EXHIBIT 3
REPUBBLICA ITALIANA
Dipartimento del TESORO
Italy’s Strategy for Growth and Fiscal Consolidation
February 7, 2013
Italian Ministry of Economy and Finance, Treasury Department
Ministero dell’Economia e delle Finanze
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Why is Italy’s economy expected to turn around in 2013?
Monetary and credit conditions: interest rate spreads narrowing and credit growth likely to start improving.
Fiscal multiplier effect: 2.8pp fiscal correction in structural terms in 2012, but ‘only’ 0.9pp in 2013 on current projections.
Stabilisation of business and consumer confidence.
Some strengthening in global demand.
No major structural imbalances (aside from high debt/GDP) means that growth can rapidly go back to potential.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
2
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Differentials between gov’t bond yields and sovereign CDS
4,0 3,0 2,0 % 1,0 0,0 -1,0 -2,0
Italy Germany Differential (RHS)
Average (RHS)
5,0 4,5 4,0 3,5 3,0 2,5 % 2,0 1,5 1,0 0,5 0,0
Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
Source: Thomson Reuters
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
3
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
European sovereign and bank CDSs are closely linked
600 500 400 300 200 100 0
European sovereign 5Y CDS
European bank 5Y CDS
Basis points
Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12 Jan-13
Source: Thomson Reuters Datastream
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
4
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Rapid slowdown in credit growth: how soon will it turn?
32 27 22 17 12 7 2 -3 -8 % year-on-year
Euro area Germany
Spain France Italy
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
Source: ECB
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
5
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Interest rates on loans: is the gap about to narrow?
6 5 4 % 3 2 1
Germany Spain France Italy Euro area
Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
Source: ECB
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
6
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Credit standards are back in line with the EA
Diffusion index
0,6
Loans to non-financial corporations - Italy
0,5
0,4
Loans to non-financial corporations - EA
0,3
0,2
0,1
0,0
-0,1
Diffusion index
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Source: Bank of Italy, ECB
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
7
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Rise in deposits has reduced the bank funding gap
€ bn
800
750
700
650
600
550
500
450
400
350
300
MFI Deposits
Nov-07
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
Source: Bank of Italy
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
8
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Industrial production: stabilisation and then recovery?
Index
115
110
105
100
95
90
85
80
75
70
15
10
5
0
-5
% year-on-year
-10
-15
-20
-25
-30
Business Confidence in Industry
Industrial Production WDA (RHS)
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Source: ISTAT
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
9
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Demand is deeply split
Percentage points
6
4
2
0
-2
-4
-6
Domestic demand
Foreign demand
3Q 92
3Q 94
3Q 96
3Q 98
3Q 00
3Q 02
3Q 04
3Q 06
3Q 08
3Q 10
3Q 12
Source: ISTAT
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
10
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Contribution of variation in imports turned positive
Percentage point contribution to year-on-year GDP growth
6
4
2
0
-2
-4
-6
-8
Exports
Imports
1Q 93
1Q 95
1Q 97
1Q 99
1Q 01
1Q 03
1Q 05
1Q 07
1Q 09
1Q 11
Source: ISTAT
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
11
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Household income and consumption to recover gradually
% year-on-year
9
7
5
3
1
-1
-3
-5
Real disposable income
Real Private Consumption
Saving rate (RHS)
16
14
12
10
8 %
6
4
2
0
3Q 00 3Q 01 3Q 02 3Q 03 3Q 04 3Q 05 3Q 06 3Q 07 3Q 08 3Q 09 3Q 10 3Q 11 3Q 12
Source: ISTAT
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
12
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Energy and VAT-induced inflation on the mend
% year - on - year
5,0
4,0
3,0
2,0
1,0
0,0
-1,0
-2,0
Differential
Euro area, HICP
IT, HICP
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
source: Eurostat, Istat
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
13
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Official macroeconomic projections (September 2012)
(% change yoy) 2011 2012 2013 2014 2015
Real GDP 0.4 -2.4 -0.2 1.1 1.3
Domestic demand net of inventories -0.5 -3.6 -0.6 0.7 1.0
Inventories -0.5 -0.9 0.1 0.1 0.0
Net export 1.4 2.3 0.2 0.2 0.2
Nominal GDP 1.7 -1.0 1.2 3.0 3.2
GDP deflator 1.3 1.4 1.4 1.9 1.9
Labour cost 1.2 1.1 0.9 1.2 1.2
Productivity (on GDP) 0.3 -1.2 0.1 0.6 0.7
Unit labour cost (on GDP) 0.9 2.3 0.8 0.5 0.5
Employment (FTE) 0.1 -1.2 -0.3 0.4 0.6
Unemployment rate 8.4 10.8 11.4 11.3 10.9
Current account balance -3.1 -1.4 -1.3 -1.1 -1.0
Source: Update of 2012 Economic and Financial Document, September 20, 2012
Note: National account data for 2011 take into account revisions according to ISTAT’s release on October 4.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
14
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
No major imbalances (apart from high public debt)
No major macroeconomic imbalances: no major bubbles in the housing market, low household debt, fundamentally sound banking system, no major external imbalances.
