Italy’s ‘awful’ annual budget

Italy has missed a golden opportunity to enact lasting reforms.

Italy's grand coalition government, which combines the centre-left and centre-right blocs, has managed to irritate everyone with its 2014 budget.

Three trade union confederations said this week that they would hold rolling strikes and protests against the plan, which aims to trim the budget deficit to 2.5% of GDP next year, down from a projected 3% in 2013.

Employers and big business, meanwhile, are less concerned with cuts, but say the package does too little to ease the tax burden and impose structural reforms to raise Italy's long-term growth prospects.

What the commentators said

The key item was a small reduction in labour taxes, one of the main reasons Italy is so uncompetitive. That won't change in a hurry: to close the gap with Germany in this field, the government would have had to go 20 times further.

The problem, continued Munchau, is that the left bloc in Italy is one of Europe's "last unreformed socialist parties", so it opposes trimming bloated regional government or selling off state industries, which would free up money for tax cuts.

On the other hand, the centre-right grouping, "the ultimate special interest party" rather than truly reformist, won't countenance any tax hikes. The "margin for budgetary manoeuvre" is practically zero.

So Italy's economy, which has barely grown for over a decade, will not get the adrenaline shot it needs, said Richard Barley in The Wall Street Journal. The judicial system, red tape for entrepreneurs, and labour market inflexibility are all key areas that need to be tackled.

The result is that the nation's debt mountain of 120% of GDP won't come down anytime soon. Concern over Italy's solvency is likely to mount.

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