Mario Draghi: Fact-finding preliminary to the examination of the
Economic and Financial Planning Document for the years 2009-2013
Testimony of Mr Mario Draghi, Governor of the Bank of Italy, at the Joint Session of the Fifth
Committees of the Italian Senate and Chamber of Deputies, Rome, 2 July 2008.
* * *
1. The state of the public finances
The public finances improved further in 2007. The ratio of general government net borrowing
to GDP diminished by 1.5 percentage points to 1.9 per cent, making it possible for the
excessive deficit procedure opened against Italy in 2005 to be abrogated. The primary
surplus, almost nil in 2005, exceeded 3 per cent of GDP. After rising for two years, the ratio
of debt to GDP fell to 104 per cent.
Almost one point of the reduction of 2.5 percentage points in the debt was due to the decline
in the Treasury's assets with the Bank of Italy. The general government borrowing
requirement continued to diminish in 2007, falling from 3.7 to 2 per cent of GDP.
As in 2006, the improvement in net borrowing was due largely to the increase in the ratio of
tax and social security receipts to GDP, which rose back close to the peak recorded in 1997.
Primary current expenditure fell slightly in relation to GDP, but still remained close to the
postwar peak registered in 2005.
About one point of the 1.2 point increase in the ratio of tax and social security receipts to
GDP can be ascribed to discretionary measures, including those to widen tax bases and to
fight tax evasion and avoidance.
Net borrowing is expected to increase in 2008, reflecting lower GDP growth (0.5 per cent,
against 1.5 per cent in 2007) and the budget adjustment measures introduced last autumn.
In the Economic and Financial Planning Document for 2009-13 the deficit on a current
legislation basis is estimated at 2.5 per cent of GDP, compared with the forecast of 2.4 per
cent given in the Combined Report on the Economy and Public Finance in March. The
primary surplus is expected to fall to 2.5 per cent.
The worsening in the expected balance for 2008 compared with the forecast in the Combined
Report essentially reflects the reduction in revenue (€1 billion net of the effects of Decree
Law 93 issued on 27 May), in connection with the further deterioration in the outlook for
growth. In particular, the estimate for indirect tax receipts has been reduced by almost €5
billion, to take account of the slowdown in VAT receipts in the first few months of the year.
This downward revision has been largely offset by upward revisions for the other
components of revenue.
The new estimates on a current legislation basis also take account of the effects of Decree
Law 93/2008, which was approved in May and reduced both revenue and expenditure by
€2.3 billion. The decree law abolished municipal property tax on primary residences (with a
decrease in revenue of €1.7 billion according to the official estimates), reduced the taxation
of overtime earnings and productivity bonuses (€0.7 billion), and made numerous cuts in
spending appropriations, above all in relation to capital expenditure.
Larger transfers from the central government will compensate municipalities for the loss of
revenue from municipal property tax. The change to that tax and the suspension, likewise
provided for in Decree Law 93/2008, of the power of local government bodies to raise the
rates of the taxes within their competence entail a reduction in their degree of fiscal
autonomy.
The abolition of municipal property tax on primary residences pursuant to Decree Law
93/2008 comes on top of the reliefs already introduced by the Finance Law for 2008.
According to the information contained in municipalities' outturns, about 5 per cent of their
total budget revenue came from municipal property tax on primary residences. The impact of
the abolition appears to be greater for larger municipalities, for those located in
ordinarystatute regions and, among the latter, for those of the Centre and North.
The decree law provides that earnings from overtime or deriving from other variable
components of compensation are subject to a substitute tax of 10 per cent, up to a maximum
of €3,000, and are not included in total income for purposes of personal income tax. The
relief is reserved, at least initially, to private-sector employees who in 2007 had payroll
earnings of not more than €30,000 and will apply to wages and salary payments received in
the second half of 2008. In the second quarter of 2007 about 10 per cent of employees
worked overtime, for a number of man-hours equal to 2 per cent of total hours worked. The
frequency of overtime work is highest among employees of medium-sized and large
industries in the North, males and workers with relatively high educational levels and job
qualifications.
The expenditure savings derive from the cancellation of numerous appropriations for minor
measures (about €1 billion, including €0.4 billion of current expenditure), from the
reassignment to the state budget of the funds that Fintecna was to have paid to Stretto di
Messina S.p.A. (€0.6 billion) and from cutbacks to INAIL's real-estate investments
(€0.7 billion).