No increase in discretionary spending during the crisis: prudent fiscal policy; automatic stabilisers allowed to work.
Competitiveness issues are contained; although admittedly high public debt/GDP is a major hurdle.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
15
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
No major macroeconomic imbalances
External imbalances
Internal imbalances
Current account 3 year variation % GDP -4/+6%
Net international investment position % GDP -35%
REER on CPI % GDP +/-5 (EA); +/-11% (Non EA)
Export market share 5 year variation -6%
Nominal ULC 3 year variation +9 (EA); +12% (Non EA)
House price index Year/year Variation 6%
Private credit flow % GDP 15%
Private debt % GDP 160%
Public Debt % GDP 60%
Unemployment rate 3 year level 10%
Financial sector total non-consolidated liabilities Year/year variation 16.5%
BE -0.3 65.7 -0.5 -10.2 6.2 -0.1 11.6 236.0 98.0 7.8 4.7
DE 5.9 32.6 -3.9 -8.4 5.9 1.4 4.8 128.0 81.0 6.9 2.1
IE 0.0 -96.0 -9.1 -12.2 -12.8 -15.2 4.0 310.0 106.0 13.3 -0.6
EL -10.4 -86.1 3.1 -18.7 4.1 -5.1 -5.5 125.0 171.0 13.2 -3.4
ES -4.3 -91.7 -1.3 -7.6 -2.1 -10.0 -4.1 218.0 69.0 19.9 3.7
FR -1.6 -15.9 -3.2 -11.2 6.0 3.8 4.0 160.0 86.0 9.6 7.3
IT -2.9 -20.6 -2.1 -18.4 4.4 -2.0 2.6 129.0 121.0 8.2 3.8
LU 7.5 107.8 0.8 -10.1 12.5 1.5 2.5 326.0 18.0 4.8 11.3
NL 7.5 35.5 -1.6 -8.2 5.8 -4.0 0.7 225.0 66.0 4.2 7.2
AT 2.2 -2.3 -1.0 -12.7 5.9 -8.0 4.1 161.0 72.0 4.4 -0.3
PT -9.1 -105.0 -1.9 -9.5 0.9 -3.6 -3.2 249.0 108.0 11.9 -0.7
FI 0.6 13.1 -1.3 -22.9 9.1 -0.3 4.6 179.0 49.0 8.1 30.8
DK 5.0 24.5 -1.7 -16.9 4.7 -4.9 -2.2 238.0 47.0 7.0 4.7
SE 6.6 -8.3 3.9 -11.6 1.2 1.0 6.3 232.0 38.0 8.1 3.6
UK -2.2 -17.3 -7.1 -24.2 8.1 -5.4 1.0 205.0 85.0 7.8 8.5
Source: MEF elaboration on Alert Mechanism Report 2013 (European Commission, November 2012)
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
16
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Modest deterioration in competitiveness over time
Current account
Net international investment position
REER
Export market share
ULC
House price index
Private credit flow
Private debt
Public debt
Unemployment rate
Financial sector liabilities
2001 0.4 -5.8 -5.7 -18.5 4.8 5.4 8.4 87.0 108.0 10.0 -3.0
2002 -0.1 -12.4 -2.0 -14.2 7.0 6.5 6.4 90.0 105.0 9.2 3.9
2003 -0.3 -13.6 8.8 -13.4 10.7 7.4 7.0 93.0 104.0 8.6 11.6
2004 -0.5 -15.8 9.9 -7.4 9.8 7.1 8.3 98.0 103.0 8.3 7.2
2005 -0.7 -16.8 6.9 -5.2 8.7 5.2 9.4 104.0 106.0 8.1 12.1
2006 -0.9 -22.2 1.1 -12.5 6.5 3.2 10.9 110.0 106.0 7.5 10.5
2007 -1.2 -24.5 0.7 -9.3 6.1 2.6 13.1 118.0 103.0 6.9 0.5
2008 -1.9 -24.1 3.2 -16.3 8.3 -0.4 6.7 122.0 106.0 6.5 -2.7
2009 -2.0 -25.3 3.9 -17.9 10.5 -0.3 1.3 128.0 116.0 6.9 5.7
2010 -2.8 -24.0 -0.9 -19.2 8.1 -1.5 3.8 129.0 119.0 7.6 1.7
2011 -2.9 -20.6 -2.1 -18.4 4.4 -2.0 2.6 129.0 121.0 8.2 3.8
Threshold
+6 %/ -4 %
-35%
+/-5 %euro area; +/-11 % non euro area
-6%
+/-9 % euro area; +/-12 % non euro area
6%
15%
160%
60%
10%
16.5%
Source: MEF elaboration on Alert Mechanism Report 2013 (European Commission, November 2012)
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
17
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Real house price: no need for further correction
Indices 2000=100
210
190
170
150
130
110
90
70
Germany
France
Italy
UK
Spain
Ireland
Euro Area
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Note: Data for Germany, France, Italy, UK and the Euro area are available for the first 3 quarters of 2012. Source: OECD
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
18
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Is competitiveness really deteriorating in line with ULC?
