This national roundtable discussion got underway with the observation that at the heart of Italy’s spending review is the idea of reducing expenditure for the purpose of rebalancing public finances or achieving other priority objectives such as alleviating the tax burden – a concept which, in reality, is not entirely new in Italy. Indeed, soon after the unification of the Kingdom of Italy, the Historical Right (to which Sella belonged) was engaged in a process of rationalizing expenditure with a view to balancing the budget.
It was noted, however, that in recent years the concept has taken on different connotations in light of a succession of developments in advanced economies stemming from the ongoing need to keep public finances in check. In Italy too, even though pressing budgetary demands may have made resort to linear cuts inevitable, the idea of a spending review – conceived as a program of targeted and structural spending reductions, also achieved by holding public authorities to account and improving the efficiency and effectiveness of procedures and controls – has gradually ground. This process was seen as entailing an overhaul of the way government budgets are drawn up and a reorganization of the multilevel structure of the state, aimed at addressing not just the quantity but also the quality of expenditure.
In a country like Italy, where the big items of expenditure are in line with European averages and primary spending is amongst the lowest for the continent, it was submitted that the effectiveness of the spending review process will be down to redefining public services and the ability to make the associated costs commensurate with the social value produced.
With the appointment of a Special Commissioner in October 2013 signaling a resumption in spending review efforts (after several previous attempts), it was felt that the intention of the legislator this time round is for this to be a medium- to long-term process, but one which also calls for the achievement of immediate cost savings and a deep engagement on the part of the country’s entire public administration.
During the course of the roundtable, certain elements considered key to the success of this initiative were highlighted. First and foremost of these was the setting of clear and verifiable top-down quantitative targets in terms of cost savings, which, by making precise budgetary limits explicit, would force crucial choices to be made between priority and non-priority spending. In this regard, it was noted that the target is currently fixed at 32 billion euro in savings by 2016, equal to 2% of GDP. Another element deemed essential was a clear delineation of how the savings achieved are to be deployed. Ideally, a single, clearly identified and measurable strategic objective (such as the reduction of taxation on income from employment) would encourage not only greater involvement on the part of public authorities, but of the wider public as well. Also considered was the problem of coordinating with the various levels of local government, especially given the constraints imposed by Title V of the Italian Constitution. It was suggested that a reorganization of the state’s multilevel governance structure could range from a simple restructuring or dismantling of bodies (for instance, the provinces) to a fully-fledged rethink of Italy’s tendency towards recognizing regional administrative autonomy. Fiscal federalism was also seen as providing a possible solution, through the setting of standard costs and services and by redefining local government relations with the center based on the concept of fiscal responsibility. A further element judged as indispensable for any spending review process, as confirmed by international experience, is a rationalization of the public-sector workforce. This was viewed as an issue with not only considerable legal and financial but also social implications. It was noted that the mechanism employed thus far in Italy has been a hiring freeze, which has generated substantial savings, but has also led to an increase in the average age of public-sector staff, with all the consequences that this entails in terms of productivity and the ability to meet the challenges of rolling out e-government.
In the ultimate analysis, what was considered most crucial by the participants for the success of Italy’s renewed spending review efforts was the political will to make tough decisions. Specifically, it was argued that the fall in Italy’s real GDP in recent years calls for less and better spending, and for reforms to be put in place (such as measures to reduce the tax wedge) apt to facilitate a resurgence in competitiveness and productivity. It was stressed that such choices are unavoidable and can no longer be put off. However bold and technically appropriate the recommendations of the Commissioner might be, it is up to the country’s political leaders to shoulder the difficult task of making the choices which any spending review process naturally necessitates, whilst breaking down inevitable corporatist resistance, thereby transforming the public administration into an apparatus that is truly at the service of citizens and businesses alike.