Social partners debate new budget law

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In September 2000, the Italian government will discuss with the social partners the contents of its budget law for 2001. Tax revenue is much higher than expected, which will permit a reduction of the tax burden, and the social partners have been debating who should benefit from such reductions. The debate has been heavily influenced by factors such as: the economic recovery; increases in oil prices; the weakness of the euro; rising inflation; and the forthcoming general elections.

Italy, like all the other "euro-zone" countries, is going through a phase of economic recovery which, for the first time in years, could lead (according to the main international research centres) to an increase in Gross Domestic Product (GDP) of over 3% in 2000.

The positive economic trend and the fight against tax evasion promoted in recent years by the centre-left government has contributed to increasing tax revenue considerably. The Bank of Italy (Banca d'Italia) has estimated that revenue increased by 5.6% in the first half of 2000 compared with the same period of 1999. Even after it has met the requirement to maintain a 60% ratio between public debt and GDP imposed by membership of EU Economic and Monetary Union (EMU), the Italian government will have at its disposal additional resources amounting to about ITL 14,000 billion (EUR 7.2 billion). The governing majority has decided - on the basis of the December 1998 tripartite social pact (IT9901335F) - to redistribute these funds in order to reduce the tax burden. The amount of the reduction and the beneficiaries (families and/or companies) will be defined in the next "economic and financial planning document" (Documento di programmazione economica e finanziaria, Dpef), whose contents are due to be presented by the government to the social partners on 25 September 2000.

From 27 July 2000, when the government parties announced its decision to implement the tax commitments made in the 1998 social pact, politicians and social partners started a debate on the amount of the reduction of the tax burden and on the beneficiaries.

The economic and political situation within which the debate has taken place is very complex. The continuing increase of oil prices, the constant decrease in value of the euro, and the risks of inflation could have the double effect of reducing domestic demand and jeopardising, as a consequence, the prospects of economic growth. Meanwhile, the parliamentary elections, planned for spring 2000, have influenced the positions of the government and the opposition and could lead to economic decision-making being used for political purposes.

The debate

On 27 July, the government announced that it intended to use the available resources: to reduce the tax burden on small and medium-sized enterprises (SME s) and on families; to increase funds for assisting the poorest groups in the population; and to increase minimum pensions.

These proposals were heavily criticised by the social partners. Antonio D'Amato, the president of the Confindustria employers' confederation, underlined the necessity of allocating all the available resources to support companies' competitiveness. Mr D'Amato has also suggested five fundamental areas of government intervention in order to foster national development (IT0006268F): reduction of the tax burden on companies; reduction of employers' social security contributions; liberalisation of services in order to reduce their costs, technological and organisational innovation through investment in training and research; and improvement of infrastructures. Furthermore, Mr D'Amato has proposed drastic measures to reduce the size of the clandestine, underground economy. According to Confindustria' s president, these objectives should constitute the contents of a new social pact among the government, the employers and the trade unions.

Sergio Cofferati, the general secretary of the Cgil trade union confederation, is not in favour of a new social pact. He declared that the 1998 pact is still valid and has not yet been fully implemented. According to Mr Cofferati, all available resources should be allocated to low-income families and increasing social expenditure and minimum pensions. Cgil proposes reducing the tax burden on low-income families by ITL 200,000 (EUR 103) per month and increasing minimum pensions, which at present amount to ITL 721,000 (EUR 372) per month, by ITL 100,000 (EUR 51). According to Mr Cofferati, the only companies which should benefit from the government's available resources are those which make investments in research and development.

By contrast, Sergio D'Antoni, the general secretary of the Cisl union confederation, is convinced that a new tripartite social pact is necessary, because of the worsening oil-price situation which generates an increasing risk of inflation. According to Mr D'Antoni, the new pact should deal with the modernisation of the country and in particular should introduce more "flexibility in the tax system, wage policy and market regulation". Unlike Cgil, Cisl is willing to review the current two-tier collective bargaining system in order to give more room to decentralised wage bargaining. It also seeks a different tax system for companies in the South of Italy and faster liberalisation of public services. As regards tax reductions, Cisl proposes a modification of the rate of income tax (Imposta sul reddito delle persone fisiche, Irpef) in order to reduce the tax burden on all families, and a further 1% reduction of companies' labour costs. Furthermore, Cisl has criticised Confindustria for "taking an aggressive position without having proposed concrete alternatives".

Paolo Pirani, the confederal secretary of the Uil union confederation, is convinced that there are also resources which would permit action to be taken in other fields - for example, reducing housing tax.

Antonio Fazio, the governor of the Bank of Italy, intervened in the debate to urge the government to profit from the favourable economic trend in order to make the necessary structural reforms and look towards a "new economy". For these reasons, Mr Fazio has proposed a "strategic collaboration" among the social partners and greater workers' participation in companies. Mr Fazio has also heavily criticised the relations among the social partners, which he believes are still based on the concept of "class struggle". Mr. Fazio believes that all social forces should find new strategies to increase wealth and divide it in socially equal terms. He believes that the resources to foster growth should be created through a reduction of social expenditure, especially on pensions and healthcare. As regards the distribution of the benefits of the growth in tax revenue, the governor made no explicit proposals but, from his declarations, it seems that he would reduce taxes for low-income families, which are most hit by the "shadow tax" of inflation.

Commentary

The worsening of the international economic trend - characterised by the euro's weakness against the US dollar, the increase of oil prices and strong inflationary pressures - reduces the possibilities for the Italian government to use its exceptional tax resources to reduce the tax burden on families and companies. It is widely thought that oil-price increases will deeply influence the Italian national budget, while inflation and the increase of interest rates on the public debt will reduce the availability of additional resources. For these reasons, there is a widespread opinion that the government should, in the 2001 budget, make some reduction in public expenditure, reforming the pension system and reducing health spending, which - being managed by the regions - has recently exceeded the limits fixed by the 2000 budget law. However, the debate among the social partners and the political parties seems strongly influenced by the forthcoming elections.

It seems that the government has two main priorities: to distribute the additional resources in a fair way among companies and families; and to identify measures which will have an immediate impact on workers' remuneration and pensions. Given the situation, the possibilities for far-reaching negotiations which might end in a new social pact, as proposed by Confindustria - reforming the tax system, public expenditure, the health and pension system, the labour market and bargaining levels and addressing southern development problems - are very remote. The coming elections and the divisions among the social partners also contribute to reducing the chances of reaching a new pact.

Confindustria is taking a very radical position, insisting that a possible surplus in tax revenue should be used to reduce public debt, and that the additional resources to be invested in supporting companies' competitiveness should be found by reducing social expenditure.

The trade unions' responses illustrated their long-standing divisions. While Cisl and Uil take a cautious attitude towards the government's position and are urging it to reduce the tax burden on all families, Cgil seems to agree with the government's position, which is more oriented towards helping low-income families and increasing minimum pensions. (Domenico Paparella, Cesos)