Thursday, November 20, 2008

Budget reform priorities in Italy

-Deepening budget system reform: For next year's medium-term plan, the realism of the baseline projections should be enhanced, especially for wages and investment, and fiscal targets should reflect agreements with subnational governments. Other critical reforms should aim to reduce rigidities, including overhauling the 1978 budget law, streamlining the body of legislation that impinges on spending programs, increasing the flexibility in the management of civil servants, and further enhancing the transparency of budget documentation. These measures would be supported by making the spending review process permanent and extended to all ministries.

-Pursuing prudent fiscal federalism: Maintaining fiscal discipline will require a transparent, formula-based, system of equalization transfers, a robust and independent regime for monitoring fiscal targets, harmonized accounting, and greater civil service mobility. Regional and local governments should be given more revenue autonomy—in this context, it would be useful to undertake a comprehensive review of property taxation, which internationally is an important local government revenue source. The move to benchmark costing needs to be coordinated with budget system reforms. Should the fiscal federalism reform seem set to result in higher spending or tax burden, bolder cost-saving reforms should be considered, including streamlining the structure of subnational governments.

-Better managing public sector assets: The government is appropriately seeking to improve management of public assets, but care should be taken to ensure that the potential proceeds from sales of such assets do not delay consolidation. Faster progress needs to be made on divestment and minimizing the drain on the public purse, with a focus on enhancing competition. These objectives would be helped by ensuring full transparency of any bank-support operations and government guarantees, and producing timely consolidated accounts for the nonfinancial public sector.

-Italy: 2008 Article IV Consultation-Concluding Statement of the Mission

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