5 Federal reForm: The end oF The Beginning or The Beginning oF The end? Emanuele Massetti On 28 July 2011, Roberto Calderoli, minister of the simplification of laws and regulations and a leading figure of the Lega Nord (LN, North- ern League), announced that “the implementation of the federalist reform can be considered, for its most relevant part, accomplished” and that “federalism becomes a completed and transparent system, as it had never been: a true federalism of which all citizens will feel the effects.”1 On 11 August, Roberto Formigoni, the regional president of Lombardy, a leading figure of the Popolo della Libertà (PdL, People of Liberty) and a strong advocate of fiscal federalism, declared: “Fiscal federalism has lost all its substance; it does not exist anymore.”2 These two contradictory statements are emblematic of the subject under discussion because they highlight two key points. First, while 2011 was supposed to be the crucial year for the completion of the legislative process on fiscal federalism, the fate of the reform is far from clear. Second, the reform remains deeply controversial from a political point of view, not only because of its substance, but also due to the propagandistic struggle it has given rise to. These two points are reinforced by the fact that the above dissension does not refer to a government-opposition disagreement or a North-South division: the two politicians are from the same region (Lombardy), both are strongly Italian Politics: From Berlusconi to Monti 27 (2012): 137–154 © Berghahn Books doi:10.3167/ip.2012.270108 138 Emanuele Massetti pro-reform, and both were part of the coalition that supported Silvio Berlusconi’s government until its fall on 12 November 2011. The main aims of this chapter are to provide some basic details on the content of the legislation, to explore its strengths and weak- nesses, to advance explanations about the latter, and to provide some informed speculation on its fate. The chapter is organized as follows. First, a brief summary of the “federalization” process of Italy is pre- sented, up to the approval of Law No. 42/2009, which initiated the current reform. Second, the content of the most salient legislative decrees approved in 2011 are analyzed. Third, an explanation of the outcome of the reform and, in particular, of its apparent shortcomings is presented. The main argument developed is that a party politics perspective can help us understand what may appear, from a pub- lic policy point of view, as a series of contradictions between stated objectives and actual legislative provisions. Finally, the chapter con- siders the likely fate of federalism in Italian politics, both in its institu- tional and fiscal dimensions. The Politics of Territorial Reform in Italy and Fiscal Federalism The issue of regional autonomy and, more generally, of the center- periphery allocation of powers and resources has always been very important in Italian politics. The 1948 Constitution tried to settle the question by introducing a regime of asymmetric regionalism in which special-status regions (RSSs)—the main islands (Sicily and Sardinia) and three border regions with linguistic minorities (Trentino-Alto Adige, Valle d’Aosta, and Friuli-Venezia Giulia)—were granted exten- sive autonomy and the immediate creation of elective regional repre- sentatives, while the remaining “ordinary” regions (RSOs) were left to wait for legislation in order to elect their representative governing bodies and to take up a limited set of (mainly administrative) com- petencies. The delaying of such legislation and the “South Tyrolean question”3 kept the issue of territorial reforms in the political debate until at least the early 1970s. It is only in the so-called Second Repub- lic, however, that territorial reforms and the idea of federalism become central, permanent, and (at least superficially) widely supported points in the political agenda. This qualitative shift has a precise origin: the breakthrough in 1992 of a new political force, the LN, in the national party system; its persistence, between highs and lows, as a relevant actor ever since; and the reactions of the other parties to it. A good understanding of the League’s political style, ideology, objectives, Federal Reform 139 strategy, and tactical choices is therefore crucial when examining fed- eral reforms in Italy. As noted by Lieven De Winter,4 the policy success of regionalist parties is often due not so much to their direct legislative activities but to their capability to affect the political agenda by pushing statewide parties to pass territorial reforms. The history of the LN up to 2008 appears to confirm this general trend. Indeed, although they were not directly passed by the LN, the reforms undertaken between 1997 and 2001 are remarkable. The Bassanini laws (1997–1998) clarified and reinforced the sub-national institutional competences. The reform of the regional electoral law (1999), including the direct election of the regional president, strengthened the regions from a political