The number of Italian citizens in extreme poverty keeps increasing: There are five million of them according to the latest ISTAT survey.
Furthermore, the next government, in the development of the DEF (Documento di economia e finanza, a document setting out the Italian government’s financial and economical objectives for the country for the current fiscal year) and the new Budget Law in autumn, will have to keep an eye on the public debt, be careful not to touch the current pension rules, and try at the same time to avoid a VAT increase.
The testimony of representatives of the Institute of Statistics and the Bank of Italy in hearings before the new Parliament on the question of the new DEF seem to leave very little leeway for the new government that will be forming soon, whether it is a political (Lega-M5S) or a “neutral” one, as indicated by President Sergio Mattarella.
The ISTAT representatives spoke about poverty and the consequences of a possible VAT increase, while those of the Bank of Italy focused on public debt management and pensions. The five million Italians living in absolute poverty cannot cope with essential expenses for the maintenance of “minimally acceptable” living standards. The extent of this phenomenon has crossed a critical line, and the number is rising: In 2017, 261,000 more individuals found themselves in such conditions than in 2016, and the comparison is even more striking when looking at the period before the economic crisis. Today, 8.3 percent of the Italian population lives in extreme material difficulty, compared to just 3.9 percent in 2008, the year the recession started.
There are 1.8 million families living in absolute poverty, representing 6.9 percent of the total number of households, an increase of 0.6 percent compared with the 6.3 percent in 2016. This means 154,000 more families are in such a situation, with an increase of almost 3 percent compared to the 4 percent in this category in 2008. The increase, ISTAT said, was partly due to the return of increased inflation that occurred last year, but also due to the deterioration of the purchasing power of many households, mainly concentrated in the South.
The situation regarding employment is itself a bitter pill to swallow. Last year, there were 1.1 million Italian households in which all the members of working age were in search of a job, and in almost four households out of every 100, no income was earned from work at all. This number is, again, shocking when compared with 2008, when only about half the number of families reported today were in the same situation: 535,000. Again, the south of Italy is the area where this phenomenon is the most severe. According to ISTAT, more than half a million (56.1 percent) of these families are in fact living in the South.
The Bank of Italy took the opportunity of the parliamentary hearings on the DEF to put out a warning: Legislators must deal a “hard and visible blow” to the debt, to not touch the pension rules, and to not throw into question the hard-won results in balancing the public accounts. Social security is a particularly hot topic, because it is well known that one of the priorities of any Lega-M5S government would be repealing the Fornero Law.
The deputy governor of the Bank of Italy, Luigi Federico Signorini, underlined that the Italian public debt is still very high, second only to Greece among the eurozone countries. He explained that its sustainability rests largely on the pension reforms introduced in recent decades, “one of the strengths of Italian public finances,” which should not be undermined.
This is particularly important because the economic growth, which has been accelerating through 2017, might slow down to 1.4 percent in 2018, or maybe even lower. In this scenario, Signorini concluded, if one really wants to repeal the gradual increases in the VAT over the next few years, as all political forces have said they intend, it is necessary that this should be done through looking for alternative sources of revenue or through spending cuts, without using the lever of increasing the deficit.
The so-called “safeguard clauses,” which call for stepwise increases in the VAT during the next few years, remain a key point of discussion in the coming months. According to R.E TE. Imprese Italia (the Italian Enterprise Network), these VAT rate increases will risk lowering the GDP by €11.5 billion. According to ISTAT’s estimates, not repealing these “safeguard clauses” would lower the 2019 GDP by 0.1 percent and consumption by 0.2 percent. The Institute of Statistics also fears that starting from this year, there will already be a magnified impact of the US tariffs on the Italian economy, in the amount of -0.3 percent, mainly due to the crisis in the exports of cars, drugs, chemicals, as well as the industries where such impact is more readily predictable, such as furniture and food.
Finally, the Ministry of the Economy released an estimate of the extent of public real estate holdings by the Italian state on Wednesday. According to ministry data, Italy owns one million public buildings, for a total of 325 million square meters and an equivalent property value of €283 billion. Most of these are occupied by public administrative bodies; buildings worth €51 billion are occupied by private tenants (as free concessions or leased), and buildings worth €12 billion are not being used at all.