Indices 2000=100
140
130
120
110
100
90
Germany
Ireland
Greece
Spain
France
Italy
Portugal
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: Italian Ministry of Economy and Finance calculation on Eurostat data
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
19
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Unit labour costs: key Italian features versus EU partners
Excessive growth in ULC: mainly due to unfavourable developments in labour productivity.
Limited downward adjustment in wages: not enough to compensate for poor productivity growth and to address unemployment challenges.
Wage dynamics: (a) changing composition of employment, (b) severance payments included in labour costs, (c) time lag in renewing collective agreements, (d) extended working life of higher-paid older workers due to pension reforms.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
20
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Private wage growth likely to ease further
% year-on-year
10
8
6
4
2
0
-2
-4
Total economy Public sector
Private sector
Compensation per employees per full-time equivalent
93
94
95
96
97
98
99
00
01 02 03 04 05 06 07 08
09 10 11 12 13
Source: ISTAT
Note: MEF calculation on 2012 and 2013 data
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
21
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Sharp improvement in Italy’s trade balance
€ bn
80
60
40
20
0
-20
-40
Total trade balance
Total trade balance excl. energy
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Source: ISTAT. MEF calculation on 2012 total trade balance.
Note: Energy includes oil and natural gas. Total trade balance excl. energy refers to the period January-November 2012.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
22
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Current account deficit narrowing fast
% of GDP
2,0
1,5
1,0
0,5
0,0
-0,5
-1,0
-1,5
-2,0
Goods
Services
Incomes
Transfers
Current Account (RHS)
4,0
3,0
2,0
1,0
0,0
-1,0
-2,0
-3,0
-4,0
% of GDP
2000
2001
2002 2003
2004 2005
2006 2007
2008 2009 2010 2011
2012
Source: Bank of Italy Note: 2012 data are estimates as reported in the Update of 2012 Economic and Financial Document, September 20, 2012.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
23
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Current account and savings by sector
% of GDP
8
6
4
2
0
-2
-4
-6
-8
Corporate (LHS)
Housholds (LHS)
General Government (LHS)
% of GDP
0,5
0
-0,5
-1
-1,5
-2
-2,5
-3
-3,5
-4
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: ISTAT and Bank of Italy
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
24
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
How much of the adjustment is structural?
% of GDP
2
1
0
-1
-2
-3
-4
-5
Headline vs underlying current account
Underlying Current Account - (EU Commission methodology)
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Note: The underlying current account is derived according to the methodology described in: Salto M., A. Turrini, 2010, Comparing alternative methodologies for real exchange rate assessment, European Economy, Economic Papers, n. 427.
Source: EU Commission, AMECO DATABASE, 2012 Autumn Forecast.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
25
FISCAL CONSOLIDATION
Key public finance projections (September 2012)
% of GDP 2010 2011 2012 2013 2014 2015
Net Borrowing Requirement -4.6 -3.9 -2.6 -1.8 -1.5 -1.3
Cyclically-adjusted NBR -3.6 -3.6 -0.9 0.0 -0.2 -0.4
Change in Cyclically-adjusted NBR -0.4 0.0 -2.8 -0.9 0.3 0.2
Primary Balance 0.1 1.0 2.9 3.8 4.4 4.8
Public Debt 119.2 120.7 126.4 126.1 123.1 119.9
Public Debt (net support to Euro Zone) 118.9 119.9 123.3 122.3 119.3 116.1
Source: Update of 2012 Economic and Financial Document, September 20, 2012
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
26
FISCAL CONSOLIDATION
Primary surplus close to 5% of GDP in 2015
% of GDP
10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14
Net borrowing (LHS)
Primary balance (LHS)
Debt/GDP (including aid) (RHS)
Debt/GDP (net of aid) (RHS)
130 125 120 115 110 105 100 95 90 85
% of GDP
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: Update of 2012 Economic and Financial Document, September 20, 2012
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
27
FISCAL CONSOLIDATION
2011-2012 measures: a rebalancing over time
100
Higher net revenues
Lower net expenditure
90
80
70
60
%
50
40
30
20
10
0
2012
2013
2014
2015
Source: MEF estimates
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
28
FISCAL CONSOLIDATION
Moderate increase in interest payments (forward rates)
14
14
Interest payments (LHS)
Average yield at issuance
Average yield as % debt *
12
* Proxied by interest expenditure divided by the debt level of the previous year
12
10
10
8
8
% of GDP
6
6
4
4
%
2
2
0
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Ministry of Economy and Finance. Figures for interest payments in 2012-2015 are official estimates (Update 2012 DEF)
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
29
FISCAL CONSOLIDATION