Further, the Planning Document's planning framework also takes account of the decree law
approved at the same time as the Document, which increases both revenue and expenditure,
leaving net borrowing for 2008 essentially unchanged.
On the basis of the official estimates, the decree reduces net borrowing in 2008 by €0.5
billion as a result of additional revenue of €2.2 billion and additional expenditure of €1.7
billion. The former comes from bringing forward to this year the effects of the provisions
increasing the taxation of banks - this will affect the second payment on account of corporate
income tax and regional tax on productive activities - and of some of the measures that
increase the levy on energy companies. Banks' electronic payment on account of stamp duty
and the tax on insurance premiums are increased. Lastly, the decree contains measures to
cope with the effects of the increase in the prices of oil products on the competitiveness of
the agricultural, fishing and road transport sectors, to be applied subject to the approval of
the European Commission and only up to the end of 2008.
Almost all of the increase in expenditure concerns current expenditure. About half of the
outlays reflect transfers to the municipality of Rome (€0.5 billion) and the decision not to
apply the safeguard clause introduced by the Finance Law for 2007 (€0.3 billion), under
which budget appropriations for transfers to public entities are to be reduced if expenditure
savings are found to fall short of those indicated by that law. The decree also provides for
some transfers to the State Railways (€0.3 billion) and increases the operating fund for
schools (€0.2 billion).
In addition, a solidarity fund is set up for the needier among the population (€0.2 billion), part
of which will go to finance a card for purchases of food products and energy services by
individuals living in conditions of especially great economic hardship. It is important to
procure further resources to support the income of poor households, which are relatively
numerous in Italy by European standards and on which the impact of the increase in the
prices of essential goods is heavier. Going forward, it is also important to identify instruments
that systematically deliver support to persons in economic difficulty.
In the planning framework, the ratio of primary current expenditure to GDP is set to rise by
0.7 percentage points, exceeding 40 per cent for the first time; interest payments remain
stable at 5 per cent of GDP. The ratio of tax and social security receipts to GDP diminishes
by 0.3 percentage points, to 43 per cent.
The change in the ratio of fiscal revenue to GDP reflects, on the one hand, the reliefs
introduced in 2008 (regarding municipal property tax and personal income tax on primary
residences, overtime work and productivity bonuses) and the full phasing in of those
established by the budget for 2007 (in particular, the relief regarding the regional tax on
productive activities levied on labour costs) and, on the other, the increase in revenue
deriving from the measures contained in the June decree law (112/2008).
According to the official estimates, structural net borrowing, calculated net of the effects of
one-off measures and cyclically adjusted, will increase by 0.6 percentage points of GDP
compared with 2007, to 2.3 per cent.
The debt is expected to amount to 103.9 per cent of GDP, virtually the same as at the end of
2007.
In the first five months of the year the general government borrowing requirement amounted
to €38.5 billion, €7.1 billion less than in the corresponding period of 2007. The improvement
reflected the significant growth in revenue, to which some extraordinary factors contributed.
Tax revenue recorded in the state budget grew by 6.2 per cent (€8.2 billion) in the first five
months of 2008 compared with the year-earlier period. Excluding the effects of the abolition
of the payment on account by tax collection agents, decided last year, the increase can be
estimated at 3 per cent. Receipts from withholding tax on payrolls and pensions increased by
9 per cent (€4.6 billion), reflecting some contract renewals and the associated back pay as
well as the high elasticity of revenue to the growth in the tax base. The increase in VAT
receipts was particularly small (1.5 per cent); it was probably affected by the complete
utilization in 2008 of the changes in the deductibility of VAT on expenses connected with
company cars, resulting from the 2006 decision of the European Court of Justice. Social
security contributions are rising fast, partly owing to the full effects of the rules governing
severance pay accrued by employees who have not adhered to supplementary pension
schemes.
The available data on self-assessed tax payments in June indicate a reduction in revenue
compared with last year, which can be ascribed only in part to changes in legislation. The
decrease in receipts caused the state sector surplus to be significantly smaller than in June
2007.
2. The projections based on current legislation and the objectives set in the
Planning Document for 2009-13
The Planning Document establishes three guidelines for budgetary action: support for
economic growth, stability of the public finances and promotion of social cohesion.
