In the immediate post-war period Italy chose to adopt a lightweight economic policy, and it remained as such for the following few decades. Since the 1970s, however, we have been witnessing the emergence of a parallel state that introduced an era of a debt democracy, characterized by the proliferation of rules, excessive bureaucracy, the explosion of spending and with that an increase in debt. This economic degeneration is taking place within a general anthropological and cultural degeneration.
Today the primary Italian public expenditure, net of the interest on its debt, is around 43% of GDP. The public sector, rather than representing a resource, is increasingly synonymous with constraint and being an obstacle for growth. Recovering effectiveness and efficiency is therefore fundamental and the spending review can help achieve this goal.
There are two different ways to do this. On the one hand, a systematic and structural approach can be adopted where spending allocations are clearly and formally linked to performance goals (following the principles of performance budgeting). Public officials need to be made responsible for achieving their goals and by using a system of performance indicators, the effectiveness of expenditure plans can be assessed.
On the other hand, through an ad hoc approach that cuts any unnecessary and excessive spending that isn’t beneficial for the community.
The current round of spending review, undertaken in October 2013 by the Italian Government under the responsibility of a special Commissioner, is applying the second approach, since there is no formal or adequate procedure set for performance budgeting.
Starting from the end of 2014, the Commissioner will also be involved in the introduction of performance budgeting in Italy. Spending reviews will be structured and periodic, public services redefined with a strategic perspective and costs related to value for the community.
This will all take place through making the public administration and its employees more responsible as well as modifying procedures and controls, even for the backlog of files that have piled up in the private sector. The Commissioner’s first recommendations have already become law through the DL 66 of 2014. The approach used, that is directing the spending savings to tax cuts, makes the operation neutral from the short-term macroeconomic impact point of view, making ground for long-term positive effects which will be seen through increases in competitiveness and productivity.
Despite the implementation of this legislation, there is still a long way to go. Of the three major areas where action is required, the DL 66 deals mainly with goods and services. The public administration reform is still due. Political affairs however, still need to decide on the priorities in social spending and there are still many obstacles. In the short term each spending review process will mean that someone will lose out on their personal privileges and this will inevitably cause resistance to any change. Political affairs is the sole arbitrator for these conflicts of interests being faced and the process of reviewing public spending is to be considered the core political activity. In the long term, if the target of modernizing public administration can be achieved, making it more efficient at the service of its citizens and businesses, growth potential will be released from its constraints and waste, thereby contributing to an increasing collective welfare throughout the whole country.