point of view. Finally, the 2001 constitutional reform recognized regions and local governments as constituent parts of the Republic (new Art. 114), increased the legislative competences of the regions by listing those reserved to the state and those under shared competence (new Art. 117), opened the way for further devolution of powers to any indi- vidual regions making requests in that respect (new Art. 116), and prescribed the implementation (under the constraint of national soli- darity) of financial and fiscal autonomy for the regions and the local governments (new Art. 119). As regards the question of financial and spending autonomy, the regions had already made considerable prog- ress before the 2001 constitutional reform. The establishment of the regional tax on production activities (IRAP) in 1997 gave the regions a substantive source of revenue, although the level of the tax remained under the state competence. Moreover, the regions obtained for the first time a share, albeit a limited one (0.5 percent), of income tax (IRPEF). Of greater significance was the reform adopted in 2000 that introduced a share of VAT and of the fuel tax, as well as an increase in the share of IRPEF up to 1.4 percent. These new revenues freed the regions from most direct transfers from the state, ensuring a very large degree of freedom in the allocation of regional spending. As the main advocate of territorial reforms, the League must of course take an important share of the credit for the changes intro- duced. On the other hand, it must be noted that the LN not only strongly criticized those reforms but also, when it had been part of the governing coalition (in 1994 and from 2001 to 2006), never succeeded in getting its own proposals passed. This seems to have represented a huge problem for the party, which since its foundation has promised to lead and deliver (and not simply to stimulate and control) the “federal revolution.” It has become rather evident in the last 10 years that the League is eager to present itself as the only party capable of bringing about real territorial reforms, at least as much as it is interested in the 140 Emanuele Massetti content and likely impact of such reforms. In view of this, it is rather paradoxical that the LN opposed the 2001 constitutional reform, even calling for a referendum to reject it. It is also interesting to note that the “reform of the reform” (the so-called devolution reform) voted for by the League together with the center-right coalition (2001–2006)— and then rejected by voters in a June 2006 referendum—would have not represented a major step forward toward regional empowerment. Indeed, while this reform tried to provide the regions with exclu- sive legislative powers in health, education, and local policing, it also envisaged the recentralization of competences in other important areas. First, the exclusive power over transport and national distribu- tion of energy would have gone back to the state. Second, the principle of “national interest,” allowing central institutions to block regional laws, would have been introduced. Third, the possibility for regions to negotiate individually for further devolution of powers would have been abolished. Finally, at a more symbolic level, a new territorial unit called “Rome Capital City” would have been created and the principle of “national indivisibility” explicitly stated. When the League returned to office after the 2008 general election with its best general election result since 1996, its key policy proposal was fiscal federalism.5 On the one hand, this stated policy represented a sort of return to the LN’s roots, as the party’s earlier electoral suc- cesses in the 1990s were built on a policy platform advocating fed- eralism. On the other, it is also worth emphasizing that, in spite of more or less substantive tactical shifts—from federalism to “Padanian secession” and then from the latter to “devolution”—the objective of retaining resources in the productive and rich regions of the North has always remained at the center of the League’s political action (or at least of its rhetoric). As a matter of fact, a look at regional finances shows, as largely expected, considerable differences across Italy. Yet it must be noted that such differences concern not only the divide between North and South, but also, and perhaps more importantly, the one between RSOs and RSSs.6 For instance, beyond the presence of huge gaps in fiscal capacity and, as a consequence, important inter- regional financial transfers, the political debate has also concerned the quality of regional spending. The League’s discourse has pointed to the putative inefficiency of regional spending in southern, net-receiver regions. While a full assessment of spending efficiency would require not only an assessment of regional spending but also an evaluation of the quality of services provided, what emerges from the data on spend- ing allocation is that the most striking difference is again between RSOs and RSSs, rather than between North and South.