Lengthened maturity of public debt reduces risks
8
7
Average life
Duration
6
5
years
4
3
2
1
0
1994
1996
1998
2000
2002
2004
2006
2008
2010
Dec-12
Source: Update of 2012 Economic and Financial Document, September 20, 2012
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
30
FISCAL CONSOLIDATION
Italian public debt held by foreign investors
60
55
50
% of annualized GDP
45
40
35
30
2009
2010
2011
2012
Source: Bank of Italy
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
31
FISCAL CONSOLIDATION
Compliance with EU debt rule: not far away
8
7
Debt Isoquants
(BB=Debt benchmark)
Primary balance, % of GDP
6
Compliance
BB – 2016 (116,8)
5
2015
Pb: 4.8%, g-r: -2.0%
4
3
2012
BB – 2018 (111,3)
Pb: 2.8%, g-r: -5.3%
No compliance
2
1
-6
-5
-4
-3
-2
-1
0
Nominal growth - interest rate differential (g-r), %
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
32
FISCAL CONSOLIDATION
According to the EU Commission, no sustainability gap
LTC (% of GDP)
10 S2=0 S2=2 S2=4 S2=6 S2=8 S2=10 S2=12 S2=14
08 06 04 02 00 -02
Sustainability gap S2>0
No Sustainability gap S2<0
Unfavourable long-term projections
Favourable long-term projections
LU BE SI FI MT SK CY
RO AT LT NL CZ
SE DE BG EU DK UK ES
EA PL FR EE HU LV IT
Favorable initial fiscal position
Unfavorable initial fiscal position
LBP (% of GDP)
-08 -06 -04 -02 00 02 04 06
Source: European Commission, Fiscal Sustainability Report 2012, EUROPEAN ECONOMY, 08/2012
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
33
FISCAL CONSOLIDATION
Reduction in the stock of public debt: mapping public assets
Local government debt is only 6% of GDP. However, 54% of real estate assets and stockholdings are at local level.
Very difficult to get a reliable, complete and updated valuation: 1/3 of GDP= tentative estimate of value of recorded assets.
Buildings: Only 53% of administrations have provided detailed information about their assets. 530,000 real estate units for 222mn sqm of which 70% is for institutional use and 9% for residential use (47% in terms of units). 80% of units are owned by local government. Market value is estimated at about 340bn (21.7% of GDP).
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
34
FISCAL CONSOLIDATION
Reduction of the stock of public debt: few marketable assets
Land: 760,000 plots of land for a total of more than 1.3mn ha, 98% held by local government (82% municipalities). Market value is estimated at about 30bn (1.9% of GDP).
Stockholdings: About 7,000 companies of which 80% owned by local government. Market value estimated at about 150bn (9.6% of GDP) of which 85.8bn owned by the Ministry of Economy and Finance (1/2 is National Railways). The three major quoted companies (about 12bn) are perceived as strategic; for others there is no market appetite; moreover quoted companies have far off-peak values.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
35
FISCAL CONSOLIDATION
Reduction in the stock of public debt: coming soon
€8.0bn from sale to CDP of SACE, SIMEST and Fintecna. Further payments are expected by early 2013. Proceeds go to the Public Debt Sinking Fund or to pay off commercial debt.
Real estate assets will be transferred from central and local government to real estate funds, which have mandates to create value and/or dismiss assets.
The Government expects proceeds from dismissals to reduce public debt by at least 1pp of GDP per year. 3-5bn of state-owned assets ready for 2013; the rest requires strong cooperation with local government.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
36
RECENT BUDGET MEASURES
Going for growth and fiscal consolidation
Freeing up resources of about €10bn in 2013, €10.7bn in 2014 and €10.1bn in 2015 respectively.
Use of resources for about €12.3bn in 2013, €10.6bn in 2014 and €9.7bn in 2015.
Rebalancing revenues/expenditure to favour growth and fiscal consolidation.
Reduction in taxes on labour.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
37
RECENT BUDGET MEASURES
Key measures for fiscal consolidation
Cut in NHS spending for goods and services and medical devices.
Further cuts in transfers to local governments in 2013-2015.
Introduction of the Tobin Tax on transactions involving equities with a proportional tax rate of 0.1% (0.2% for OTC financial transactions) paid by buyers, to be aligned with European legislation once it is decided; different treatment on derivatives (lump sum with a maximum fee of €200 for transactions above €1Mn) for both buyers and sellers.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
38
RECENT BUDGET MEASURES
Key measures to support growth (1)
Increase in the ordinary VAT rate from 21 to 22% as of July 2013, while the lower VAT rate remains at 10%.
Higher tax allowances for families with children: From 2013 the tax credit is €1,220 (currently €900) for each child under the age of 3 and €950 (€800) for those older than 3.
Reduction in taxes on labour: effective 2013, tax deductions for employers on IRAP to increase from €4,600 to €7,500. Even higher deductions for women, workers under 35, and firms located in ‘disadvantaged’ Regions.
