Hearing on the assessment of the Government’s recent public finance measures


The Chairman of the Parliamentary Budget Office (PBO), Giuseppe Pisauro, spoke before the joint Budget Committees of the Senate and Chamber at a hearing devoted to analyse the recent Government measures concerning public finance balances. In his remarks, the PBO Chairman described developments in the public finance forecasts for 2019 contained in government documents, and analysed the effects on the budget and the deficit to GDP ratio of the in-year Budget Adjustment Bill (Disegno di legge di assestamento del bilancio) and of the measures contained in Government’s Decree Law 61/2019, now in the process of final approval by Parliament. Pisauro also provided a number of indications on the outlook for the public accounts in 2020, also in relation to possible developments in the macroeconomic environment.


The effects of the Budget Adjustment bill and Decree 61/2019 ‒ Overall, the provisions of the two measures should lead to an improvement in general government net borrowing of around €7.6 billion, of which €6.2 billion from higher net revenue and €1.4 billion from lower net expenditure. On the revenue side, 55 per cent of the improvement is attributable to taxation (of which €1.5 billion could be structural) and 45 per cent to non-tax items: more specifically, an increase in the profits of the Bank of Italy (€1.7 billion higher than those indicated in the Economic and Financial Document) and an increase in dividends from companies, participated by the State is a shareholder (€1.4 billion).


On the expenditure side, although the Budget Adjustment Bill has an overall negative impact of €100 million on the balance, the provisions of Decree 61/2019 will produce an improvement of €1.5 billion in net borrowing. This saving is attributable to the provision requiring that any reduction in outlays at the end of the fiscal year with respect to those provided for in the Budget Act for the “Quota 100” pension mechanism and the Citizenship Income shall be used to ensure actual reductions in spending aggregates (rather than being re-allocated on other budget items).


According to the PBO, the two legislative measures provide for an overall correction of trend developments that will lead to a general government deficit of around 2 per cent in 2019. This assessment also reflects the updating of the PBO’s macroeconomic scenario, which compared with the forecast made at the time of the endorsement exercise of the 2019 EFD policy macroeconomic scenario will involve a downwards revision of about one-tenth of a percentage point in the projection for 2019 growth, bringing it to 0.1 per cent.


The outlook for the public accounts in 2020 – Developments in the public finances on a current legislation basis for 2020 are affected by a number of factors that are difficult to quantify, including the carryover effects of developments in 2019, trends in macroeconomic conditions and in interest rates.


Compared with the forecasts developed on the occasion of the endorsement exercise for the policy macroeconomic scenario of the 2019 EFD, the updated PBO scenario revises expected growth in 2020 downwards by two-tenths of a point, to 0.4 per cent. This trend is mainly influenced by the dynamics of final domestic demand, with private consumption being impacted by the activation of safeguard clauses providing for increases in indirect taxes.


On the basis of a very general initial assessment, the decline in the trend deficit could continue in 2020 as well: the positive carryover effects of the budget adjustments for 2019 and the persistence of the current level of interest rates would offset the negative impact associated with the deterioration in macroeconomic conditions, enabling the decline in the deficit on a current legislation basis to continue in 2020. The deficit on a current legislation basis for next year would be around 1.7 per cent (a figure that, obviously, incorporates the implementation of the indirect tax increases envisaged in the safeguard clauses, as provided for under current legislation).


This figure is not in principle incompatible with an improvement in the structural balance, the latter parameter being relevant for the purposes of compliance with EU and national fiscal rules. The policy scenario set out in the EFD indicated uses of €27.6 billion (cancellation of the VAT increases, funding of unchanged policies, new investments) but identified resources of €25.1 billion. This is a substantial volume that will have to be found during the next budget session, in relation to the adjustments requested by the Commission and possibly additional requests for flexibility for 2020 from the Government beyond those for 2019 (0.18 per cent of GDP to be confirmed ex-post) for exceptional events. According to the Update of the macroeconomic and public finance scenario published in December 2018, that flexibility would amount to €3.7 billion for 2020.


Quota 100” and the Citizenship Income: an initial evaluation

The PBO Chairman presented a preliminary assessment of the financial effects in 2019 and 2020 associated with the “Quota 100” pension mechanism and the Citizenship Income. The exercise is complicated by the scarcity of available information, currently represented exclusively by the data published on the INPS website, and should therefore be interpreted with caution.


For an accurate estimate of the financial impact and for an assessment of the effectiveness of the measures adopted, more detailed and timely information would need to be published.


On the basis of the INPS monitoring data for the “Quota 100” mechanism, as a first approximation the PBO simulation has estimated that gross expenditure this year would amount to €2.4 billion (€1 billion less than budgeted) and €4.9 billion next year (€2.4 billion less).


On the basis of the data currently available on the Citizenship Income, it is not possible to produce a conclusive assessment of the expected flow of applications for the benefit in the remaining months of 2019. Overall, however, it can be estimated that expenditure will amount to €4.4 billion in 2019, with a savings of about €1.2 billion essentially connected with differences in the timing with which applications have been submitted compared with the profile assumed in the technical report to Decree Law 4/2019. However, the lower estimated expenditure for 2019 must be assessed together with any increase in outlays under the Inclusion Income programme (Reddito di inclusione) compared with the estimates provided in the technical report due to the relatively slower transition from this programme to the Citizenship income.