Italy’s Cabinet approves budget draft but parties at odds over pensions

The Italian government approved a draft 2022 budget with income tax cuts and funds to cap household energy bills, but the ruling parties failed to reach agreement on the thorny issue of pension reform.

The budget plan includes some 23 billion euros ($26.76 billion) of expansionary measures aimed at boosting growth next year to 4.7% from 4.2% under an unchanged policy scenario.

It sets aside at least 8 billion euros for tax cuts and another 1 billion to temper increases in gas and electricity prices for consumers in the face of surging global energy costs, government officials said.

Rome has already allocated more than 4 billion euros to keep energy bills down in the second half of this year by compensating power companies that cap their tariffs.

Few details were released after the Cabinet approved the plan, which will be sent to the European Commission before being fleshed out and presented to parliament later this month.

Pensions remain a stumbling bloc, with Prime Minister Mario Draghi’s fractious coalition putting off any decision on how to replace an expensive early retirement scheme that is due to expire this year.

The so-called “quota 100” allows people to retire if they have made 38 years of contributions and are at least 62 years old.

AGEING POPULATION

The rightist League party is demanding that Draghi not reinstate a previous unpopular system whereby retirement was generally allowed from the age of 67, a regime introduced in 2011 at the height of the sovereign debts crisis.

“There are various possibilities being considered but this evening, at the League’s request, no decision was taken on quota 100,” the League’s deputy leader and Industry Minister Giancarlo Giorgetti said after the cabinet meeting.

With one of the world’s oldest populations, Italy spends more than any other European country on pensions except Greece, Eurostat data shows. According to the Treasury, Rome’s pension bill reached 17% of national output in 2020, an all-time record.

One option on the government’s table envisages a temporary regime of “quota 102” in 2022 and “quota 104” in 2023, sources said. This would offer a pension to those aged 64 next year and 66 in 2023 provided they have paid in 38 years of contributions.

To help boost Italy’s chronically weak economic growth, the government wants to reduce the so-called tax wedge, the difference between the salary an employer pays and what a worker takes home, which is particularly high in Italy.

The Organisation for Economic Cooperation and Development (OECD) estimates that in 2020 the average single worker in Italy lost 46% of his gross salary in taxes and social contributions, the fifth-highest ratio out of a group of 37 advanced nations.

The cabinet delayed planned new taxes on plastics and sugary drinks to 2023 from January 2022.

Photo – The national flag flies over the Quirinal Palace, one of the official residences of the President of the Italian Republic. EPA-EFE/ANGELO CARCONI