The strategy announced by the Government to boost growth is based on the simplification of
taxation and compliance for businesses, the strengthening of infrastructure and research,
measures to improve the functioning of the labour market, the development of under-utilized
areas and the modernization of the public administration. It is to be sustained by a plan of
liberalizations, simplifications and privatizations.
In the Planning Document net borrowing on a current legislation basis is estimated at 2.6 per
cent of GDP in 2009, 2.1 per cent in 2010 and 2 per cent in 2011. The progressive reduction
in the deficit is ascribable to the underestimation of expenditure inherent in the current
legislation criterion, which does not take into account disbursements which, even if
foreseeable or necessary, require the formal passage of legislation (outlays for the renewal
of public employment contracts, for service contracts and for the execution of public works).
Compared with the estimates published in the Combined Report on the Economy and Public
Finance in March, projected net borrowing on a current legislation basis is revised upwards
by about half a percentage point in each of the next three years. The new estimates, like
those for 2008, factor in the further worsening in the outlook for growth.
Excluding the effects of the Decree Law 93/2008, which for 2009 give rise to a decrease in
revenue and expenditure of respectively €2.1 billion and €2.4 billion, the increase in net
borrowing on a current legislation basis next year with respect to the forecast in the
Combined Report derives essentially from an upward revision of primary current expenditure
(0.3 percentage points of GDP, or €2.8 billion), relating mainly to social benefits in cash, and
of interest payments (0.1 points, €2.1 billion). The significant reduction in the estimate of
indirect tax revenue (0.3 points, more than €5 billion) is almost entirely offset by the higher
projections for both direct taxes and social security contributions. These changes will also
have effects in the subsequent two years.
The target for net borrowing is set at 2 per cent of GDP in 2009 (down from 2.5 per cent
projected for 2008) and 1 per cent in 2010. For 2011 a budget position basically in balance is
planned, confirming the commitments made at European level. Compared with the
Combined Report of March, the objective for 2009 is made less stringent (by 0.2 percentage
points) and those for the subsequent years are basically confirmed. The primary surplus is
forecast to grow progressively, from 2.6 per cent of GDP in 2008 to 4.9 per cent in 2011.
The planning framework for the public finances is based on a macroeconomic scenario in
which GDP growth is expected to be equal to 0.5 per cent this year and 0.9 per cent in 2009,
and is then forecast to increase gradually and to stabilize at 1.5 per cent in 2012.
After the deterioration of 0.6 percentage points of GDP expected for the current year, the
structural budget balance should improve by about 0.6 points in 2009 and by about 1 point
each year in 2010 and 2011 and then stabilize in the following two years. This adjustment
path is consistent with the European guidelines for countries that have not yet attained the
medium-term objectives.
The public debt is expected to remain practically stable this year and to fall to less than GDP
in 2011; in fact it is projected to fall from 103.9 per cent in 2008 to 97.2 per cent in 2011.
However, the adjustment will be slower than was indicated in March, owing above all to the
less favourable estimate of nominal GDP growth.
For the entire forecasting horizon the Document projects not only the general government
accounts on a current-legislation basis but also the planning targets. The last Planning
Document to include a detailed planning framework was that presented in June 1999.
A sharp reduction in the ratio of primary expenditure to GDP is planned. For the three years
2009-11 the reduction is projected at 2.2 percentage points. Primary current expenditure will
account for 1.4 points of the decrease, owing chiefly to a sharp decline in employee
compensation and intermediate consumption; pension expenditure, by contrast, will continue
on an upward trend.
Capital expenditure is forecast to be reduced by 0.8 points with respect to GDP; according to
the Document, in 2011 it will be at its lowest level in recent decades.
The above comparison excludes, for 2000, the proceeds from sales of UMTS licences, which
were entered in the accounts as a negative component of this aggregate. The planned
reduction will involve both gross fixed investment and capital grants. The ratio of public gross
fixed investment to GDP, which has been broadly stable at 2.4 per cent for a decade, would
thus fall to 2.1 per cent in 2011.
The ratio of taxes and social security contributions to GDP will remain unchanged over the
five-year planning scenario, after the 0.3-point reduction expected for 2008 to 43 per cent.
The increase in direct tax receipts in relation to GDP is seen as being offset by a reduction in
social security contributions and indirect taxes.
3. Budgetary policy for 2009-13
For the first time, together with the Economic and Financial Planning Document the
Government has specified budgetary measures that according to the official estimates will
achieve the Document's targets for the years covered. This should provide a framework of
greater certainty for economic agents and allow budgetary policy to focus on structural
reform and measures to stimulate economic growth.
