Classroom Notes
Do you remember those who abolished poverty ?
They had done it in 2018 (those were the good times!) with a DEF (that's what it was called at the time) that predicted a deficit of 2.4% for 2019:
with a primary surplus of 1.3%. Do you know how it went? It went like this:
with a deficit of 1.5% and a primary surplus of 1.7%! The IMF forecasts a primary surplus of a much lower order of magnitude for next year: 1.1%. Its appropriateness is, of course, debatable, but why all this slack-jawed slack from the abolitionists of poverty, given that they've done much worse?
Let's add a detail to the picture: the interest expense, and therefore the total balance amount:
While I was writing my doctoral thesis on public debt sustainability, interest spending was nearly 12% of GDP. Between 1993 and 1999, it decreased by 6 percentage points of GDP. Between 1999 and 2025, it decreased by 2 percentage points of GDP. Most of this was achieved without the euro, and since about 2004, interest spending has hovered around 4 percentage points of GDP. The low point was reached at 3.2% in 2019, in the wake of zero or negative interest rates, and an intelligent opposition would perhaps claim it (although it would then have to explain why, during the COVID era, it refused to follow our suggestion to borrow at essentially zero interest rates while waiting for European bailout, i.e., the PNRR, whose financial costs are still largely unknown). Obviously, the increase in the weight of interest expenditure compared to 2019 is determined by the sharp increase in the debt-to-GDP ratio during the COVID period, an increase substantially recovered in three years:
Because it was managed by suspending European rules, unlike the two previous increases, the one in 2009-2010 caused by the Great Global Financial Crisis and the one in 2012-2014 caused by austerity, both of which were managed by applying European rules. It goes without saying that interest expenditure is the product of interest multiplied by debt, and when there is more debt, a little more is spent for the same interest rate.
(… I'm going to Commission XIV, then we'll continue here below …)
(… XIV done, previously I had been in VI. Obviously when I can replace colleagues I do it willingly, it's the least I can do to make up for being privileged, as President of a Committee, and then I find the atmosphere of the Buildings fascinating when they are empty – less fascinating from the point of view of parliamentary assistants to have someone underfoot, but it happens! Now it's like this: the general debate starts at 4 pm and I offered to avoid a colleague from V having to go down early, given that the vote of confidence will be at 7 pm. The order of the speakers is as follows:
Before me they had about 152 minutes – let's say two and a half hours – I will listen to the speeches from my studio overlooking the Pantheon:
but also seeing St. Peter's, gathering my thoughts here with you, and around 6 pm I'll go to the classroom to place my pearls of wisdom in the treasure chest of the report that someone will read one day, without prejudice to the fact that carmina sublimeis tunc sunt peritura Lucretii, as those of you who have attended high school know . Let's resume our journey …)
The numbers I've provided, besides exposing the petulant hypocrisy of certain opposition groups, perhaps explain why this measure is being discussed in gross terms, as our old friend Cottarelli does, claiming that its amount is just 0.8% of GDP, essentially the same as the 0.9% of 2014. I assume this 0.8% comes from dividing 18.8/2249 = 0.008, and is already obsolete, because in the meantime the gross amount has risen to approximately €22 billion, thus representing 0.9% of GDP. Regardless of the size of the sums, the argument strikes me as frankly grotesque. What matters in macroeconomic terms is not so much the gross size of the correction compared to the trend scenarios (i.e., the measure), but rather the net contribution of the public balance to domestic demand, i.e., the budget deficit. Let me explain: the budget for 2019 (nominally) corrected public spending upwards by 1.3 percentage points of GDP, but in actual fact it resulted in the lowest deficit since the second Prodi Government (2007), and was therefore the second most restrictive budget ever (to be precise, since 1988).