Dipartimento del TESORO
MEF Ministero dell’Economia e delle Finanze
39
RECENT BUDGET MEASURES
Key measures to support growth (2)
Small enterprises and self-employed entrepreneurs can rely on a new fund for IRAP tax exemptions.
A special fund is designed to favour investments in R&D by SMEs, using resources previously allocated on a generic basis to firms. The fund also finances a reduction in the tax wedge.
A new fund, financed with proceeds from the fight against tax evasion, to reduce the tax burden on households and firms.
Infrastructure projects: additional financing of the Lyon-Turin high-speed train line and ‘MOSE’, the dam system for Venice.
Dipartimento del TESORO
40
MEF Ministero dell’Economia e delle Finanze
FISCAL CONSOLIDATION
Constitutional reform: a new fiscal framework
Balanced budget rule included in the Constitution: it will enter into force in FY 2014.
In December 2012, Parliament approved the ‘reinforced’ law defining the mechanism by which the balanced budget will be achieved and clarifying the functions of the independent body (established by Constitutional amendment) within the Parliament in charge of monitoring public finances and checking compliance with fiscal rules.
Dipartimento del TESORO
41
MEF Ministero dell’Economia e delle Finanze
FISCAL CONSOLIDATION
The Government proposal for a reform of the tax system
Reform of cadastral rents: adequacy between official and actual real estate values.
Fight against tax elusion and avoidance: reshuffling of tax expenditures for small businesses and low income tax payers.
Tax framework for enterprises: changes in the IRAP tax base and a single, combined payment of IRAP, IRES and IVA for small firms.
Sanctions proportional to gravity of violation: more room for judicial settlement procedures, reorganisation in tax collection.
Dipartimento del TESORO
42
MEF Ministero dell’Economia e delle Finanze
FISCAL CONSOLIDATION
Reduction in the cost of doing politics
Reduced financing of political parties as well as appointees at regional level; reduction in the number of regional counselors.
Increased financial controls and sanctions for Regions that do not respect the rules (80% cut in central Government financing, excluding health care and transport funding).
Greater transparency in balance sheets of local political groups and regional politicians’ income and personal wealth. Stricter criteria regarding politicians’ compensation and pension.
Plan to achieve a balance budget within 5 years in case of excessive deficit in provinces and municipalities.
Dipartimento del TESORO
43
MEF Ministero dell’Economia e delle Finanze
FISCAL CONSOLIDATION
Public sector shrinking since 2007
Since 2007 the number of public employees and their compensation has declined by 4.3% and 2.3%, respectively.
Related cost of labour has decreased by 3.3%.
This is the result of 2010 and 2011 policy changes: extension of freeze in turnover and suspension of national wage bargaining.
Dipartimento del TESORO
44
MEF Ministero dell’Economia e delle Finanze
FISCAL CONSOLIDATION
Lower tax wedge on labour
Higher tax allowances for families with children: From 2013 the tax credit is €1,220 (currently €900) for each child under the age of 3 and €950 (€800) for those older than 3.
Reduction in taxes on labour: effective 2013, tax deduction for employers on IRAP to increase from €4,600 to €7,500. Even higher deductions for women, workers under 35, and firms located in ‘disadvantaged’ Regions.
Dipartimento del TESORO
45
MEF Ministero dell’Economia e delle Finanze
PENSION REFORM
Key achievements of the pension reform
Enhances the medium and long-term sustainability of Italy’s pension system.
Guarantees fairness across and intra generations.
Increases the minimum retirement age and contribution period required to be entitled to pension benefits.
Links retirement age and contributory periods to changes in life expectancy.
Improves transparency by merging entities providing pensions (INPDAP and ENPALS into INPS).
Dipartimento del TESORO
46
MEF Ministero dell’Economia e delle Finanze
PENSION REFORM
Major structural savings
About €7.6bn total cumulative savings (net of taxation) in 2014, increasing to almost €22bn in 2020.
In 2012-13, indexation freeze of pension benefits higher than 3 times the minimum provision (€3.1bn savings in 2014).
Overall revision of the pension system, including early retirement schemes (€2.9bn in 2014, up to €15.7bn in 2020).
Higher social contribution rates for farmers and self-employed from 20% to 24% in 2018 (€1.5bn in 2014, up to €3.2bn in 2020).
