Government issues 2002 budget law

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In late September 2001, the Italian cabinet approved the 2002 budget law. The most notable points include an increase in minimum pensions, tax reductions in respect of dependent children, a public sector recruitment freeze and cuts in public administration expenditure. Parliament will be asked to grant the government authorisation to issue laws on reforms of the tax and welfare system and of the labour market. Trade unions were very critical of the budget.

On 28 September 2001, the cabinet of Italy's new centre-right government (IT0109302F) approved the 2002 budget law, which involves financial interventions amounting to ITL 33,000 billion (EUR 17 billion). The government believes that this amount of money will be available thanks to the forecast GDP growth of 2.3% and inflation rate of 1.7% in 2002.

The government will take actions in three areas of relevance to employment and industrial relations, as follows.

  1. Public administration. All interventions in this area are aimed at reducing spending, with the only exception being the state security sector - for the personnel of the defence, security and intelligence sector, the budget law sets an increase in expenditure of ITL 1,532 billion (EUR 1.9 billion). Recruitment in all other parts of the public administration will be frozen, including in the municipalities and regions, with the sole exception of the schools sector. Many public bodies will be closed or turned into non-profit associations or private bodies. Much of the state's real estate property will be sold to financial institutions which will be able to resell it to private companies. On-line purchasing procedures will be extended to all the areas necessary to the sound functioning of the public administration.
  2. Family and welfare. The government believes that supporting families and helping the poorest citizens is a priority. From 1 January 2002, minimum pensions will be raised to ITL 1 million (EUR 516.46) per month. The beneficiaries of this increase will be retired people over 65 with an annual income lower than ITL 13 million (EUR 6,714). Tax reductions in respect of dependent children will be increased to ITL 1 million for families having an annual income below ITL 70 million (EUR 36,152).
  3. Structural reforms. The new budget law, contrary to the expectation of trade unions and companies, does not provide for reductions in taxation on income and entrepreneurial activities, which had been repeatedly promised during the electoral campaign. The government decided instead to implement a tax reform on the basis of a request to parliament to delegate to it the powers to legislate on the issue (the 'proxy' mechanism). The government also intends to ask for such an authorisation to implement reforms of the welfare system and labour market, which were key points of the electoral programme of the parties in the new governing coalition. The reform laws will have to be approved, according to the government, by mid-November 2001.

The three main trade union confederations - the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro, Cgil), the Italian Confederation of Workers' Unions (Confederazione Italiana Sindacati Lavoratori, Cisl) and the Union of Italian Workers (Unione Italiana del Lavoro, Uil)- take a negative view of most of the budget, criticising both its contents and the procedure followed in drawing it up. The unions' dissatisfaction concerns some fundamental aspects of the budget law:

  • the resources allocated for the collective agreement renewals of public sector workers are considered insufficient to cover the difference between projected and real inflation over the 2000-1 two-year period. The unions also believe that the overall resources allocated for the renewal of the schools sector agreement in particular are insufficient. According to the unions, the resources allocated do not make possible the start of negotiations, and they are likely to call a national strike to express their disagreement;
  • the recourse to the use of the 'proxy' mechanism for important issues, such as the welfare and tax reforms, is considered extremely negative for relations between the government and social partners. The granting to government by parliament of an authorisation to issue laws on these subjects would reduce the initiative and the influence of trade unions on parliament; and
  • the freeze on public sector recruitment and the cuts in resources for public bodies and research institutes are seen by the unions as the basis for a 'privatisation process which is exclusively oriented towards reducing public expenditure to the detriment of citizens, social services and bargaining rights'.

According to the unions, the public investments foreseen by the budget law are inappropriate and the growth forecasts do not take into account the worsening of the international economic situations.

After months of divisions (IT0107193F), the unions were united in their negative comments on the government's budget. Sergio Cofferati, the general secretary of Cgil, believes that the government's wish to take decisions on matters such as welfare and tax reform on the basis of a parliamentary proxy confirms that 'the government is not interested in dialogue with the social partners on subjects which concern millions of people'.

Union criticisms have focused not only the contents of the budget law but also on the procedure followed in drafting it. Savino Pezzotta, the general secretary of Cisl said that 'there has been no concertation among the partners. Trade unions were informed without having the possibility of discussing objectives and instruments.' Mr Pezzotta also claimed that the increase in minimum pensions and the interventions in favour of families are the result of the trade union pressure on the government to promote greater social equity and support domestic economic demand.

The Confindustria employers' confederation preferred to await the details of the planned structural reforms, and especially those concerning the labour market, before expressing any kind of judgment on them. However, Stefano Parisi, its director general, believes that the budget law goes in the right direction, taking a positive view of the cuts in the public administration even if he would have preferred more 'ambitious' government objectives as regards the rate of inflation. The forecast of 1.7% inflation in 2002 (and not 1.5%, as proposed by Confindustria) is considered by Mr Parisi to be a step in the 'wrong direction' which could actually engender inflation.

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