How could this have happened? It's not hard to understand: allocating money (that's what the budget does) is one thing, and spending it is another. Spending it requires a modicum of administrative culture, and that's where the donkeys fell…
It's not even their fault, poor things. The administrative machinery had already been sufficiently weakened and demotivated by austerity policies. To get an idea, here's the variation in public employees from 2008 to 2024:
And you see that thanks to austerity, Italy has undergone the most energetic slimming cure, with a -17% of public sector employees, not having any particular need for it in itself, given that its percentage of public employees on the total number of employees was already below the European average:
unlike, as I think you know, what happens for example in France.
It wasn't a sign of great intelligence to take on the largest share of the NRRP when you have the most worn-out administrative machinery in the entire Eurozone, but at the time we couldn't do more than tell them (and now we have to manage a rather complex situation, which we would have preferred to avoid).
There's another, more technical detail that discourages boasting when approving the budget, and that's the structure of the new fiscal rules, which are based, as I think you know, on net spending. Regulation 2024/1263 , Article 6, point c, stipulates that the adjustment of net spending be linear and proportional across the entire period of the plan (four-year or seven-year). This, in short, means that if you don't spend in year t the sums you allocated for year t in the t -1 budget, carrying them forward to year t +1 becomes risky, as it could expose you to a violation of the spending rule (called the no-backloading clause). A trivial example: if the Court of Auditors blocks a major construction project, you must account for this in the budget, otherwise you risk being in violation the following year. This is the underlying reason for so much controversy over the "cuts" in funding to some ministries (particularly infrastructure), which in reality are remodulations aimed at preventing the remaining funds from being used for economic purposes (i.e., for further reducing the deficit) or causing the country to fall into breach of budget rules.
I'd like to add another observation. It makes little sense to consider the gross amount of the adjustment, or indeed the size of the budget, in isolation from previous ones, for the simple reason that they implemented structural changes. In other words, the reduction of the second IRPEF rate from 35% to 33% does not cancel out the tax wedge reduction extended up to €40,000 of income and made structural in 2024. That's over €10 billion that were and remain in citizens' pockets, and naturally, being "structural" (i.e. "effective"), they are incorporated into the baseline scenario. In short, to give you an idea, if you read the extensive dossier on the previous budget , it will not be difficult to verify that paragraphs 2 through 9 of Article 1 do the following:
with these financial effects:
and therefore, quite simply, in 2026 Italians will benefit not only from the 18 billion euros that have since increased to 22 billion euros, but also from the 18 billion euros allocated by the budget law for 2025, given that the impact of the structural reduction in tax rates and the reduction of the tax wedge enacted in December 2024 will be worth 18 billion euros in 2026.
I hope this point is clear, because it is indeed crucial to having a balanced vision.
So, to be clear, the 3 billion euros envisaged by the budget law for 2026 ( summary table ):
They do not reduce the tax benefits that Italians will enjoy in 2026 from 18 to 3, but they do increase them from 18 to 21, which becomes 22.4 if this measure is also taken into account:
and we could add others (but I stick to the wise principle suggested by Claudio, that of looking only at the big numbers).
I hope this explanation was helpful to you.
(… meanwhile, there's a row in the chamber over the FdI's request to Piantedosi for information on the Hannoun case. Obviously, the opposition is in turmoil and work on the budget is stalling. On the other hand, skipping dinner would do me good, and we're on the right track: now we're starting with points of order, the DG is at least an hour late, so I'll speak around 8:00 PM. And what will I say? …)
(… then in the end I took it like this:
They had asked for the speeches to be cut short, to avoid a vote of confidence at 9 p.m.—but that won't spare us tomorrow's late-night demagogic charade!—and so I only spoke for three minutes. Having already told those who could understand—you—what they needed to understand, I limited myself to mocking those who didn't want to understand… but they probably didn't understand that either! They're not bad: they're just lame… )
This is a machine translation of a post (in Italian) written by Alberto Bagnai and published on Goofynomics at the URL https://goofynomics.blogspot.com/2025/12/appunti-per-laula.html on Sun, 28 Dec 2025 12:46:00 +0000. Some rights reserved under CC BY-NC-ND 3.0 license.