Until now, in the Planning Document presented each June the Government had indicated the
public finance objectives over the planning horizon and the magnitude of the correction with
respect to the current-legislation projection needed to achieve them. The budget was then
presented in September, containing the measures necessary to attain the target for the first
year.
The budget measures consist of four provisions: 1) Decree Law 112 of 25 June 2008,
containing measures that will already go into force in the second half of this year to stabilize
the public finances; 2) a bill introducing rules that complete the correction needed to achieve
the objectives by 2011; 3) a draft enabling act on fiscal federalism; and 4) a draft enabling act
for the creation of a local government autonomy code and containing the legal arrangements
for Rome as national capital. The last two provisions will be linked to the autumn budget
session. To date, only the first of the four has actually been submitted to Parliament.
The Document's planning targets indicate the need for a correction in net borrowing with
respect to the current-legislation projection equal to 0.6 percentage points of GDP in 2009,
1.1 points in 2010, and 1.9 points from 2011 onwards. For 2009-11 the correction is almost
entirely achieved by the measures contained in the June decree law. The remainder will be
implemented with the other provisions that form part of the budget.
3.1 The June decree law
The June decree law aims to reduce net borrowing with respect to the current-legislation
projection by €9.8 billion in 2009, €17 billion in 2010 and €30.6 billion in 2011.
In 2009 the budget correction will consist mainly of revenue increases, which will account for
about two thirds of the correction with respect to the figures on a current legislation basis. In
the two subsequent years the planned adjustment consists entirely of reductions in
expenditure.
The revenue measures are aimed in particular at certain high-profit industries. On the
expenditure side the measures consist mainly of spending limits; the definition of the means
for complying with the limits is left to future provisions. Further, compliance with some of
them will depend crucially on measures to increase the effectiveness and efficiency of public
structures, which the Government intends to present in a separate bill.
The revenue measures are expected to bring additional receipts of more than €7 billion per
year starting in 2009, part of which will be offset by the revenue reductions caused by the
measures to curb expenditure.
The tax increases will involve banks, insurance companies, the energy industry and
cooperatives.
For banks and insurance companies a limit is set on the deductibility of interest payments,
while deductions on account of credit writedowns, allocations to risk provisions and
insurance company claim reserves are revised. The entry into force of the new rules on VAT
exemption for ancillary services provided by banking groups, which would have increased
taxes in 2008, is postponed to 2009. Energy companies are subject to a corporate income
surtax of 5.5 per cent and to a substitute tax on the accrued capital gains on their stocks of
petroleum products. Extraction royalties are increased. Turning to cooperatives, the
withholding tax on interest paid to members is increased, as is the taxable portion of net
yearly profit for consumer cooperatives.
The favourable treatment of stock options is abrogated, and a capital tax on so-called
"family-owned" real estate investment funds is introduced. Under certain conditions the
capital gains from the sale of shares reinvested in start-up companies may be exempted.
Tax assessments are to be stepped up, with an extraordinary audit plan and rules to combat
VAT fraud. In order to simplify taxpayers' obligations, some notification requirements are
eliminated and some of the rules introduced in the past two years to combat evasion are
made less stringent.
Specifically, the obligation to transmit the list of suppliers and customers is abolished, as is
the requirement that professionals have a current account dedicated to their professional
activity and that the payments for their services be traceable. The publication of the revised
sector studies is moved forward. In addition, the maximum limit for payments in cash and
negotiable cheques is moved back up to €12,500 and the obligation to include the tax code
of the endorser on endorsed cheques is abrogated.
On the expenditure side, the decree-law calls for savings of €10.4 billion in 2009, €17.2
billion in 2010 and €31.2 billion in 2001. In part, these will be offset by increased expenditure
of €6.5 billion a year from 2009 onwards.
About 60 per cent of the additional spending will be allocated to contract renewals. The
resources appropriated for 2009 correspond to just over 2 per cent of total general
government staff costs, which implies a significant slowdown in wage increases, which have
been particularly large in this sector in recent years.
From 2000 to 2007 per capita earnings in the public sector rose at faster rates than in the
private sector, bringing the wage differential between them close to the high point recorded in
1990 (nearly 40 per cent).
