q: Can you share them with us?
A: The current assessments lead to estimate a growth of 1.2% this year, compared to the 1.5% written in the Economic Planning Document, and around 1.1% next year, in the light of a slowdown that is taking place in all the great EU countries. Already this slowdown alone would bring the deficit in 2019 to 1.2%, and in September we will understand the level on which we can base the definitive forecasts. To do this, we need to add the 12.4 billion euros necessary to neutralize the safeguard clauses that would trigger a VAT increase. However, we are talking with the EU Commission to avoid a correction that would be too pro-cyclical, that is, that would favor the economic slowdown.
Q: Numbers like these are compatible with maintaining the debt reduction path?
A: Without a doubt. Of course, there would be a slowdown compared to the trends that were expected months ago, but what matters is the reduction path, which is not being questioned. Then there are possible programs of further privatizations, which in recent years have stopped also due to capitalization problems, that have now been overcome.
Q: These numbers don't leave much leeway. Does this mean that the goal of avoiding a VAT increase next year is at risk?
A: No. All the simulations we've carried out are based on avoiding triggering the safeguard clauses (that would result in a VAT increase). We must keep in mind that the decision to not increase VAT will have a positive impact on growth, which we estimate at 1 or 2 decimal points depending on the model. As far as VAT itself goes, the most we can do is a tweak to simplify some of the tax rates: we are looking at various possibilities, some of which will produce a small increase in tax revenue and others a reduction, but the volumes are absolutely marginal.
Q: We are still talking about a number large enough to absorb all of the extra room that Italy is asking the Commission for. In the event that it is actually granted. Do you see a risk that less “flexible” deficit targets could block the government's program at the starting gate?
A: I think it is in the interest of both Italy and the Commission to not create financial instability. In the process of defining shared targets, we will take into account the overall content of the budget and of the speed with which we can take action to increase the weight of investments in relation to total spending. Previous governments have used budget flexibility granted by the investment clause without succeeding in actually increasing investments, and this aspect complicates the picture.
Q: But once you have revised the deficit targets, how will you deal with the rest of the program?
A: By designing measures that have solid funding, point by point.
Q: Let's start with taxation. Regarding the initial enactment of the Flat Tax, a lot of different theories have been talked about, starting with an increase of the income threshold for professionals, self-employed and artisans to qualify for the 15% regime. Is that the right road?
A: First of all when we speak of initial enactment of the Flat Tax, we indicate a path of progressive convergence towards the goal set in the government program. On this last point, an increase in the threshold to qualify for the Flat Tax is certainly a possible step, which would also produce a significant effect of simplifying the tax compliance procedures for smaller companies. But we are also working very hard on simulations for measures involving individual taxpayers, with a goal of converging progressively towards the final goal.
Q: Have you looked also at the possibility of reducing individual tax brackets from five to three?
A: It's one of the many simulations that we've carried out in recent weeks, taking into consideration not only hypotheses of reduction of the number of tax brackets but also of their level. It is vital that each hypothesis is placed in the context of the overall plan, in a framework capable of providing certainty for investors but also for families, identifying not just the measures to be taken the first year but also the steps that will lead us to the final goal over several years.
Q: How will you pay for it?
A: Funding must come from a deep reorganization of tax expenditures, which has not been attempted up to this point because it can be done only alongside a reduction of overall tax rates. In a certain sense, we have to apply a version adapted from the rule of “Pareto efficiency,” whereby no one loses and some people gain over a multi-year period.
Q: Is Renzi's 80 euro per month tax rebate under discussion?
A: There's no doubt about it, also for reasons of technical reorganization. The 80 euro tax rebate, because of how it was designed, creates an infinite amount of complications, starting with many taxpayers who discover the following year that they have lost or acquired the right for even a modest gain in income. But given the delicate nature of this topic, it is important to emphasize that the entire system must be reorganized with a guarantee that no one will be penalized in the move from the old system to the new one. The goal here is to define the distribution of benefits and modulate the consequences of changes to tax expenditures.
Q: The long list of “tax expenditures” also includes measures for companies. Do you think you will act on that front as well?
A: It must be an overall review.
Q: Corporate tax breaks include hyper- and super-amortization for certain types of investments, which need to be confirmed in the budget law or else they expire. Are these at risk too?
A: The hyper- and super-amortization measures have been effective in stimulating private investment, so they should be confirmed. The choice of measures to be reviewed must naturally be based also on a cost-benefit analysis, and therefore on their effectiveness. Certainly, they are not included in the long-term projections and their reconfirmation has a cost, but I believe that these tools must be maintained.
Q: During your hearing at the Senate Finance Committee, you talked about possible changes to the IRAP corporate tax. Are you looking at these too?
