How to reduce public debt?

6 December 20235 months ago babelfish

All the issues of Italian public debt. Gianluca Zappa's point

The Minister of Economy and Finance, Giancarlo Giorgetti , in responding, on the sidelines of an Ecofin meeting, to his German counterpart, worried about the increase in rates (having to pay 40 billion euros in interest), told him note that Italy pays 90. This is 50 billion more financial resources than the Teutonic reality which are taken away from taxpayers every year.

WHAT THE RATING AGENCIES SAY

However, the great weight of the interest expenses necessary to finance the enormous Italian public debt has not prevented the rating agencies from confirming their opinion on the country at "Investment grade", with even Moody's improving the outlook from negative to stable.

Furthermore, the rating agencies, as well as the European Commission, in analyzing the budget law highlight the weak points of our economy consisting, mainly, of a prospective growth of the gross domestic product among the lowest among European countries, as well as by a public debt that continues to increase in absolute value.

THE PROBLEM OF PUBLIC DEBT

The public debt has long since broken through the 2,800 billion mark and is quickly starting to exceed the 3,000 billion threshold, a goal which, according to the provisions of the update note of the economic and finance document, will be reached in 2025.

At the same time, however, the ratio between public debt and GDP is expected to be substantially stable at around 140% until 2026.

The increase in public debt in absolute value entails a corresponding increase in interest payable which, again by Nadef, is foreseen in

around 78 billion in 2023, equal to 3.8% of GDP;
around 89 billion in 2024, equal to 4.2% of GDP;
around 94 billion in 2025, equal to 4.3% of GDP;
approximately 103 billion in 2026, equal to 4.6% of GDP.

The consequences are that Italy boasts the certainly not glorious record of having, in relation to GDP, the third largest public debt among all OECD countries after Japan and Greece, and of being the European country that pays the highest interest rates high on its government bond issues, even surpassing Greece.

THE IMPACT OF INTEREST EXPENDITURE

Interest spending takes away financial resources that could be earmarked for productive investments, or used to improve social equity. Suffice it to say that in 2024 alone, Italy will spend 33 billion euros more on interest than what other European states pay on average.

So far, inflation has contributed to a certain stability of the public debt/GDP ratio thanks to the increase in nominal GDP. But inflation erodes people's purchasing power by affecting consumption and produces an increase in the interest rates at which government bonds are placed, forcing the State to operate in deficit to recover the financial resources necessary to guarantee the financial stability of the system village.

A vicious circle is thus triggered which, between low economic growth, high public debt, growing interest liabilities to be paid and therefore fewer financial resources available, weakens the sustainability of the public debt itself in the coming years, with the risk that, sooner or later, someone comes to ask us for the bill, unloading the unbearable burden on future generations.

WHAT TO DO AGAINST PUBLIC DEBT

Public debt is therefore an enemy that must be fought decisively and its reduction should be the priority for every government.

First of all, we should ask ourselves how the state spends and makes the best use of the available resources, avoiding the repetition of reckless initiatives such as the citizen's income and the 110% super bonus, the cost of which has been and will be borne by the entire community advantage of a few.

Then, we need to make the most of all the resources that the European Commission, through the National Recovery and Resilience Plan (PNRR) , has made available to Italy for the modernization of the country and for reforms.

For example, with regard to the reform of the tax system, 97% of tax revenue comes from just 16 of the over 100 taxes and duties. It would therefore be necessary to eliminate most of the too many useless micro-taxes, which generate insignificant revenues in the face of oppressive bureaucracy and with high management costs borne by taxpayers and the state.

An important lever to be used for the reduction of public debt is undoubtedly the action to be exercised on the huge public real estate assets, valued at around 1800 billion euros of which 300 billion can be transferred according to the MEF, for which a precise inventory of the assets must be drawn up. A proactive redevelopment and valorisation policy exists and has been implemented, avoiding paying rent for properties by having empty ones available and collecting rent at market values.

Then there is the great issue of tax evasion, another sore point of the Italian system, if we consider that in our country, a member of the G7 and with an economy considered among the most advanced in the world, 40% of the approximately 41 million of IRPEF taxpayers, around 17 million people, declare less than 15 thousand euros gross, where to be considered wealthy by the tax authorities it is sufficient to declare an income exceeding 50 thousand euros gross.

THE FIGHT AGAINST EVASION

The fight against tax evasion has always been fought by periodically introducing new duties and taxes, increasing bureaucracy with the result of oppressive taxes, especially towards the middle class who are regularly taxed.

For an effective fight against tax evasion it is perhaps necessary to change perspective, that is, to consider the taxpayer not for what he declares and therefore on paper data which is often unfortunately unreliable, but for what he spends, consumes and invests.

In the era of digitalisation and artificial intelligence, given that all Italians have a tax code, it should not be too difficult to find all the data and elements necessary to get as close as possible to the real income situation of a person. subject, without prejudice to all cases in which the greater spending capacity compared to the declared income derives, for example, from other members of the family unit, from donations or hereditary bequests.

Considering the gloomy international prospects and not having taken advantage of the ECB's zero interest rate period, there isn't much time left to start a decisive public debt reduction program, but political will is needed to look to the future, putting consensus on the back burner .

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/imperativo-riduzione-debito-giorgetti/ on Wed, 06 Dec 2023 06:57:48 +0000.