Decree: help against expensive bills or 3-card games?
Focus on the Aid decree ter. Giuseppe Liturri's analysis
From Friday afternoon, the biblical miracle of the multiplication of the loaves and fishes officially entered the sphere of possible economic policy solutions. We witnessed the liturgy of a press conference in which President Mario Draghi and Economy Minister Daniele Franco announced to the Italians that they had made available an additional 14 billion in "aid", without increasing the deficit. Come out of nowhere by a miracle.
The one coming is the eighth decree, starting from January, with which the total sum destined to mitigate the impact of the energy crisis on businesses and families, rises to a total of 66 billion. According to the government, we are among the European countries to have provided the greatest aid to families and businesses affected by the extraordinary increase in energy costs.
Those aids are equal to zero or a little more and they are mere illusions and accounting tricks. Of course, the significant extent of the government intervention is not disputed. However, its overall effectiveness is questioned, because the sums paid to some correspond to sums subtracted – via spending cuts or higher taxes – from others. Those 66 billion come mainly from two sources: higher taxes paid by taxpayers and lower expenses previously recorded in the budget but then cut to create new coverage.
On the first front, the VAT in double-digit growth stands out because it is calculated on tax bases inflated by inflation, also accompanied by robust growth in personal income tax and IRES. Then follows the unlikely extraordinary contribution on the extra-profits of companies in the energy sector, whose revenues appear written on the water and which will certainly end up under the scrutiny of the Constitutional Court. Finally, there is also the levy, carried out by the GSE and paid to the State, on the extra profits from the sale of renewable energy at high current prices.
Those higher taxes that are being imposed on Italians due to inflation should have been returned without further compensation. Heading them under the heading "aid" is a scam. We would like to remind you that this is not our fanciful hypothesis because in the 1990s, two decree laws governed the restitution of the so-called “ fiscal drag ”, ie the increase in the tax levy resulting from the increase in nominal incomes inflated by inflation. This repayment, despite a thousand obstacles and difficulties, continued until 2000, and was subject to inflation of more than 2%. It is true that at the time we only reasoned about the limited effect of income taxes, but above all today – since we are beyond this threshold since September 2021, with August at 8.4% – it is appropriate that some mention should also be made from the Mef with reference to the drainage carried out by VAT in a regressive way, that is, affecting low incomes more. Instead they just cash out. And they also admit this by stating, in the report presented to Parliament on 8 September, that " the upward revision of the revenue forecast is attributable to the tax component for which the monitoring, updated with the information available on payments in August, signals an increase in about 4 billion. The higher tax revenues derive mainly from the result of payments for direct taxes, in particular IRPEF and IRES ”. These higher revenues, between July and August alone, opened up a fiscal space of 6.2 billion, to which are added the " rationalization of budget allocations " and the levy on renewables, to reach the total availability of approximately 14 billion. The Parliamentary Budget Office ( UPB ) has not failed to raise some doubts about this accounting technique, underlining that, although there are the conditions for using those 6.2 billion, " at the moment, therefore, it is not possible to provide a precise evaluation of public finance balances ". In other words, a warning to end it all.
On the expenditure front, Saturday was the day in which the action of Minister Franco, a skilled hunter of funds in the so-called " folds of the budget " (aka " rationalizations "), was magnified – not without contempt for ridicule, but the budget it has no “ folds ” whatsoever, whatever, that is, nothing, this expression means. The state budget is made up of "promises" of expenditure (the non-technical formula is forgiven), so if you allocate those same sums to new beneficiaries, with the same balance – as the government admitted to do – you are purely and simply betraying a pre-existing promise. That is, there will be some business, family, municipality or ministry somewhere in the boot that will be receiving less money than planned. Or – if those sums are actually in excess of the previous planning and consequent needs of the legitimate beneficiaries – we are admitting that we have not been able to correctly allocate public expenditure according to actual needs, blatantly mistaking the estimates and thus discovering late that those sums could be released for other purposes.
Honestly, we don't know how to choose the worst of these two possibilities.
At the macroeconomic level, to evaluate the stimulus action of the government towards the economy, only one thing counts: the final balance of the state borrowing requirement. That is the difference between how much money (in this case additional) the State asks citizens with taxes and contributions and how much it spends with current expenses and capital account. If you are taking money out of one item and putting it into another, it is generating a redistributive effect at best. But today the public sector needs to add resources, not just redistribute them.
And the numbers of 2022 are merciless. On Thursday Bank of Italy announced that up to July 2022, we witnessed the foreseeable decline in the state sector borrowing requirement compared to 2021 for as much as 45 billion, with January, April, July and August that even closed in surplus. But not even one cent more appeared in the initially planned net balance to be financed using the market. Everything was solved by moving the same sums from one item of expenditure to another, like Mussolini's tanks.
But, if this is the method adopted, the magician Houdini would be enough for Mef.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/decreto-aiuti-contro-il-caro-bollette-o-giochini-delle-3-carte/ on Sun, 25 Sep 2022 05:26:05 +0000.