A new OECD report has flagged mounting pressures on Italy’s public finances, pointing to defence spending, pensions and climate obligations as growing obstacles to consolidation. Economy Minister Giorgetti acknowledged downward growth revisions are coming but insisted Italian fundamentals remain sound.
The Organisation for Economic Cooperation and Development issued a sobering assessment of Italy’s fiscal outlook on Thursday, warning that the path to budgetary consolidation will become materially harder in the years ahead.
The warning came in a fact sheet dedicated to Italy within the OECD’s first report on the Foundations of Growth and Competitiveness, presented in Paris. “In the coming years, tensions related to defence spending, pensions and climate change will increase, while public investment needs will remain significant, which will complicate fiscal consolidation,” the organisation said.
Report recommendations
The report set out three concrete recommendations for Rome. First, Italy should reduce windfall revenues and deploy them to reduce the deficit rather than absorb them into spending commitments. Second, the government should further strengthen the role of expenditure scrutiny, making savings targets more ambitious rather than simply aspirational. Thirdly, Italy must increase revenue by combating tax evasion, reducing tax expenditures, and improving the effectiveness of tax administration, including through the expansion of digital payments and an overdue updating of property tax calculations.
The reference to property tax calculations touches on one of Italy’s most politically fraught issues: the catasto, the property registry system, where valuations in many parts of the country have not been updated since the 1980s and bear little relation to current market values. Previous attempts to modernise the system have repeatedly foundered on coalition politics.
Structural weaknesses identified
Beyond the fiscal picture, the OECD identified a series of deeper structural challenges that will shape Italy’s competitiveness over the medium term. The report called on Italy to improve the activity levels of young people and women — two groups whose participation in the Italian labour market continues to lag significantly behind European averages, despite incremental progress in recent years. It urged stronger cooperation between research centres and businesses, a longstanding weakness in an economy where the gap between academic expertise and commercial application has historically been wide. And it called for improvements to education as a means of strengthening human capital — the foundation, in the OECD’s analysis, of sustainable growth.
On employment, the organisation acknowledged that progress has been made, but stressed that much remains to be done. Italy’s employment rate, while improved, continues to reflect significant regional and demographic disparities, particularly between the north and south, and between different age cohorts.
Giorgetti: We are resilient but forecasts will be revised
Economy Minister Giancarlo Giorgetti offered a notably nuanced response to Thursday’s challenging backdrop, speaking during a question time session in the Senate. He pushed back against what he characterised as reflexively pessimistic forecasting, while acknowledging that the government’s own numbers would need to change.
“While I believe in miracles, I would like to stress that the picture painted by the latest statistics does not show a structural deterioration of the Italian economy and it has demonstrated major resilience to the international trade shock,” Giorgetti told senators. “Looking back, I note that the cases in which periodic, pessimistic forecasts were subsequently surpassed by the data are certainly not isolated.”
His optimism, such as it was, came with a significant caveat. The minister confirmed that the government is preparing to revise its macroeconomic forecasts downward, in line with the direction being taken by the major international organisations and domestic forecasters. He was clear, however, about where he believes the fault lies. “The signs of a slowdown in growth prospects are largely attributable to exogenous factors,” he said.
“Before the energy crisis, there were signs of improvement in the growth prospects,” he added.
