Mario Monti s Reforms: An «Insider» View Quelles mesures d'ajustement des déséquilibres en zone euro? «Rencontres économiques» Ministère des Finances 11 Decembre 2012, Paris, France Paolo Manasse University of Bologna
Overview of the Talk 1. Monti s Economic Reforms a) Budget Consolidation b) Structural Reforms 2. What Effects on the Economy? 3. Implementation: Where are we? 4. After Monti: Scenarios for 2013 elections But first, the Fundamental Question:
Probably not.. Is He Back?
Economics: Monti s 8 Reforms + 1Packages 1. Save-Italy (6/12/2011): Tax evasion, Tax on luxury goods, repatriated capitals, Property Tax (IMU), cadastral rents, VAT +2%, Pension Reform, Tax incentives for investments, Public Guarantee for SMEs loans 2. Grow-Italy (24/1/2012) :simplifications for business, public tenders, consumers class action, abolition of professional tariffs, barriers to entry (lawyers, notaires, pharmacies), some liberalization ( gas, electricity, petrol stations, insurance, banking, railways, motorways, airports, taxis), certification of credit to pa, local public transport, project bonds (guarantees, ppp s) 3. Simplify Italy (19/2/2012): E-government, environment permits, simplification of procedures for citizens and firms, public tenders, public schools teachers, 4. Fiscal Simplification(29/4/2012): auctions TV frequencies, local public services 5. Labor Market Reform (18/7/2012): social insurance & unemployment benefits, firing discipline, labor ontracts (fixed term, apprenticeships), training & active labor market policies, paternity/maternity leave 6. Spending Review(15/8/2012): reduction local governments (provinces), cuts public employment (-10%, -20% managers in 5 years), centralization purchases of hospitals, relocation teachers 7. Grow-Italy(12/8/2012):Urban development, project bonds, incentives for eco-cars, for house renovations, hirings for R&D, industrial restructuring 8. Start Up and Digital Agenda(4/10/2012): administrative and labor simplifications, fiscal incentives, crowdfunding finance, bankruptcy legislation, public guarantees onloans), broad band diffusion. pa informatisation (some) competition in public utilities and insurance, ICT finance, PMI loan guarantees, public-private partnerships for infrastructure (tax credits)
9 Stability Law : - +VAT 1% (for items at 10% and 21%), -income tax rates, -1%, for 2 lowest brackets less income tax deductions, but completely undone by Parliament
I. What is the «Monti Agenda»? 1.Budget Consolidation 2. Structural Reforms -Pensions -Labor Market -Competition /Simplification -Pro-Growth
Budget Consolidation Primary balance: + 3 points of GDP 2012-2013 %GDP Save-Italy (6/12/2011)
Composition of Adjustment Higher Taxes: + 2.6 points of GDP (5/6) Tax evasion, Repatriated capitals, Tax on luxury goods,property Tax (IMU), Cadastral rents, VAT +2%, (Tax incentives for Re-invested Profits), Lower Expenditures: - 0.4 point of GDP (1/6) Pension Reform, Spending Review, Transfers to Local Governments, Public Employment, Costs of Politics
Structural Reforms 1.Pension Reform Pros: short and long run sustainability by Extension of contributive system Increase in minimum retiring age (+1,+2 yrs) Abolition of seniority pensions (pensioni di anzianità) Reduction of entitlements/contribution ratios (transformation coefficients) Stop to indexation for high pension in 2012-13 Cons Technical fault: Not-employees-not-yet-retirees (esodati) Lack of flexibility No incentive for private complementary pension schemes Achieves short and long term sustainability
2.Labour Reform aim: fight dualism in labor market Pro: Wide-ranging: - Discipline for Entry for young (apprenticeship), - Firing discipline (art. 18 of labor code, a true taboo) - More wide-spread unenmployment insurance Cons: - More (not less) role for labour judges in dismissal => uncertainty on (time/costs of) dismissals - Lower flexibility in entry, and in exit (?) - No path to job security (apprenticeship) - Little progress on wage bargaining (from national to firm wide)
3.Liberalizations and Competition Pro: More power to Antitrust and authorities (energy, transport), abolition of tariffs (lawyers, notaires), some liberalization (gas, electricity, petrol stations, insurance, banking, railways, motorways, airports). Justice (Special tribunals for Labour issues) More competition for local public transport, project bonds (guarantees, ppp s), Start-up financing
3.Liberalizations and Competition Disappoitment little pro-market policies, no privatizations Barriers to entry still pharmacies, taxis, professional orders, gas stations, no transport authority Abolish firms subisdies/lower tax wedge (Giavazzi Commission): not implemented No Privatization - Talks about public real estate - Defense of public firms from private take-overs the Cassa DDPP (postal savings for infrastructures), invested in private firms (hera) to prevent takeovers!
4. Pro-Growth: Tax Incentives Allowance for Corporate Equity Investment (ACE, tax incentives for re-invested profits) Tax deductability of tax on labor costs (Irap) from income taxes (irpef, ires) Tax and administrative incentives for start ups => Little money, little effects
II. Effects on GDP, (so far) fiscal austerity+ supply side
II. Effect on Interest Spreads
III. Implementation : % of decrees still required for implementation (sole 24 ore, 2 november 2012) 1. Save-Italy (6/12/2011): 61.6% 2. Grow-Italy (24/1/2012) : 77% 3. Simplify Italy (19/2/2012) : 88.7% 4. Fiscal Simplification(29/4/2012) : 78.9% 5. Labor Market (18/7/2012): 85.2% 6. Spending Review(15/8/2012): 92.7% 7. Growth2.0(12/8/2012): 91% 8. Start Up and Digital Agend (4/10/2012): 91.5% 9. Stability Law: to be approved Average Implementation : 17.4%
What Chances for Monti Bis?