Welfare reform results from negotiations between government and trade unions

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The finance law for 1998 approved by the Italian Government in November 1997 contains a number of proposals for welfare reform in the areas of social security and pensions. As regards pensions, the Government has signed an agreement with the Cgil, Cisl and Uil trade union confederations which makes some changes to the previous reform introduced in 1995. The Government's proposals have been severely criticised by the employers' associations.

On 1 November 1997, the Government signed an agreement with the three main trade union confederations - Cgil, Cisl and Uil- on the reform of the pensions system. The agreement is part of wider-ranging negotiations on the welfare state (IT9703303F) begun during preparation of the finance law for 1998, which is currently being discussed in Parliament after its approval by the Government in early November 1997.

Background

Negotiations with the social partners have been made more complex by a dispute between the majority coalition Government and the Communist Reconstruction Party (Partito di Rifondazione Comunista), which supports the Government without being part of the coalition. After the Government had negotiated an understanding with the unions at the end of September 1997 on a number of welfare reforms to be introduced by the finance law (and when it was about to reach agreement on pensions as well), the Communist Reconstruction Party announced that it would vote against the finance law in Parliament. The Communist Reconstruction Party was critical of the fact that the Government had not taken account of its proposals concerning the reduction of working time, employment, and reform of the pensions system. This split within the governing majority provoked a quasi-crisis in the Government (IT9710136N), and also led to suspension of negotiations with the social partners. After negotiations within the majority coalition, the Communist Reconstruction Party lifted its opposition to the finance law after reaching agreement with the Government that a 35-hour working week would be introduced by law, and that blue-collar workers would not be affected by the proposed reform of the pensions system.

Once the Government had gained the Communist Reconstruction Party's consent to the 1998 finance act, it resumed negotiations with the social partners. This led to the agreement on reform of the pensions system signed by Cgil, Cisl and Uil, which are about to begin consultations with their members concerning the contents of the agreement. The agreement has been criticised by employers' associations and by self-employed workers' associations.

Welfare reform

The main areas of the Government's planned welfare reform are:

  • social security;
  • the criteria for entitlement to social benefits; and
  • reform of the pensions system.

Social security

As regards social security, the Presidency of the Council of Ministers will create a "fund for social policies" (fondo per le politiche sociali). This fund will be used to finance:

  • anti-poverty programmes;
  • social services targeted at categories of people in need, such as older people, immigrants, people with disabilities and drug addicts; and
  • regional projects in the field of social policy.

The aim of these various measures is to combat poverty. Moreover, efforts will be made to promote greater equity in the quality and level of the social benefits available in the various regions of the country.

Also envisaged are measures to support labour market "outsiders". The principal innovation here is the experimental introduction of a "minimum income" for people without incomes and with dependent minors. The experiment will be conducted in certain depressed areas of the country, mainly in the South of Italy. The Government will issue a decree law that fixes the duration of the experiment, the criteria for entitlement to the minimum income, and its amount.

Access to benefits

As far as access to social benefits is concerned, a "social card" will be introduced in order to establish whether or not a person is entitled to receive free healthcare. The use of this card will measure the real economic situation of those applying for social services in the area of healthcare. By means of self-certification, the person concerned must not only declare his or her income but also furnish information on other indicators of wealth not considered for fiscal purposes (for example, ownership of certain luxury items, or income from investments). The aim is to eliminate distortions in the present system arising from the fact that the criterion for access to free health services is the income declared for the purposes of tax assessment. Given that certain items are excluded, and due to tax evasion, this method only imprecisely gauges a person's actual wealth. Self-certification is only required of those who want to receive free health services.

Pensions reform

One of the issues at the centre of negotiations between Government and the trade unions has been the reform of the pensions system. The agreement signed by the Government and the unions concerns dependent workers and makes a number of changes to the reform of the pensions system introduced by the Dini Government in 1995, which sought to curb expenditure by progressively raising the retirement age and by introducing private pension funds. While still respecting the aims of the 1995 reform, the government's intention is to achieve more rapidly its expenditure-reduction targets.

The principal points covered by the agreement are parity of treatment between public and private sector workers as regards the rules on retirement age, and speeding up the raising of the retirement age introduced by the Dini reform. More specifically, the agreement provides for:

  • parity of pensions entitlements between public sector workers - who have hitherto enjoyed more favourable treatment - and their private sector counterparts. Complete equality will be achieved in 2004, when the criteria for both categories will be 57 years of age and 35 years of contributions, or 38 years of contributions irrespective of age (for calculating entitlement, one of two criteria applies - either age plus years of pension contributions, or only years of pension contributions regardless of age);
  • raising the retirement age. In 1998 the minimum retirement age for private sector employees will be raised to 54 years, compared with the present 53 (plus 35 years of contributions), and then to 55 in 1999, 56 in 2001, and 57 in 2004. For public sector workers, the retirement age will be raised to 54 years in 2000, 55 in 2001, 56 in 2003, and 57 in 2004;
  • suspension for 1998 of automatic inflation-indexing (the so-called "sliding scale") for those pensions amounting to more than ITL 3.5 million per month. From 1999 onwards, for three years the adjustment coefficient will be reduced for pensions of between ITL 3.5 million and ITL 5.6 million per month, while the block on index-linking will continue for pensions of more than ITL 5.6 million;
  • a temporary freeze on early retirement on "seniority pensions" (based solely on pensions contributions rather than age) in 1998. Those becoming entitled to claim a seniority pension in 1998 will have to wait three months before being permitted to do so. In this way, the Government hopes to forestall the damaging expenditure caused by a wave of retirement applications by workers afraid of being penalised by the reform. A particularly large number of applications for retirement have been made by school teachers (IT9706114N) (around 75,000, of which 43,000 in 1997 and 32,000 in 1998). For this reason the freeze on early retirement will apply to school personnel until 1999, so that those entitled to stop work in September 1998 will now have to wait until September 1999; and
  • the elimination of privileges enjoyed by certain categories like the employees of the Bank of Italy, airline pilots and university lecturers, who have their own pension funds.

The reform of pension entitlements does not apply to: blue-collar workers; people who began working when aged between 14 and 18; and workers receiving redundancy benefits while awaiting retirement.

As far as self-employed workers are concerned, the Government has increased their pension contributions and delayed their retirement age. Negotiations have also begun on these matters with the employers' organisations in the sectors of commerce, crafts and agriculture, although so far inconclusively. Whereas provisional agreements have been reached with Confartigianato, CAN and CASA (the employers' associations in the crafts sector) there has been strong opposition to the Government's proposals form Confcommercio and Confesercenti (commerce) and Confagricoltura, CIA and Coldiretti (agriculture). Nevertheless, although the Government has yet to obtain consent from these organisations, it has increased the contributions charged to self-employed workers (by 0.8% in 1998) while also raising their retirement age (to 58 years plus 35 years of contributions in 1998). Furthermore, the pension contributions of freelancers will increase by 1.5% in 1998, and then by 0.5% every second year thereafter. The aim is to raise contributions from the present 10% to 20%.

The Government hopes to reduce total public expenditure by around ITL 4,100 billion in 1998 as a result of these various reforms to the pensions system. A reduction of ITL 2,600-2,800 billion should result from savings, and ITL 1,300 billion from the increased contributions paid by self-employed workers.

Reactions from the social partners

The social partners have reacted in rather different ways to the welfare reforms proposed by the Government.

Cgil, Cisl and Uil have pronounced themselves substantially in favour of the outcome of their negotiations with the Government. They believe that the reform is equitable in so far as it envisages not only cuts in public spending but also positive social security measures (for example, the minimum income, the social policies fund and the "social card"). Moreover, as regards pensions, the area in which the largest public spending cuts were expected, the unions maintain that the reform has introduced a greater degree of equity by eliminating the differences between public and private sector workers, and the privileges of certain categories. Moreover, they have reacted favourably to the fact that blue-collar workers - who would have been most heavily penalised if the retirement age had been raised - are exempt from the new restrictions on retirement age. Finally, the unions claim that the results so far achieved in reforming the welfare system clearly confirm the importance of dialogue and concertation, and the search for consensus when issues of great social importance are concerned.

By contrast, the reaction of the employers' organisations has been largely negative. The Confindustria confederation has declared that the reform does not contain structural measures, and that it is oriented to the short rather than the long term. Moreover, the cuts in public spending fall short of the target announced by the Government in the spring of 1997. However, it should be borne in mind that these criticisms of the Government's welfare reforms are closely bound up with Confindustria's hostility to the agreement reached by the Government and the Communist Reconstruction Party on the 35-hour working week (IT9711216F).

The organisations representing commerce, agriculture and, to a lesser extent crafts, have also reacted negatively to the reform, criticising in particular the changes made to the pension rights of self-employed workers.

Because of its failure to reach agreement with the employers' associations, the Government has not yet been able to sign an agreement with the social partners on its proposed welfare reforms; an agreement which otherwise, as in the case of the accord on reform of the pensions system, would have been signed only by the union confederations.

Commentary

The proposed reform of the Italian welfare system displays a number of innovative features. As regards pensions, specific mention should be made of the parity of treatment introduced between public and private sector workers. A number of privileges previously enjoyed by public employees will thus be eliminated, notably their right to retire after paying contributions for fewer years than their counterparts in the private sector, a system which has given rise to the phenomenon of the youthful "baby pensioners".

Moreover, as well as achieving cutbacks in public spending, the reform introduces changes in the area of social benefits. The minimum income is a significant innovation, while the aim behind the changes made to social services entitlement is to rationalise the system. Indeed, the "social card" should prevent waste and ensure that only those in real need will receive free healthcare.

The Government's proposals have been conditioned by the political events surrounding the passage of the finance act though Parliament, and in particular by its trade-off with the Communist Reconstruction Party. Tensions within the government majority have hampered negotiations with the social partners; in particular, they have provoked Confindustria's hostility to the reform. (Marco Trentini, Ires Lombardia)

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