While the Slovenian government is “putting out the fire with petrol,” planning a concrete pay rise for the public administration sector and preparing packages of solidarity to fight inflation, the Italian government is considering the possibility of reducing the value-added tax on bread and pasta to zero, and on meat and fish from 10 % to 5 %.
The news was confirmed by Laura Castelli, the Italian Deputy Minister of Economic Affairs. She said that the measure would help consumers facing rising prices for basic foodstuffs while ensuring that it would not lead to a deficit in the state budget, despite the European Central Bank’s interest rate hike, which would have an impact on the revenue.
The Deputy Minister of Economic Affairs stressed that “if the government had not fallen, the measure would have been adopted even before the budget was adopted.”
The Italians are aware that the way out of the current situation lies exclusively in optimising the expenditure side of the budget. With the highest inflation since the Second World War raging all around the world and, above all, in the European Union, this is no time to artificially raise salaries and give grants to specific groups of people as part of an extended pre-election hand-outs-for-votes programme.
The Janša government also handed out certain bonuses, but it did so in very different fiscal times, with the support of a broader expert advisory group that proposed bold measures that, after all, made us the second most economically successful country in dealing with the Covid pandemic. Most countries were adopting similar measures at the time, yet we were among those who were most successful at it.
Prime Minister Golob is caught in a trap
On the one hand, the Golob government got trapped in its own lack of ideas. It would really like to follow the example of the Janša government by offering grants directly from the budget to certain segments of the population, thus showing its social side. However, what the government and its advisers apparently do not yet realise is that times are very different now. When inflation is rampant, that is simply not the right time to increase the salaries of public administration employees, who are already paid much better than those in the private sector.
A few days ago, the government offered the public sector unions a 4 % increase and, at the end of the year, when it would be known what the inflation had been in the previous year, an adjustment of the wage disparity. The unions, meanwhile, are demanding a 12 % increase, while inflation is forecast to reach 8 % on an annual basis this year, according to the Institute of Macroeconomic Analysis and Development.
It is more than obvious that the government populistically wants to take care of “their own” – meaning, the voter base that loyally votes for them, which includes public administration employees, members of non-governmental organisations, and the poor who seek solace in socialism.
On the other hand, we still have the “crisis” VAT, which was adopted by the Alenka Bratušek government in 2013, allegedly for a limited amount of time, the elimination of which would directly help consumers, while empirical research shows that the fiscal shortfall with the measure of its elimination would be minimal, as would be the shortfall from cutting taxes for salaries.
The Italians will boost competitiveness
The Italian tax reform is not expected to cause any major shortfalls, according to analyses, because it also increases the competitiveness of the industry. This was not least demonstrated by the amendment to the Personal Income Tax Act, adopted by the Janša government. It was welcomed by experts on both sides of the political ideology spectrum but opposed by far-left opposition politicians and (ironically) trade unions. In the end, we saw that, despite the lower taxation of labour, the government collected more money than before the amendment had been adopted.
But unfortunately, the Golob government has announced that it will also repeal this measure, which directly results in people having higher salaries without putting any burden on employers. Salaries will, therefore, once again be lower than they could have been next year, except for the salaries of those employed in the public administration sector, who will compensate for the difference through the extortionate public sector unions.
Andrej Žitnik
