Public finance indicators characterize the economic policy of a country, and are a subject of particular interest in planning the economy of the Euro area. In particular, public expenditure and taxation policies are the main policy tools available to the government, which the public opinion is particularly sensitive about. The state of public finance, as well as the inflation trend, may be a synthetic measure of the economic and monetary stability of a country. Therefore, on the basis of this type of indicators it is possible to evaluate, for example, the growth trends and the degree of adaptation to the stability pact of the member states of the European Union.
Briefly
- In 2019, the General Government net borrowing accounted for -1.6% of GDP, while the primary balance accounted for 1.8% of GDP.
- The debt to GDP ratio in Italy (134.7%) was the highest among the European Union countries and it grew by 0.3 percentage points between 2018 and 2019.
- In 2019, the average per capita Italian General Government expenditure (14,428 euros) was lower than that registered in the main economies of the European Union.
- In 2019, the tax burden in Italy reached the value of 42.4% of GDP.
ITALY
An overview
The level of net borrowing of General Government as a percentage of GDP is the reference indicator for budget management, both as a target level and, in the final balance, to evaluate the state of public finance. In the Maastricht agreements, a maximum deficit of 3% was set as a condition for joining the Economic and Monetary Union (EMU). If interest payments are subtracted from the net borrowing, the primary balance is obtained, which, in relation to GDP, is another important public finance indicator. The relationship between net lending (+) / net borrowing (-) and primary balance can vary substantially among countries according to the debt burdens. In 2019, the primary balance for Italy accounted for 1.8% of GDP, while the net borrowing (1.6%) highlights the final deficit due to the burden of debt. At the end of 2019, General Government debt, which measured the gross liabilities associated with financial interventions in support of the EMU member states, amounted to 2,409,904 million euros (134.7% of GDP). Compared to 2018, the General Government debt to GDP ratio increased by 0.3 percentage points.
Debt/Gdp ratio (Percentage values)
The tax burden is a fundamental to establish the levels of competitiveness and performance of the economic system. The analysis of the components of the tax burden shows the effects of the variability of the tax policies adopted over the years. Against a general prevalence of direct taxes in the nineties, starting from 1998 there was a reversal of the trend that resulted in a greater relative weight of indirect taxes, up to 2006. From 2007 to 2010, on the other hand, the weight of the direct tax burden on households and enterprises has been growing again. This mainly depends on the dynamics of the distribution of taxation and its revenues between the different subsectors of General Government. Over the years, due to the decentralization of important expenditure functions, there has been a progressive increase in the tax autonomy of local governments and in the share of local taxes in the total tax levy, triggered by the attribution of increasing sources of revenue.
Over the last twenty years, in Italy, the overall tax burden has been increasing, starting from 40% of GDP in 2000, reaching a minimum of 39% in 2005 and then growing to reach a maximum of 43.4% in 2013. The tax burden was 42.4% of GDP in 2019 (+0.7 percentage points more than in 2018).
REGIONS Italy and its regions
The per capita State expenditure allocated by region is on average higher in the Centre-North than in the South and the Islands. The regional gap shows a continuous growth in recent year, increasing from 4% in 2012 to 12% in 2018. The highest state expenditure per inhabitant was observed in Valle d'Aosta/Vallée d’Aoste, just below 15 thousand euros, followed closely by Trentino-Alto Adige/Sudtirol; while Campania, Puglia, Sicilia and Veneto are at the bottom of the ranking, with per capita values between 8 thousand and 9 thousand euros. In the Southern area, only Molise and Sardegna show per capita values higher than 10 thousand euros.
Regionalized state expenditure. Year 2017 (euro per inhabitant)
EUROPE Italy within the European context
A severe adjustment of Italian public finance was carried out in the nineties, bringing the deficit to GDP ratio below the 3% threshold at the end of the decade, as required for joining the EMU.
The first half of the 2000s was characterized by an increasing net borrowing and decreasing primary balance, to the point that Italy was subjected to the excessive deficit procedure in 2005.
In 2007, Italy committed to achieve the medium-term objective of a balanced budget; it had a deficit to GDP ratio equal to 1.5%, considerably lower than in 1995.
Since the second half of 2009, the year in which no EU country recorded a budget surplus, the rebalancing of public accounts has become a priority of the EU countries, and the Commission has opened the excessive deficit procedure against 17 Member States, including Italy.
In 2019, Italy showed a net borrowing to GDP ratio equal to 1.6%, while the EU average was 0.8%. In the same year, the General Government debt to GDP ratio in Italy (134.7%) was the second-highest among the EU countries; only in Greece it was the highest one (180.5%). In Spain (95.5%) and Germany (59.6%) the debt burden fell (by 1.9 and 2.2 percentage points respectively), while in France it remained unchanged (98.1%). On average, in the Euro19 area, the debt to GDP ratio fell to 84%, with a drop of 1.8 percentage points compared to 2018. With regard to all the 28 EU countries, the same indicator was slightly lower (79.2%) and decreasing compared to 2018.
Even though an increasing degree of harmonization and many similarities characterize the tax systems of the EU countries, they also show wide gaps. Tax burdens showed a considerable variability: the highest values are registered in the Nordic Countries, while most recent EU member states showed values significantly below the Union average.
In 2019, the tax burden in Italy was equal to 42.4% of GDP, which ranked Italy 6th in the decreasing ranking of EU countries.
Tax burden (percentage of Gdp)
Italy displays lower levels of per capita General Government expenditure than most of the other major economies of the EU, falling short of the EU average. In 2019, Italy spent 14,428 euros per inhabitant and ranked twelfth in the European descending ranking, preceded by United Kingdom (€ 15,512), Germany (€ 18,751) and France (€ 19,983). At the top of the ranking there were Luxembourg (43,000 euros per inhabitant), Denmark (over 26,000 euros), Sweden (over 23,000 euros) and other Northern European countries. Among the major economies of the Union, only Spain spent less than Italy (10,749 euros per inhabitant). Lastly, almost all the new EU countries showed a per capita public expenditure lower than EU average (14,663 euros).