Prudence does not mean a lack of courage. Notes for the next budget

Italy’s 2025 public deficit has been put by Istat at 3.1 per cent (rather than the 3.4 per cent initially agreed with the European Commission). The country will exit the infringement procedure in 2027 (as indeed expected). Financial markets, just as predictably, have not batted an eyelid. The 2027 Budget Law may, however, be only slightly less straightforward than had been assumed (and the Minister for the Economy will, at this point, have one more argument to resist the unfounded demands of his majority). Against a backdrop of rising interest rates and significant international risk factors, prudence will, moreover, inevitably remain the guiding principle of budgetary policy (and those who, understandably, have the upcoming elections in mind should not underestimate the fact that the current majority’s support does not appear to have been dented by the orderly management of public finances).

Prudence does not, however, imply inaction, nor is it equivalent to a lack of courage. It would therefore be a good idea, as has been suggested, to take a further step towards reducing the tax burden. But perhaps even more could be done without placing a strain on the public budget. Looking ahead, now that the period linked to the (disastrous) Superbonus scheme and the (less exciting than expected) NRRP have passed, the challenge is to make the private sector the source of growth. This is possible if we create an environment capable of increasing the availability of risk capital and channelling it towards existing or new businesses, preferably innovative ones. To achieve this, let us, if possible, avoid starting by proposing new ‘tax expenditure’ schemes which – as we should by now have realised – often result in regulations that come and go, with modest impact, an unintended consequence of the legislator’s limited understanding. Let us instead begin by eliminating the sources of behavioural distortion. After four years of commendable prudence in the management of public finances and disciplined budgetary policies, it would be no small feat to standardise the taxation of financial income. I emphasise: all forms of investment income (including, that is, government bonds currently taxed at 12.5 per cent, compared with 26 per cent for shares, corporate bonds, exchange-traded funds and unit trusts). This would be implemented gradually, as is inevitable (and therefore apply to new issues). There would be no impact whatsoever (or almost none) on the state budget: the increased revenue resulting from the upward adjustment of the tax on income from government bonds would be more or less offset by the increased cost of servicing the debt.

For the country, this newfound stability and credibility would be set in stone: the Italian Republic’s debt would not require favourable treatment to attract strong demand at auctions. Italy would cease to be one of the few exceptions within Europe. For Italian businesses, this would finally mean being able to compete on a level playing field with savers. And, last but not least, it would be very difficult for any future government to reverse course. Doing so would be a clear sign of weakness and, as such, would be punished by the markets. It may be argued that the current phase might not be the most appropriate time for such a move. Interest rates are set to rise in the medium term, not only due to inflationary pressures but also – if not above all – because of the growing demand for capital driven by the advent of artificial intelligence. One can only hope that this demand for capital proves to be financially sustainable (something that is by no means a foregone conclusion at present). This objection is not necessarily well-founded: shifting the focus to the behaviour of the private sector is necessary today in order to lay the foundations for sustained growth capable of reducing the debt-to-GDP ratio – and thus safeguarding us – tomorrow. Today, thanks to the work carried out in recent years, the country possesses the authority and credibility to do so, and to do so without incurring any costs. And with all due respect to the infringement procedure.