Dipartimento del TESORO
47
MEF Ministero dell’Economia e delle Finanze
PENSION REFORM
Sizeable effect on pension spending as % of GDP
19%
18%
17%
16%
15%
14%
13%
12%
2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058
Current Legislation
Legislation before DL. 201/2011
Legislation before DL. 98/2011
Legislation before DL. 78/2010
Legislation before L. 243/2004
Source: Update of 2012 Economic and Financial Document, September 20, 2012. Demographic projections from ISTAT, central demographic scenario 2012
Dipartimento del TESORO
48
MEF Ministero dell’Economia e delle Finanze
PENSION REFORM
Social adequacy assured
Net replacement rate for old age retirement - males*
100
90
80
70
60
50
40
2010 2020 2030 2040 2050 2060
Employees
Self-employed
Current Legislation
Net replacement rate for old age retirement - females*
100
90
80
70
60
50
40
2010 2020 2030 2040 2050 2060
Employees
Self-employed
Legislation before DL 98/2011
Source: “Medium-long term trends for pension, health and long-term care”, Report no.13, 2012, State Accounting Office (*) Net replacement rates are net of tax and contributions. Assumption on minimum pension requirement: age/contributory years proportional to age of entry in the labour market. For further information please refer to Box 6.1 in “Medium-long term trends for pension, health and long-term care”, Report no.13, 2012, State Accounting Office.
Dipartimento del TESORO
49
MEF Ministero dell’Economia e delle Finanze
PENSION REFORM
A significant lengthening of the retirement age (OECD)
Years
5
4
3
2
1
0
A. Projected increase in the average effective exit age, 2010-2020
Cyprus Luxembourg Latvia Netherlands Ireland Belgium Bulgaria Greece Estonia Sweden United Kingdom Denmark Portugal Lithuania Czech Republic Romania Finland Germany Austria EU27 Malta Slovak Republic Spain Poland France Hungary Slovenia Italy
Years
5
4
3
2
1
0
Percentage Points
20
15
10
5
0
B. Projected increase in the participation rate of 55-64-year-olds, 2010-2020
Bulgaria Romania Sweden Luxembourg Estonia Cyprus Poland Czech Republic Latvia Lithuania Netherlands Slovak Republic Finland United Kingdom Denmark Austria Malta Portugal Germany Ireland Belgium Greece EU27 France Slovenia Hungary Spain Italy
Percentage Points
20
15
10
5
0
Source: OECD
Dipartimento del TESORO
50
MEF Ministero dell’Economia e delle Finanze
SPENDING REVIEW
Towards a leaner and more efficient public administration
In July, the Government adopted measures with savings estimated at €4.6bn in 2012, €10.8bn in 2013, €11.6bn in 2014 and €12.1bn in 2015.
Public procurement will be managed by Consip or regional centralised-purchasing agencies only.
Number of civil servants will decrease by 10% (20% at managerial level).
The majority of rents paid by the Public Administration are frozen until end-2014 and are to be renegotiated with a 15% discount.
Dipartimento del TESORO
51
MEF Ministero dell’Economia e delle Finanze
FIGHT AGAINST CORRUPTION
Rule of law strengthened
Ban from public office for people convicted in final judgment or subjected to judicial measures.
Revision of norms against corruption and introduction of two new legal offenses to contrast acts of preferential treatment by public officials.
Increase in penalties for managers or other corporate stakeholders for doing or omitting acts in contrast with their obligations or loyal duties entailing damages to their company.
More severe penalties, especially in cases of judicial corruption.
Dipartimento del TESORO
52
MEF Ministero dell’Economia e delle Finanze
FIGHT AGAINST CORRUPTION
Rule of law: stricter procedures and more control
The Commission for the evaluation, transparency and integrity of the Public Administration (CIVIT) becomes the National Anti-Corruption Authority.
Creation of a National Anti-Corruption Plan and Anti-mafia list for businesses to prevent and fight corruption at national and international level.
Incompatibility of public employment with external assignment; code of conduct for public employees.
Stricter individuation of eligibility criteria for public positions at central, regional and local level.
Dipartimento del TESORO
53
MEF Ministero dell’Economia e delle Finanze
FIGHT AGAINST TAX EVASION
An aggressive stance in fighting tax evasion
The legal threshold for cash payments is lowered to € 1,000.
A softer regime for controls will apply to tax payers who are compliant with so-called sectoral studies.
Cheating on the Revenue Agency is now a criminal offence.
Focus on large tax payers and VAT frauds.
Synergies with the Social Security Institute (INPS) in order to crack down on undeclared economic activity.
Dipartimento del TESORO
54
MEF Ministero dell’Economia e delle Finanze
FIGHT AGAINST TAX EVASION
Increasing success in the fight against tax evasion
Euro billion
14
12,7
13,0
12
11,0
10
9,1
8
7,0
6,4
6
4,4
4
3,7
2,8
2,5
2,8
2,1
2
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Ministry of Economy and Finance - Revenue Agency Note: 2012 data are provisional
Dipartimento del TESORO
55
MEF Ministero dell’Economia e delle Finanze
LIBERALISATION, COMPETITION AND COMPETITIVENESS
Greater consumer protection
Liberalisation of opening hours for retailers.
Higher competition and strengthening of consumer protection in the financial sector. Strengthening of Antitrust Authority. Vigilance powers in water and postal sectors given to Energy and Communication Authorities respectively.
Protection from deceptive and aggressive trade practices extended to businesses with less than 10 employees.
