Economic and Finance Document 2020
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Economic and Finance Document 2020 Section III MINISTRY OF ECONOMIC AFFAIRS AND FINANCE National Reform ProgrammeI Economic and Finance Document 2020 Section III National Reform Programme Submitted by Prime Minister Giuseppe Conte and Minister of the Economy and Finance Roberto Gualtieri Adopted by the Cabinet on 6 July 2020 INTRODUCTION The epidemic caused by the new Coronavirus (COVID-19) has changed in a sudden and dramatic way the lives of Italian people and the economic outlook of the country. The measures to control the epidemic have led to a significant reduction in the number of new infections and intensive care units admissions. Although the tribute paid in terms of human lives remains significant and painful, it has been possible from early May to gradually restart productive activities and in June the freedom of movement of citizens between regions and European countries has also been restored. During the most acute phase of the crisis, the Government intervened with measures of large scale and economic-financial scope in order to counter, in the short term, the devastating economic effects of the COVID-19 epidemic and to minimise the long-term damage to the social and economic fabric. Interventions in favour of workers, families, businesses and sectors most affected, as well as to the strengthening of the National Health system and civil protection, implemented through the ‘Cura Italia’, ‘Liquidity’ and ‘Relaunch’ Decrees were of particular importance. It is absolutely necessary to avoid that the pandemic crisis, taking place in a context of poor economic dynamism of the country, as well as of complex geopolitical changes worldwide, is followed by a phase of economic depression. There is no time to waste, and the considerable resources that the European Union has put in place must be used to the best. It is necessary to provide families and businesses with all the support necessary for sustainable recovery over time and from a social and environmental point of view, by supporting productive investment and carrying out long overdue reforms. Along with this policy document, the Government has adopted a fourth economic measure aimed at simplifying administrative procedures and the planning and authorisation of public works. The main aim is to remove the obstacles that have slowed down not only public procurement and investment in recent years, but also, more generally, economic growth. Looking ahead, this National Reform Programme (NRP) sets out the policies that the Government intends to adopt to relaunch growth, innovation, sustainability, social inclusion and territorial cohesion in the new scenario brought by the Coronavirus. The strategy responds to the Country Recommendations approved by the European Council last July and is also inspired by the most recent Annual Sustainable Growth Strategy of the European Commission and the European Green Deal, which is the main European project in the medium and long-term. In addition, the NRP sets out the essential lines of the Recovery and Resilience Plan that the Government will develop in the light of the Communication of the European Commission of 27 May for the creation of a new European Recovery MINISTRY OF ECONOMY AND FINANCE III ECONOMIC AND FINANCIAL DOCUMENT 2020 Instrument (Next Generation EU), which will hopefully be approved as soon as possible. The European Recovery Instrument is an initiative for which the Government has firmly struggled. It represents a major step forward for Europe and an opportunity for our country to relaunch investment and implement reforms that will amplify its effects within a plan of growth and transition to a more environmentally and socially sustainable economy. Over the coming months, the Government will devote all available energies to the construction of this project, drawing on the broad consultation with the country’s economic, social and cultural components during the recent States-General. The Relaunch Plan and, within it, the Recovery Plan, will be based on a strong increase in investment, a significant increase in expenditures on research, education, innovation and digitalisation, and on reforms aimed at increasing potential growth, competitiveness, equity and social and environmental sustainability. It is not only a question of absorbing the impact of the recession triggered by the pandemic, but of addressing the long-standing structural problems that have inhibited the country’s full and harmonious economic and social development, accelerating the process of modernisation and reducing the social and territorial inequalities which have exacerbated in recent years. In line with the Green New Deal, which the Italian Government has started to develop at the beginning of its mandate, the actions included in the Recovery Plan will be aimed at increasing the innovation and digitisation of companies as well as the public administration, combating climate change, promoting the energy conversion of the production system, the circular economy and the protection of the environment, supporting stable and quality employment. Together with increased public investment, the Government’s strategy aims to significantly increase Italian and foreign private investment, including through administrative and tax simplification measures and by encouraging the channelling of large private savings towards productive and long-term investments. Measures will also be taken to revitalise important supply chains and production sectors, such as health and pharmaceuticals, tourism and transport, construction, production, storage and distribution of energy, advanced mechanics and robotics, steel, car and components and the cultural industry. Policies to increase public and private investment will also be aimed at reducing the growth and well-being gap between the South and the inland areas and the most dynamic part of the country. This is a key issue for pursuing sustainable and inclusive growth at the heart of the government’s strategy. The tax reform, based on the principle of progressivity, will aim at improving the fairness and efficiency of the tax system by reducing the effective rates on income from labour while, in the meanwhile, increasing firms’ propensity to invest and create wealth and employment. At the same time, environmental taxes and environmentally harmful subsidies will be reviewed in order to boost the ecological transition. In this context, the pursuit of a stable and consistent policy to combat evasion of taxes and social security contributions will play a crucial role in ensuring a better functioning of markets, in addition to a greater equity among households. In line with the objective of improving the productivity of the entire economic system and increasing its inclusiveness, policies in favour of education and training will be strengthened. Measures will also be put in place to make it easier and more IV MINISTRY OF ECONOMY AND FINANCE INTRODUCTION attractive for young people to invest in their human capital. In fact, it is essential that the whole of society should return to the opportunity of increasing its levels of well-being, not only economic, in Italy. It is important to emphasise that these lines of action aimed at strengthening the recovery of the economy, modernising the productive fabric and setting the country’s development path along a track of fairness and sustainability are now made possible by the measures that have been put in place with the essential objective of protecting the incomes of families and workers and preserving productive capacity during the most acute phase of the crisis. In other words, the government’s economic policy response in the various phases of the crisis triggered by the epidemic was the basis on which to build the objectives to be pursued: emergency responses are mutually supportive of the medium-term strategy. Although the European resources that will become available for economic recovery under the Commission’s proposal are massive, financial compatibility should not be overlooked. The fiscal framework defined in the 2020 Stability Programme, which the Government published at the end of April, indicates a sharp increase in the general government deficit and debt stock. The Government will therefore draw up a strategy for returning from high public debt. This strategy will aim at lasting higher economic growth than in the last two decades, while at the same time achieving adequate budgetary balances. Supporting growth, combating tax evasion and reviewing and upgrading of public spending will be the pillars of the strategy to improve budgetary balances and to reduce the debt to-GDP ratio over the next decade Their effective capacity to accelerate growth and foster innovation, sustainability and cohesion will be a decisive factor in the assessment of reforms and selection of new priority public interventions. The greater the credibility of the strategy to relaunch potential growth and structural improvement of the budget, the lower the level of government bond yields and the overall effort that the country will have to support over the years. Roberto Gualtieri Minister of Economy and Finance MINISTRY OF ECONOMY AND FINANCE V VI MINISTRY OF ECONOMY AND FINANCE INDEX INTRODUCTION ................................................................................................. III I.RESPONSE TO THE CORONAVIRUS EMERGENCY AND THE COUNTRY’S RECOVERY PLAN ............................................................................................. 1 I.1 Introduction .......................................................................................................................