The ban on cumulating pension income with self-employment or payroll income is abolished
(€0.4 billion). Public employees with at least 35 years of contributions may request to be
suspended from work until they reach retirement age, receiving a monthly allowance equal to
half their salary (€0.2 billion starting in 2010).
The success of this latter measure depends on the ability of public agencies to identify
categories of workers for whom the cost to the State will be less than the benefit of faster
personnel turnover.
About half the savings will involve central government departments. They derive from cuts to
appropriations for the major "missions" into which the budget is divided. The reduction in
outlays, which will not involve salaries, pensions, interest payments or other compulsory
expenditure, will be equal to 22 per cent in 2009 and reach 41 per cent in 2011.
Provided the overall amount of savings on each "mission" is ensured, the individual ministries
can choose which spending programmes to downsize, and the Ministry for the Economy and
Finance can make further changes during the year acting on a proposal from the ministry
concerned.
Nearly a third of the expenditure savings will come from local government. The definition of
specific measures is deferred to the revision of the Domestic Stability Pact, scheduled for the
end of July. Savings on this count are expected to rise from €3.2 billion in 2009 to €9.2 billion
in 2011.
In the last three years there has been a slowdown in the primary expenditure of local
authorities (excluding health spending), reflecting the decrease in capital spending by
municipalities in 2005 and 2006 and the slower growth in the regions' current expenditure in
2007. In recent years there has also been a tendency for the debt of local authorities to
increase. The decree prohibits such bodies, for a maximum period of one year, from signing
contracts in derivative financial instruments until a regulation governing the matter is issued.
According to the Document, outlays in the healthcare sector should be equal to the
currentlegislation projection in 2009 and then decrease by €2 billion in 2010 and €3 billion in 2011.
The current-legislation projections count the receipts from patient co-payments on specialist
health services (€0.8 billion a year), which the 2008 Finance Law abolished only for this year.
The measures to achieve the savings target for the healthcare system, without prejudice to
the existing deficit reduction plans, are left to the regions, in the framework of an agreement
with the central government to be signed by the end of July. In the event of failure to attain
the objective, there is provision for an automatic rise in the regional income tax surcharge
and IRAP rates.
Public employment legislation should enable savings on compensation expenditure to rise
from €1.5 billion in 2009 to €4 billion in 2011, financed by a sharp decline in recruitment over
the next three years.
The measures for 2009 include limiting recruitment to within 10 per cent of the previous
year's terminations, and to within 20 per cent in the two subsequent years. The previous
legislation had fixed ceilings on turnover of 20 per cent in 2009, 60 per cent in 2010 and 100
per cent in 2011.
The allocations for the stabilization of precarious workers have been reduced with respect to
those envisaged by the 2008 Finance Law; resources for second-level collective bargaining
have also been cut back. The certification of contract renewals in the public sector by the
State Audit Office has been made a necessary prerequisite for their entry into force.
The Decree Law in question sets objectives for the pupil-teacher ratio, to be increased from
8.9 to 9.9, and non-teaching staff, to be reduced by 17 per cent. To meet these targets the
Ministry of Education, together with the Ministry for the Economy and Finance, will prepare a
restructuring plan and the related implementing regulations, which among other things, will
include a rationalization of the study schedules and timetables - in particular those of the
technical and professional institutes - and of the criteria concerning the size of classes.
The current pupil-teacher ratio (8.9) increases only slightly if the calculations exclude
backup teachers, a feature of the Italian school system; in the other OECD countries the ratio is
on average 16.7 for primary schools and 13.4 for secondary schools.
There is scope for improvement in the organization of the school system and a more flexible
utilization of the workforce, which could offset the reduction in the number of teachers without
affecting the quality of the service.
4. Some evaluations
The reintroduction in the Planning Document, after almost a decade, of a multi-year planning
scenario for the individual items in the general government consolidated accounts greatly
increases the information provided on budgetary policy; it means that Parliament and public
opinion can better assess Government policies on the level and composition of public
revenue and expenditure.
The inclusion of the detailed planning scenario in the Stability Pact will align the information
this contains with that provided in the Pacts of the other European countries.
Despite the difficult economic climate, the Planning Document confirms the objective of a
balanced budget in 2011. It is a sign of Italy's ongoing commitment to the pledges made to
its European partners. The achievement of balance, which is entrusted to an increase in the
primary surplus, will guarantee a rapid reduction in the ratio of debt to GDP, a crucial
objective in light of the unfavourable demographic outlook in the coming decades.
