Brussels, 21/01/2013 (Agence Europe) - European budget discipline in the form of the fiscal compact and the golden rule will be introduced into the Italian constitution, which will make it very difficult to regress. Measures to create confidence on the markets and stabilise the country, along with reductions in spending and changes in taxation to boost economic growth, will restore a balanced budget and help Italy return to growth in 2014, said Italian Finance Minister Vittorio Grilli in a discussion with the European Parliament's economic and monetary affairs committee on 21 January.
Grilli outlined reforms introduced last year at EU level (the eurozone bank supervision system and the European Stability Mechanism) to restore a healthy public purse and prevent problems with the financial system leading automatically to sovereign debt issues. The minister said that Italy had been one of the first countries to introduce these reforms and its efforts to correct public finances have been hailed by the European Commision and the G20, but the country's economy is not in a strong position. In 2012, GDP fell by 2.4%, but the recession is expectd to end in the first quarter of this year, picking up during the rest of the year, largely due to increased exports and investment. Average growth will hover slightly above the 1% mark from 2014 onwards. In order to increase growth, Italy has introduced reforms of the pension system, labour market and products markets that the OECD says will create growth of a few percent over the next ten years. On the budget front, the golden rule (restricting borrowing) has been added to the constitution and the measures already introduced should restore a balanced structural budget and begin to cut the country's debt in 2014.
The government's growth stimulus strategy, said Grilli, aims to shift taxation from income and labour to VAT and real estate by increasing and widening the scope of taxation. Along with a spending review, programmes have been introduced to promote innovation, incentives and tax cuts to boost productivity, funding for the digital agenda and encouraging start-ups. Other reforms introduce greater transparency in the civil service and tackle corruption (including stronger sentences, more frequent inspections), with measures to help small business like reducing the civil service payment deadline for small business invoices to 30 days and boosting productivity.
In response to MEPs' questions, Grilli said the government wants to open up the market and boost competitiveness by reducing the size and weight of the public sector and shifting the balance between central and regional bodies. In this connection, he said that the increased property tax could provide revenue for local bodies that could be used to finance other activities. He said that Italy was not in favour of a low exchange rate to boost exports, preferring a globally competitive economy and a strong currency. (FG/transl.fl)