Implementing fiscal federalism in Italy: measures, timing, tools

In the present difficult macroeconomic scenario, enacting a federalist transformation of the financial relations between the state and local government is a preordained occasion to improve the quality of administrative action; at the same time improving public expenditures according to principles of transparency, efficiency and responsibility.
A complete and consistent federalist organization would make it possible to rebuild a transparent relationship between the state and its citizens vis-à-vis decisions on expenditures and taxation. It would help reabsorb waste, obliging the public administration to adopt standards of efficiency and cost-effectiveness verifiable in relation to the level and quality of public services. Furthermore, it would reinforce the principle of political responsibility in local government; which is called to respond directly to the voters regarding the correct use of resources.
The road to application of the reform is however one with risks and difficulties along the way.
Greater autonomy and responsibility of local government should not lead to an overall increase in taxation. Instead, there should be savings in expenditures in order to reduce the level of taxation in various branches of government, and to reinforce public services to citizens and businesses, wherever they seem too low. We will need a gradual passage from historic expenditures to cost standards, but with a reasonable timetable, defining mechanisms to reward the most efficient regions and which also act as deterrents to those that are less so.
It will also be necessary to ensure symmetry between the implementation of public functions and the human resources available to ensure consistency between the reorganization and the reassigning of duties and the transfer of personnel. That way useless and costly duplication will be avoided.
Finally, new organization of financial relations between the state and decentralized agencies requires a multifaceted updating of the country’s institutional architecture.
In this framework, improving the criteria of the division of legislative competence introduced by the reform of Title V of the Constitution passed in 2001 is essential. The new criteria led to confusion as to “who does what” in sectors that are of crucial importance for a renewal of country system competitiveness, e.g. in the case of energy and infrastructures.
Approval of the legislative decree should go hand in hand with resumption of the process of constitutional reform, and the project prepared during the last legislature could be a common starting point. At the same time, Parliament needs to study the legislative decree on the code for Italy’s autonomous areas to identity the basic structures of local bodies and ultimately evaluate how they could be simplified and reorganized. Harmonization of accounting systems and a stable, common framework of procedures to coordinate public finances are essential to renew the mechanisms of the internal stability pact and encourage revitalization of infrastructure investments by local government – a mainstay of our national economy – while assuring sustainability. Continuing legislative simplification and the adoption of a federalist approach in all sector policies – including labor – should complete the reform design. The result should be a systematic, consistent set of initiatives aimed at modernizing public administration as a whole, thus reinforcing the capacity of central and local government to give uniform protection to citizens’ rights.
This is obviously a complex, ambitious project. Its implementation will require careful monitoring in a proper Parliamentary venue where the contributions of all the political forces and the representatives of the various levels of government can converge.