Dipartimento del TESORO
56
MEF Ministero dell’Economia e delle Finanze
LIBERALISATION, COMPETITION AND COMPETITIVENESS
Lighter administrative burden and PA payments
Reduction in the administrative burden for firms: elimination of ex-ante controls, limits, permits, licenses for start-ups. Substantial simplification for SMEs.
Possibility of setting up a limited liability company with reduced capital stock and a simplified framework for people under 35.
Commercial payments by the public administration within 30 days (60 days only in exceptional cases). Interest rate on arrears is 8% over the rate set by ECB for lending operations.
Dipartimento del TESORO
57
MEF
Ministero
dell’Economia
e delle Finanze
LIBERALISATION, COMPETITION AND COMPETITIVENESS
Enhanced competition
Local public services: strengthened role of the Antitrust Authority for local public services.
Gas and electricity sector: gradual delinking of prices from the oil market and unbundling of the gas network.
Transport sector: strengthened competition; liberalisation of fuel and non-oil distribution in petrol stations.
Professional services: abolition of minimum fees, easier access to professions with reduction in compulsory traineeship, increase in the number of pharmacies and notaries.
Dipartimento del TESORO
58
MEF
Ministero
dell’Economia
e delle Finanze
LIBERALISATION, COMPETITION AND COMPETITIVENESS
Reforms by sectors
OECD Product Market Regulation
Indicator - Italy
4,0
2008
2012
3,5
3,0
2,5
2,0
1,5
1,0
0,5
0,0
Market Regulation
Total
Gas
Post
Railways
Telecom
Total
Total
Accountants
Architects
Engeneering
Legal
Product
Utilities
Retail
Professions
PMR
Utilities
Retail
Liberal Professions
Dipartimento del TESORO
59
MEF
Ministero
dell’Economia
e delle Finanze
LIBERALISATION, COMPETITION AND COMPETITIVENESS
Mark-up by sector
Index 2000=100, 3-term moving average
108
Agricolture
Industry excluding construction
106
Construction
Retail sales, hotel, transports and communication
Credit, insurance, real estate and other professional services
104
Education, health and other services
102
100
98
96
94
2000-1
2001-1
2002-1
2003-1
2004-1
2005-1 2006-1 2007-1 2008-1 2009-1 2010-1 2011-1 2012-1
Dipartimento del TESORO
60
MEF
Ministero
dell’Economia
e delle Finanze
LIBERALISATION, COMPETITION AND COMPETITIVENESS
Growth Decree 2.0: the Digital Agenda
Digital Agenda for the development of digital services for citizens especially in sectors of education and health care.
Mandatory transmission of documents in electronic form within the Public Administration (PA) and between the PA and private citizens (also for civil justice).
Enhanced powers of the Agency for Digital Italy to promote major strategic projects. The Agency will prepare the National Plan for Smart cities on an annual basis.
Research projects and innovation linked to strategic issues in line with European ‘Horizon 2020’.
Dipartimento del TESORO
61
MEF
Ministero
dell’Economia
e delle Finanze
LIBERALISATION, COMPETITION AND COMPETITIVENESS
Growth Decree 2.0: innovative start-ups
Start-ups must invest at least 30% in R&D, researchers must constitute no less than 1/3 of total employees, or hold a patent to be considered ‘innovative’.
Tax deductions for investors (private and institutional) in innovative start-ups.
Start-ups can hire workers with a fixed-term contract for a period between 6 months and 3 years.
Start-ups operating in Italy can use services provided by ‘ICE’ and ‘Desk Italia’ free of charge .
Dipartimento del TESORO
62
MEF
Ministero
dell’Economia
e delle Finanze
COHESION PLAN
Cohesion funds: 37% used, 5.5pp above target
60
% Expenditure on initial amount
% Expenditure on CAP1* new amount
50
% Expenditure on CAP2* new amount
% Expenditure on CAP3* new amount
Targets**
40
37
34
%
30
31,5
20
10
0
f m a m j j a s o n d j f m a m j j a s o n d j f m a m j j a s o n d j f m a m j j a s o n d
2009 2010
2011 2012
Implementation is measured as % share of certified expenditure at a certain date by the responsible authorities of programmes for the available financial funds.
The new amount results from the reduction in national co-financing during the three phases of the Cohesion Action Plan (interventions described in “http://www.dps.tesoro.it/pac_2012.asp” and in “http://www.coesioneterritoriale.gov.it/fondi/piano-di-azione-coesione/”). ** Targets December 31 fixed by the European Regulation. Targets May 31 and October 31 defined at national level “to speed up and improve the effectiveness of measures”. QSN Committee, 02/27/2012.
Source: MISE
Dipartimento del TESORO
63
MEF
Ministero
dell’Economia
e delle Finanze
NATIONAL HEALTH SYSTEM (NHS)
Towards more efficient public expenditure
Introduction of 24 hour primary healthcare support units digitally connected with hospitals and other health structures.
