Are we sure that the Government lacks the resources?

“The approach we have” Giorgia Meloni said on the financial maneuver at a press conference on November 22, 2022 “is the approach one would take in defining a family budget. When you take care of your family budget and the resources are lacking , … you simply stand there worrying about what is right to do so that that family can grow in the best way".

We obviously agree in principle with the Prime Minister. If your family budget lacks resources, you have to make the right choices so that your family can grow in the best possible way.

The problem is that often, when we equate the state budget to that of a family , we forget that the resources available to the state and the consequences of its expenditure are very different from the classic family we imagine.

Italy is like a large family of 60 million citizens, of which the State is the head of the family which has the task of "removing the economic and social obstacles that … prevent the full development of the human person" (Article 3 of the constitution). In practice, he must do everything so that his "family can grow in the best possible way", but he can use all the "resources" at his disposal and spend them wisely so that they maximize the desired effects.

State resources

Let's see what are the " resources " that the State head of household has available for the children of his family, i.e. citizens and businesses:

1) taxes imposed on children to redistribute income and provide essential services for all such as health, education, communication, assistance and support. But in the last 20 years taxes have always increased, while services have been cut with the excuse that there is a lack of resources;

2) loans from financial markets (mainly foreign) which pay interest continuously. This type of loan has always increased in the last 30 years, because the State has preferred to issue medium-long term BTPs, suitable for foreign financial markets and speculators;

3) loans from children who have great financial wealth (savings), held in current accounts or invested in the financial markets, because the State issues few government bonds suitable for residents, and therefore does not protect and encourage their savings, as required Article 47 of the Constitution;

4) revenues from strategic industrial , banking and energy activities (IRI, Public Banks, ENI, ENEL, Post Office, Water and Public Infrastructures, etc…). But with privatization today the State has much less revenue and above all it can no longer guarantee these necessary and essential services, perhaps we should do like Germany which has public banks and nationalizes Uniper for energy;

5) creation of money (legal tender) , i.e. instruments that it declares to accept for the payment of taxes. But for years the State has no longer exercised this constitutional right to create money (Article 1 and Article 117 point "e" of the Constitution) and prefers to borrow money from private individuals who create it almost without limits, also paying them interest ;

6) creation of transferable tax credits (fiscal currency) , i.e. any instrument it claims to accept for tax reduction. Finally in 2020 the State created this payment instrument with the Superbonus, which increased GDP and reduced the Debt/GDP ratio, but then the Draghi Government arrived and blocked the transferability, preventing citizens from improving their homes and risking causing 50-60,000 businesses to fail today.

Ultimately, the State is a householder who, instead of using all these resources, uses only the first two, with the result that taxes impoverish us, while loans on the financial markets expose us to blackmail with the spread. Unfortunately , the State continues to fail to consider all the other resources it has at its disposal or could create , to give greater advantages to its children, citizens and businesses.

The "consequences of expenditure" of the State

Now let's see what the " consequences of expenditure " of the State (head of household) are, because they are not all the same and above all they do not have the same effect for its budget, as well as for citizens and businesses (children):

1) useless spending if loans are disbursed that do not produce revenue for the state (for example money that ends up abroad, aid to banks and companies in difficulty, etc…);

2) unproductive spending if loans are disbursed to activities that are not productive (public salaries, pensions, social and support activities, etc…), but which, if spent in Italy, generate exchanges and income with their circulation, i.e. VAT and taxes;

3) productive expenditure if the expenditure for goods and/or services is disbursed against the issue of invoices which generate VAT and taxes, but also involve payments from employees and suppliers which in turn generate other VAT, taxes and contributions;

4) productive expenditure with a high multiplier if the expenditure for goods and/or services, in addition to being productive in the sector where it arrives, also generates an indirect and induced economy in other sectors, which amplifies the generation effects of VAT, taxes and contributions.

The most striking example of a productive expenditure with a high multiplier is the Superbonus , where, according to the Nomisma study , the State has issued transferable tax credits (tax currency) for 38.7 billion euros , which will produce lower future tax revenues divided into 5 years, but has also generated a direct, indirect and induced economy of 124.8 billion euros , which will obviously produce a much higher increase in tax revenues in the first few years.

Furthermore, it must be considered that any payment instrument introduced into an economy, be it euro currency or fiscal currency, its circulation always generates further increases in tax revenue for the state, therefore it must be absolutely favored and not blocked as Draghi did.

Finally, I would add that according to European standards, the issuance of tax credits is not public debt but only future revenue shortfall , therefore it makes it possible to reduce the Debt/GDP ratio (public debt in the constant numerator, while GDP in the denominator grows), respecting the constraints of Maastricht.

Conclusions

The state budget can be compared to that of a family , but with the awareness that there are many more tools at its disposal and above all that their use as an expense also has very different consequences depending on how and where they are used .

A good father of a family, especially in a situation of need such as the present one, must do everything possible so that his family "can grow in the best possible way".

Therefore the State has a constitutional and moral obligation to use all the tools it has at its disposal or can create , to make expansive and sustainable economic policies, capable of improving the life and well-being of all the Italian people .

Fabio Conditioni

President of the Positive Money Association

https://monetapositiva.it/

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The article Are we sure that the Government lacks resources? comes from Economic Scenarios .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/siamo-sicuri-che-al-governo-mancano-le-risorse/ on Wed, 07 Dec 2022 12:13:01 +0000.