Letta government budget comes under fire
(By Emily Backus).
(ANSA) – Bologna, October 16 – Unions, industry leaders and opposition parties on Tuesday pelted the Italian 2014 budget bill, presented late Monday by Italian Premier Enrico Letta, although financial markets appeared to like the look of the package.
The budget bill features a 27.3-billion-euro adjustment in public finances – including spending cuts – over the 2014-2016 period, 11.6 billion euros of which regard next year. Public health care has been spared from cuts, and a feared tax on financial transactions was not in the text. The bill foresees government privatizations to help reduce the public debt, while income, labour and property taxes are to be reduced.
Unions were livid over the prospect of more public administration spending cuts after years of austerity measures taken to contain sovereign debt crisis and to meet belt-tightening demands of the European Commission.
The UIL union, which represents many public workers, threatened to strike and demonstrate over spending cuts and a freeze on public-sector salary rises. “The (budget bill) attacks public workers and their ability to negotiate” as well as “calling into question” a measure intended to offer job security for precarious workers, agreed the powerful head of the leftwing CGIL union, Susanna Camusso, who also called for a more progressive tax structure.
A union head representing firefighters and other security forces, FNS-CISL General Secretary Pompeo Mannone warned the budget bill will “bring (public) safety to its knees…an additional axe on security forces and firefighters”. “The linear cuts to the budgets, confirming contract freezing for all 2014 and overtime cuts, are incompatible with the delicate functions fulfilled by the public safety and rescue sectors in this country,” Mannone said. The head of the penitentiary police union OSAPP, Leo Beneduci, called the budget bill “a disastrous maneuver” for its wage and hiring freezes as well as overtime cuts.
“The justice ministry’s work of progressive dismantling of the penitentiary police corps over the last ten years continues,” said Beneduci. “The ranks of the regularly employed is stuck at 1992 (levels)” when the prison population was far smaller, Beneduci added.
“Today the corps need 6500 units, including 1500 inspectors and 2000 superintendents,” Beneduci complained.
In recent days, Italian President Giorgio Napolitano has called for legal measures to relieve Italy’s bursting prisons, citing the an unfavorable ruling regarding Italian prison overcrowding by the European Court of Human Rights in Strasbourg. The president of the Italian employers association Confindustria expressed disappointment in the budget bill despite what he saw as partial progress.
“The steps are in the right direction, but once again they are not enough to make us recover growth,” Confindustria President Giorgio Squinzi said at the inauguration of the SAIE building trade fair in Bologna.
“The 2014 budget bill doesn’t truly affect the (excessive) cost of labour. We have indicated the tax burden (on workers) as an absolute priority. “What should be done? I’m not the prime minister of this country, but I would like to say that more courage is needed,” Squinzi continued.
Squinzi explained that the budget, though constructive, was to close to the “status quo”.
“It won’t change either the economic performance or the country’s outlook for the future,” Squinzi said.
Deputy and member of the Chamber budget commission, Gianfranco Librandi – a member of former premier Mario Monti’s small Civic Choice party, part of the ruling left-right coalition – said the budget bill “is absolutely useless” except for serving “the exact average interests of the (ruling left-right coalition parties), which does not satisfy but also does not satisfy, that doesn’t harm and doesn’t help” but nevertheless represents “the exact opposite of what would help the country”. Monti said the tax cuts were “timid” and would not give a sufficiently strong boost to the economy.
Unveiling the bill Monday night, Letta said it was aimed at addressing the country’s economic woes while sticking to EU-mandated targets and keeping market speculation at bay.
Letta said the thrust of the three-year budget was to stoke growth by cutting taxes while limiting spending cuts.
“Enough of the axe-wielding, now we are focusing on growth instead,” Letta said.
“For the first time in a long time we have managed to keep accounts straight without hiking taxes,” the premier added, stressing that it was the first budget in many years “that doesn’t start with cuts requested by Brussels”, after Italy recently emerged from excessive-deficit proceedings.
“There will be a significant reduction in taxes for households, workers and firms,” Letta said on Monday, adding that the tax burden on businesses would fall by 5.6 billion euros over the three years, and companies would get subsidies if they hired people on full-time contracts.
Italy’s overall tax burden would fall from 44% to 43.3% in the three years, Letta said.
At the same time, there would be a 1.6-billion-euro fund to help small and medium-sized firms, as well as more cash for social policies and to help the growing numbers of people falling into poverty.
Another measure that will help get economic activity moving again are subsidies amounting to one billion euros for home improvements and other “green” moves, Letta said.
One billion euros would also be transferred to municipalities to help keep up services.
There would also be a return to setting industrial policy instead of leaving many firms to fend for themselves, with a “control room” at the economy ministry, Letta said.
The budget would implement adjustments of 11.5 billion euros in 2014, 7.5 billion in 2015 and another 7.5 billion in 2016, he said.
Health cuts, which had been vehemently opposed by Health Minister Beatrice Lorenzin after reports of a reduction of up to four billion euros, did not featured in the package, Letta stressed.
Another move is the incorporation of a widely hated and recently scrapped property tax called IMU and local rubbish and service levies into a new, lighter tax, to be paid by homeowners and renters, called TRISE.
Some so-called ‘hawks’ in ex-premier Silvio Berlusconi’s People of Freedom (PdL) party criticised what they called a “disguised continuation of IMU”, against which Berlusconi campaigned vigorously in February elections, but PdL pro-Letta ‘doves’ including Deputy Premier and Interior Minister Angelino Alfano defended TRISE as a “good compromise”.
Consumer groups also slammed TRISE as hitting homeowners and renters “indiscriminately” to the tune of 345 euros a year.
The other main government partner, the centre-left Democratic Party, hailed the budget as “a step in the right direction” but called for public-sector cuts to be mitigated as the bill passes through parliament. Unlike many previous budget bills, this one has not been “armour-plated” to protect it from parliamentary changes.
The bill also allocates 110 billion euros over seven years for projects co-financed by the European Union for territorial cohesion, much of which will be ploughed into less developed areas of southern Italy.
Economy Minister Fabrizio Saccomanni, the main architect of the budget, said the Italian economy had “significant potential for growth in the coming years”.
The government said it forwarded the budget bill to the European Commission in the nick of time to meet an October 15 deadline.
For the first time this year, under new stability-pact rules, Brussels will be able to order changes to the budget if it reckons it will not attain sufficient fiscal discipline.
European Economic and Monetary Affairs Commissioner Olli Rehn on Monday praised Italy’s financial prudence and said Rome even had some margin left for public investment to promote growth and still keep its public spending deficit at or below 3% of the gross domestic product (GDP).
The Italian government has been struggling to keep its deficit at 3% of GDP in order to meet a key European Union target.
Financial markets greeted the budget bill with apparent warmth.
The spread between Italian 10-year bonds and their ultra-safe German equivalents, a measure of confidence in Italy’s economy, dipped below 230 points for the first time since July 2011, when Italy was heading for a crisis that threatened the euro.
The premium investors pay to hold BTPs rather than AAA-graded Bunds dipped to 229 points with a 4.23% yield.