Doctors employed in public hospitals can pursue private professional activity only if digitally connected to NHS administrative units. This connection is also used to record payments.
Obsolete drugs will be eliminated from the official NHS list and unnecessary medical examinations reduced.
Dipartimento del TESORO
64
MEF
Ministero
dell’Economia
e delle Finanze
JUDICIAL SYSTEM
Making bankruptcy procedure easier
Bankruptcy procedure: adaptation of existing procedures to a system similar to “Chapter 11” in the US. Increasing protection of the entrepreneur under strains (‘concordato preventivo’); payment of creditors due for the entire amount and before other creditors; maturity of credits, covered with collateral on assets, can be extended by one year.
Trial length: trials can last no more than 6 years, of which 3 in the first stage, 2 in Appeal Court and 1 in Supreme Court. Every additional year triggers a compensation between €500 and €1,500.
Dipartimento del TESORO
65
MEF
Ministero
dell’Economia
e delle Finanze
JUDICIAL SYSTEM
Reform of Civil Justice
Reorganisation of judicial districts to close small courts and reduce public expenditure.
Introduction of sanctions for non-acceptable appeals to reduce the backlog of cases brought to court.
Administrative communications by certified electronic mailing to speed up procedures.
Digitalisation of civil justice proceedings.
Dipartimento del TESORO
66
MEF
Ministero
dell’Economia
e delle Finanze
LABOUR MARKET REFORM
A more dynamic and inclusive labour market
More (regulated) flexibility on the hiring side, discouraging the abuse of temporary contracts and making open-ended work contracts more appealing to companies.
More flexibility on the firing side, facilitating more efficient allocation of workers among sectors.
More comprehensive unemployment benefits (ASPI).
More efficient active labour market policies improving services and incentives to work.
Dipartimento del TESORO
67
MEF
Ministero
dell’Economia
e delle Finanze
LABOUR MARKET REFORM
Access to the labour market: apprenticeships
Apprenticeship becomes the preferential channel for young people (up to 29 years old) to enter the labour market.
Employers benefit from fiscal incentives for a 3-year period. In order to hire new apprentices, at least 30% of apprenticeship contracts signed over the previous 3 years must have been transformed into open-ended ones.
Dipartimento del TESORO
68
MEF
Ministero
dell’Economia
e delle Finanze
LABOUR MARKET REFORM
A brand new safety net: ASPI
Eligibility: all workers with ³ 2-year social security contributions and 52 working weeks over the past 2 years.
Duration (effective Jan 2016): 12 months for workers younger than 55 and 18 months for those ³ 55.
Amount: replacement rate is 75% of gross earnings up to €1,180 (annually increased with CPI) +25% on the remaining income up to a cap; 15% reduction after six and twelve months.
Funding: ASPI is partly funded by the State budget and partly through increased contributions paid by employers for non-regular contracts, which can be reimbursed in case of conversion of fixed-term contracts into regular ones.
Dipartimento del TESORO
69
MEF
Ministero
dell’Economia
e delle Finanze
LABOUR MARKET REFORM
Employment protection legislation: big revision
In case of discriminatory dismissals: no change in terms for reintegration of the employee.
For unfair disciplinary dismissals: it is now up to the judge to choose between reintegration (for the most serious cases) or indemnity (from 12 up to 24 months of full salary).
For unfair dismissals for economic reasons, the judge can grant an indemnity (between 12 and 24 monthly payments) or reintegration of the employee in case no fair reasons for dismissal are recognised.
Dipartimento del TESORO
70
MEF
Ministero
dell’Economia
e delle Finanze
LABOUR MARKET REFORM
National agreement to help boost labour productivity
Shared agreement among Italian trade unions and employers’ associations to help boost labour productivity by providing for labour contracts that better reflect the needs of individual companies.
A special fund is designed to cover the reduction in taxes on productivity-linked wage increases set at local level.
A pact between generations is introduced, allowing for senior workers to stay at work longer by smoothing the retirement transition and increasing the employment of young workers.
Dipartimento del TESORO
71
MEF
Ministero
dell’Economia
e delle Finanze
LABOUR AND PRODUCT MARKET REFORMS
1998-2012 progress: Italy outperforms other EU countries
EPL
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.5 1.0 1.5 2.0 2.5 3.0
Spain 2007 Spain 2003 Italy 1998 Spain 1998
France 2007 France 2003 France 1998
Germany 2007 Germany 2003 Germany 1998
Italy 2012 Italy 2007 Italy 2003
UK 2007 UK 2003 UK 1998
EPL – PMR
Main European countries
Source: OECD and MEF
Dipartimento del TESORO
72
MEF
Ministero
dell’Economia
e delle Finanze
The current presentation as well as a note on reforms are updated regularly. You can find them at:
http://www.dt.mef.gov.it/en/analisi_programmazione_ economico_finanziaria/strategia_crescita/
Dipartimento del TESORO
73
MEF
Ministero
dell’Economia
e delle Finanze