A: IRAP is a tax that could be progressively eliminated, because it has distortive effects. Right now however the important thing is to concentrate on the government program's most significant and symbolic points, because the world is looking at how we will enact them and how we respect our budget constraints. Therefore right now we need to avoid wasting energy on other fronts, however important they may be.
Q: Among the possible revenue-raising measures there is talk of a “fiscal truce,” which during the election campaign was seen generating even billions of euros. You instead have referred to calculations made by the Revenue Agency estimating that, of the 800 billion in arrears “warehoused” in the tax collection agencies, only 50 billion euros is actually realistically available to be collected. That would drastically reduce the amount of potential revenue to be raised. Yesterday for example the amount being circulated was 3.5 billion euro of revenue for the first year. How much progress has been made on this?
A: The “fiscal truce” is certainly on the table, and it must be connected to a reform of individual taxation. But any revenue figure at this point is premature.
Q: But doesn't a new tax amnesty risk sending a message to tax evaders?
A: No, for two reasons. A “fiscal truce” would close the book on the past during the transition to a new system, and the new system would also be based on strengthening the tools to fight tax evasion. From this point of view, the start of obligatory electronic invoicing from January 1 for the private sector is a very powerful tool, and goes in the right direction towards integrating the various data banks that enable increasingly effective and accurate cross-checks.
Q: The other key point of the government's program is “citizenship income.” To get started, is has been said that it will need funding for 2 billion euros to relaunch the pre-existing employment centers through which the program will be administered. Is this the right path, or is there a risk of wasting resources in a system that simply does not work?
A: The numbers crunching we are carrying out in a working group created in partnership with the Labor Ministry is quite complex, because first of all we need to set out a precise definition of how the citizenship income will be designed and therefore, consequently, which existing welfare instruments will disappear as they are absorbed into the new program. The re-launch of the employment centers is part of this analysis, because these offices will be completely redesigned to meet the needs of this new goal. The path indicated in a draft law presented during the previous legislature is no longer valid, because it calls for an extremely complex system that, if enacted, would take years for deliver the money to the pockets of the people who need it. And those who need it don't have years to wait. The “citizenship income,” in any case, will incorporate the current welfare program known as “inclusion income,” as well as other mechanisms that currently support low income families that in the future will be covered by this new, universal system. In this case, too, we're talking about a progressive enactment, funded by the public finance resources that become available as we move forward. With the Commission we continue to work to make it possible to finance the reform of the employment centers through the European Social Fund, given that this could fall under the category of improvements to administration.
Q: Let's look at the situation regarding current spending. You indicated in a speech to parliament that a nominal spending freeze could result in a savings of 10 billion euros next year. Is this actually achievable?
A: It is complicated, but that's the direction we need to take. Current spending in relation to GDP certainly needs to fall, because this would enable us to change the composition of the budget. Each ministry will have specific targets to meet, using the spending review mechanism provided by law, but we will not make cuts on health, schools or research spending.
Q: During the government's first two months, you have been busy with the budget and also with nominating new management of Treasury-controlled companies. The stalemate over nominations at public broadcaster RAI caused a delay to the timetable. After Marcello Foa's nomination as RAI's new president was rejected by the parliamentary Broadcasting Oversight Committee, he said he was waiting from a “word” from RAI's shareholder. The shareholder is the Treasury. What “word” do you think you will send?
A: We must be careful: the Treasury, by law, must submit two names, indicating one as its choice for CEO and with no indication for the other name, which was Foa. The nomination of RAI's president is the task of its board of directors, which in turn is nominated by a majority of parliament, and must be ratified by the Oversight Committee, which is also a parliamentary organ. In this phase, therefore, it would be inappropriate for the Treasury to take a position.
Q: The tax revenue agencies could also get new management named by the Treasury. Do you see a change here, or will current management be reconfirmed?
A: You will have an answer to this after today's Cabinet meeting. I can't release information on single nominations to the press.
Q: Italian bank Monte dei Paschi di Siena is among the companies controlled by the Treasury. Do you confirm confidence in the current management, and the strategy of returning the bank to market control in 2021, or could you imagine keeping under state control for a longer period, as indicated by some of the current leaders of the majority?
A: Bringing the bank back to the market is a goal shared with the European Commission and is therefore not being discussed. I can't comment on questions that involve listed companies. When this was done in the past, and not in this office, it certainly did not bring much luck.
Q: This prudence is understandable. But it must not be easy to stay the course in a political culture often characterized by more or less extreme positions about the role of the state and “happy degrowth” ...
A: Look, I think that especially during the initial phases of a completely new political movement you must look beyond the labels: behind what people are calling “happy degrowth” there must be a reflection on very serious issues like sustainable development, or the amount of investment necessary to reduce the environmental impact of the industry. In any case, I am in favor of happy growth, and the budget we are working on is aimed to support it.
English translation by Jennifer Clark and Corrado Poggi