Tax devolution

Cabinet ministers approve fiscal federalism bill

Editorial Staff
October 16, 2008

Italy's latest move to reduce public spending is designed to give more fiscal powers to local governments. Championed by the populist Northern League party, the proposed fiscal federalism bill, recently approved by the Italian Cabinet, would shift, over a five-year term, significant amounts of federal funds from the central government in Rome to local governments.


Although the bill must still be approved in Parliament, majority politicians expect it will pass.


Achieving fiscal federalism was a major election promise for the Northern League, and the often-rebellious party, predominant in Italy's industrialised North, has in the past threatened to withdraw its support of Berlusconi's majority coalition should the bill not be approved. The devolution idea was first introduced in 1994 by the then majority government led by Silvio Berlusconi.


Supporters of the bill argue that it would give incentive to local officials to spend more efficiently, something several regional governments have historically failed to do, and make it easier to discern how and how much each region and municipality spends. Regions would receive directly the taxes collected from citizens in their respective territories, then distribute the revenue to the provinces and municipalities. Thus regions, provinces and municipalities would be fiscally autonomous.


Proponents maintain that the new system promises more evenly distributed public expenditures for services like healthcare, welfare and education. Majority politicians argue it would reduce the North-South divide, provide fiscal rewards for local and regional governments that spend more efficiently and create sanctions for those that do not. They also promise an emergency fund for municipalities at risk of bankruptcy. Interior minister Roberto Maroni stated that the bill could save an estimated 15 million euro.


Because the transition to the new system, if approved, would be complicated, the fruits of the proposed bill are not likely to be visible for at least two years, maintains Tremonti.



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