The economic agenda of the Meloni governmentBY ANTONIO PICASSO
- 9 November 2022
- Posted by: Competere
- Categories: highlights, News
Article published by the Austrian Economics Center
Nothing has changed in Italy with the Meloni government, except that the prime minister is now a woman for the first time in Italy. Out of 26 ministers, nine already boast government experience with the last cabinet headed by Berlusconi (2010-2011), including Meloni. On the other hand, the identity is political. And for Italy, which over the past 30 years had to rely on the leadership of four technocrats (Ciampi, Dini, Monti, and Draghi), this is perhaps a point of discontinuity.
The controversy over Meloni’s post-fascist background and of some of her ministers was heated. 100 years after the March on Rome and because of the personal history of many members of the Parliament majority, doubts are justified. Though, Democracy in Italy has a solid foundation, with the most prominent example being the leadership of the President of the Republic, Sergio Mattarella. Consequently, EU’s surveillance will not be needed, either to scare the government or to counter extremist initiatives against civil rights, which are unlikely to be infringed upon, anyhow. In any case, Brussels was unable to prevent what happened in Hungary and Poland, so its threats need to be scaled down.
Instead, the expectations and perplexities of this government’s economic agenda are different – from the flat tax at 100,000 euros, to “quota 41” pensions, through the increase of the cash ceiling to 10,000 euros. These are measures of an extensive economic policy, but short-sighted in many ways.
INFLATION, RECESSION AND PUBLIC DEBT
Inflation, recession, and public debt are the three big obstacles standing between what Meloni wants to do and what she can do. Considering inflation, the most recent ECB’s interest rate hike, third one from July, was unavoidable. At the same time, it will affect the expense of mortgages and loans on top of the bureaucratic difficulties of implementing the post-Covid Recovery plan investments. Then, Meloni’s ambition, shared by Draghi, to write a new chapter of an Italian economic miracle becomes more complex, especially since none of the proposals scratch the surface of the structural problems of our production system. Meloni indeed wants her government to be conservative and if the story of capitalism in the past 45 years can tell us anything is that it was conservatives who initiated the most revolutionary and effective reforms.
PENSION REFORM
If the proposed pension reform is enacted, it should have a significant impact on the national debt. The so-called Quota 41 (retiring at the age of 62, with 41 years of contributions) is in line with the wishes of the Lega, which sees the last structural intervention in this sector, the “Fornero reform” (named after the minister of welfare in the Monti government) from 2012 as the bulwark that needs to be razed to the ground. Given that the average life expectancy in Italy would go beyond 85 years, with Quota 41 the state is expected to maintain a generation of elderly people who will no longer participate in the labor market for another 23 years. This is unthinkable for a country with a demographic deficit and will lead toward a 1:3 ratio of young to old people. Furthermore, the proposal to facilitate supplementary pensions is equally weak. New Italian generations do not take part in this culture, as they are accustomed to cradle-to-grave welfare. Moreover, supplementary retirement planning is an extra expense, almost a mortgage, in terms of payments and timing, that a young person cannot take on.
TAX PROPOSALS
The tax proposals are not less difficult than the above-mentioned problems. Not only because they risk facilitating evasion, but because they do not affect the weaknesses of the national production ecosystem. The flat tax is favorable to VAT holders, but only in terms of taxes (it is also not normative). On the other hand, a flat tax is urgently needed by entrepreneurs. Cutting the tax wedge for manufacturing companies would encourage businesses to hire, but it would not be an incentive to invest in technological innovation and training. It would also cause a deficit in the social security coffers, which would be counterproductive with Quota 41.
INDUSTRIAL POLICY (IN THE SOUTH), GROWTH (OF SME), AND THE PRESERVATION OF THE FREE MARKET
Finally, Meloni said nothing about the three major problems of the Italian economy: a real industrial policy for Southern Italy, a push for growth of small and medium-sized enterprises, and a questioning of interest groups that prevent the free market.
Southern Italy – the home to welfarism, organized crime, emigration, poor schooling, and widespread poverty – is where Italy is the sickest. In the short term, an attempt was made to solve the problem with citizens´ basic income. Today with the Bridge over the Strait of Messina, we know that both operations are cosmetic. To address this drama, Meloni will have to be far more creative and resolute.
The Italian business fabric, in turn, is made up of “nano-enterprises,” family-run productions that are efficient in the short run, but unable to grow and navigate the global market, due to size, lack of managerial culture, low productivity, and low propensity for technological investment. Abandoning the tradition of these SMEs means modernizing the Italian economy.
In many cases Italy today is run similarly to a medieval monopolistic guild system. A modern-day guild system that is an authoritative and economically affluent expression of a production system composed of minority groups that impede the evolution of the market. For example, a notary has a monopoly on the execution of specific legal acts. Then there are the taxi drivers, the pharmacies, and the owners of bathing facilities. These are all sectoral entities of small entrepreneurial size, well aware that a reform will not affect their sphere of interest and, only partly coincidentally, the electoral basin of Fratelli d’Italia.
THE IRON LADIES OF HISTORY
In history, iron ladies like Margret Thatcher and Golda Meir won because they went against their supporters. Predictable, Meloni mentioned neither in her speech. But if it is true that consistency is not a political value, then we can expect realism to lead her to make unpopular but effective choices.
Image credit: Corriere; Getty >>>