In 2006-07 the structural budget balance improved significantly in many euro-area countries;
according to European Commission estimates, the average improvement across the euro
area was 1.6 percentage points (2.1 points in Germany). Italy recorded a substantial
improvement of 3 points, but is one of the few countries that continue to fall significantly short
of budgetary balance.
A significant new departure with respect to previous years is the passing, together with the
Planning Document, of a decree law that defines what must be done to achieve the
objectives set for the next three years. For many areas of expenditure, however, the Decree
Law postpones the detailed definition of corrective measures to future legislative and
administrative measures.
The ratio of tax and social security contributions to GDP envisaged for 2011 is basically
unchanged compared with the level expected for the current year, which is high by both
historical and international standards. It is important that the progress made in curbing
expenditure and the fight against tax evasion be translated as soon as possible into lower tax
rates, without compromising the budget balance objectives. If the economy were to perform
better than expected, it would be opportune to lighten the tax burden even before 2011. In
particular, the fiscal drag should be offset in order to support the disposable income of
households. Lower tax rates for workers and firms would reinforce the interventions aimed at
supporting growth, reduce the distortions in economic activities and enhance the
competitiveness of Italian firms.
On the revenue side, the most important interventions aim to raise the taxation of firms
operating in sectors that have recorded high earnings in recent years. The heavier fiscal
burden for banks could affect the conditions offered to depositors and borrowers and lead to
less resources for the banks to allocate to own funds.
The fight against tax evasion is being pursued above all by strengthening assessment
activity. Significant results in this area will depend on the achievement of greater efficiency
by the tax authorities.
It is commendable that reducing expenditure plays a major role in the consolidation of the
public finances.
Most of the reduction in the deficit is expected to be achieved by keeping primary current
expenditure basically unchanged in real terms in the three years from 2009 to 2011; in the
last decade it grew by more than 2 per cent each year.
The reduction in capital expenditure is very large. This must not be allowed to hinder the full
development of Italy's infrastructure, which is needed to boost firms' competitiveness and
support economic growth.
Over half of savings concern central government expenditure. The planned reduction of
outlays on "missions" and programmes is ambitious. In order to be effective and lasting, this
action must be combined with a revision of expenditure centres' operating procedures and
objectives.
Compensation of employees is contained through a further tightening of the restrictions on
turnover and limits on allocations for contract renewals. Here again the interventions appear
sustainable only if accompanied by an incisive overhaul of public employment that raises
productivity levels. New staff assessment systems, merit-based promotion and increased
accountability, which the Government intends to pursue in an enabling act, all move in this
direction. This is the biggest and most difficult challenge with a view to balancing the public
finances and supporting economic growth.
The Planning Document does not include any measures having a significant impact on
pensions. After numerous interventions, this helps provide a stable reference framework for
the decisions of workers and firms. In order to curb spending and assure future pensioners
receive adequate pensions, the average actual retirement age should nonetheless be raised
in the medium to long term. The abolition of the ban on the cumulation of pensions and
earnings moves in the direction of increasing the rate of employment of persons aged 60 and
over, which in Italy is still relatively low. It is necessary to proceed with the removal of the
obstacles and disincentives that keep a large proportion of the less young population out of
the workplace.
The new rules on supplementary pensions have led to large increases in the workers joining
second pillar schemes. It is right to give the new legislative framework time to settle, but
adjustments can be considered in this sector as well in the light of the experience matured in
recent months. Careful consideration should be given to the possibility of guaranteeing,
within specified limits, the reversibility of the choice of allocating severance pay to pension
funds. To promote competition between funds, complete mobility of employer contributions
could be introduced. Measures designed to increase the efficiency of the life annuities'
market should also be considered. Information on the state pension matured by each worker
should be improved, as should that on the costs and characteristics of supplementary
pension schemes.
Municipalities, provinces and regions are also required to make a substantial contribution to
correcting the budget balance. Any considered judgement must await the reform of the
Domestic Stability Pact and the bill on federalism, which the Government intends to put
before parliament before the end of September.
The manner of implementing fiscal federalism will be vital to ensuring the action to contain
spending is sustainable and to increase the system's efficiency and effectiveness. A
simplification of the levels of government aimed at exploiting economies of scale and
avoiding useless overlaps could help.
Decentr