Government and social partners discuss 2005 budget plans

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In July 2004, the Italian government revived the practice of consulting the social partners on its 'national budget report', a document that sets out the budgetary objectives for the coming year and guidelines for achieving them. The social partners welcomed the resumption of dialogue. Trade unions see the government's forecast inflation rate (which should act as a reference for sectoral pay bargaining) as unrealistic and are concerned that there might be cuts in social expenditure.

In July 2004, the Italian government relaunched 'concertation' (social dialogue and consultation) with the social partners by discussing with them the guidelines for the 2004-5 'national budget report' (Documento di programmazione economica-finanziaria, Dpef) before adopting it later in the month. The government presents a Dpef each year. While it is not a legislative document, it sets public budgetary objectives for the forthcoming year and the guidelines for the achievement of these objectives. Importantly, it sets the projected inflation rate which, according to the national tripartite agreement of 23 July 1993 (IT9709212F) on incomes policy, acts as the main reference rate for the pay policy to be observed by the social partners during bargaining over new sectoral collective agreements.

The 2004-5 Dpef was drafted by the minister of the economy, Domenico Siniscalco, an internationally known economist who recently replaced Giulio Tremonti as minister, after the latter resigned due to internal disagreements among the ruling parties. The new minister has not maintained the budgetary policy previously followed by the centre-right government, and instead has resumed concertation with the social partners over budgetary issues, and abandoned what observers regarded as 'creative finance' and one-off measures.

The social partners have warmly welcomed the resumption of concertation but do not agree with all the government's state budget decisions, which will be implemented by the 2005 budget law to be presented in September 2004. The government is to reduce public expenditure by EUR 24 billion, plus an additional reduction of EUR 7.5 billion, recently approved, to deal with 2004's public budget deficit. Without these measures aimed at reducing the 2005 public deficit to 2.7% of GDP, Italy would have a deficit of 4.4% and thus exceed the parameters of the EMU Growth and Stability Pact.

The Dpef forecasts reduced economic growth: it predicts that GDP growth will be 1.2% in 2004, instead of 2% as previously forecast, and 2.1% in 2005, instead of 2.3%. In 2005, investment should increase by 1.9%, industrial production by 2% and exports by 2.9%. Employment should grow by 0.4% in 2004 and 0.7% in 2005, while the unemployment rate should fall from 8.6% in 2004 to 8.4% in 2005. The inflation rate is forecast at 1.6% for 2005 and 1.5% in 2006, while the annualised inflation rate is predicted to be 2.3%.

The government intends to achieve a third of the EUR 24 billion expenditure cuts through 'major' reductions in spending and the remaining two-thirds through 'minor' reductions. The items of the budget to be cut will be decided in September 2004.

The government has confirmed its willingness to reduce the tax burden on families and companies, starting from 2006, and to proceed with privatisation worth at least EUR 100 billion, which should contribute to decreasing the public debt to below 100% of GDP.

Responding to the 2004-5 Dpef, the president of the Confindustria employers' confederation, Luca di Montezemolo, expressed appreciation for 'the method, the realism of the figures and the willingness to take care of development needs'. Confindustria asked for a reduction of taxation on productive activities and for the implementation of policies to support research, innovation and the development of the South of Italy.

The trade union confederations are more critical then the employers. They consider the forecast inflation rate to be unrealistic, arguing that the government is taking no action aimed at meeting this forecast rate, in terms of setting the prices of public services and local taxes. The unions and are also concerned that the reductions in public expenditure may affect health and social services.

According to the trade unions, given the premises laid down by the Dpef, forthcoming bargaining over new collective agreements in the public and private sectors will be very difficult. The unions do not intend to take the government's forecast inflation rate as a reference point for the definition of wage increases in these agreements, because they believe that workers (and retired people) are being severely hit by a lack of government action and by an inappropriate monitoring of speculative growth in the prices of essential goods and public services following the introduction of the euro single currency.

There is a chance that autumn 2004 may see major social conflicts coinciding with decisions that the government will have to take during the negotiations over new collective agreements for public sector workers and in identifying where public expenditure is to be cut, which will have a significant impact on both companies and social policies.

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