The forecasts for the Italian economy only slightly deviate from the Economic and Financial Document (Def), but “risks for growth remain oriented downwards”. Sergio Nicoletti Altimari, head of the Economic and Statistical Department of the Bank of Italy, reported this during the hearing on the Def before the joint Budget Committees of the Chamber of Deputies and the Senate, citing factors such as international trade, the effects of restrictive monetary policy on demand, and the negative effects on the construction sector from the reduction in the super bonus. According to the Bank of Italy, GDP will grow by 0.6% this year (0.8% with the correct adjustment for working days) and just above 1% in the next two years (0.9% in 2025 and 1.3% in 2026 with the correct adjustments). “The contribution provided by the full and effective implementation of the investments of the National Recovery and Resilience Plan (PNRR) is crucial to achieve the development rates outlined in the government’s framework.” The cost of the Super bonus accounted for on a cash basis in 2023 amounts to 3.7 percentage points of GDP, or 77 billion, “5 times higher” than what the 2023 Def had calculated would be accrued by the end of the year, Altimari highlighted. “When introducing new incentive schemes, it will also be necessary to avoid repeating the mistakes that have characterized some recent measures, in particular the experience of the Super bonus,” he explained.
“With the extension of the fiscal wedge, there is uncertainty about the public accounts.” “An additional temporary extension of social security contributions relief would increase uncertainty about the future evolution of public accounts; on the other hand, making the reliefs structural would open up two significant issues. Firstly, at an aggregate level, the balance between contributory revenues and benefits payments that characterizes our pension system and represents a strength of it would be lost. Secondly, without a modification of the structure of the reliefs, workers with incomes close to the thresholds below which the benefit is accrued would continue to be penalized by high effective marginal tax rates, with potentially distorting effects on labor supply,” said the head of the Economic and Statistical Department of the Bank of Italy.
In conclusion, the Bank of Italy highlights the importance of the full and effective implementation of the investments planned in the National Recovery and Resilience Plan to achieve the growth rates projected by the government. The cost of the Super bonus for 2023 is significantly higher than initially calculated, emphasizing the need to avoid repeating past mistakes when introducing new incentive schemes. Additionally, there is uncertainty surrounding the public accounts with the potential extension of social security contributions relief, as making these reliefs structural could disrupt the balance between contributory revenues and benefits payments in the pension system and penalize workers with incomes near the benefit thresholds.
Overall, the Italian economy is projected to grow by 0.6% this year and just over 1% in the next two years, with risks remaining tilted towards the downside. Factors such as international trade, the effects of restrictive monetary policy on demand, and the negative impact on the construction sector from the reduction in the super bonus are cited as risks to growth. The discussions in the joint Budget Committees of the Chamber of Deputies and the Senate highlight the need to carefully consider the implications of extending social security contributions relief, as well as the potential distortions that could arise from making these reliefs structural without addressing underlying issues. The Bank of Italy emphasizes the importance of implementing the investments outlined in the National Recovery and Resilience Plan to support economic growth and mitigate risks.
