We, the United States of … Italy?

The new fiscal federalism

Melissa Rossi
January 13, 2011

The current debate surrounding Italy's new law on fiscal federalism has remained somewhat on the sidelines as the latest avalanche of personal and political scandals surrounding Premier Berlusconi have occupied the hearts and minds of Italians in the past months. Amidst the nation's flashy political moves, most of which evoke either curiosity or disdain in its citizens, some of the more serious issues concerning the country's urgent need for fiscal reforms have not received the proper attention and debate that their urgency would suggest.



Thus, as the government proceeds to approve the decreti attuativi-guidelines for the application of a new law-to implement fiscal federalism, many are left guessing what, exactly, such changes mean for Italy's diverse regions.



Up until now, the large sum of taxes that pay for regional and local investments in health, education and infrastructure has been both collected and distributed by the central state, a system also known as regionalism. The goal of fiscal federalism, however, is to drastically restructure Italy's public finances by giving more fiscal autonomy to its different political administrative sections: the regions, provinces and comuni. Thus, the new law will institute throughout Italy's regions something analogous to what already takes place in Italy's statuto speciale regions such as Alto Adige and Sicily and the fiscal systems of such federal nations as the United States, India, Canada, Australia and Brazil.



In theory, fiscal federalism is all about handing down responsibility and delegating the power of taxation to a regional level, but will this work in practice?



First, it should be noted that although only approved as a law last year (law 42/2009), the principles of fiscal federalism have been outlined in Italy's Constitution under Title V, article 119. Next, the new responsibilities will be rolled out over the next seven years. By then, regions, provinces and comuni will be responsible for addressing fiscal evasion and poor management of resources in the different areas of health, education and infrastructure. The transfer of tax funds that has been administered by Rome to the provinces will be no more.



A considerable part of the debate on the new ‘centrifugal' forces unleashed by law 42/2009 pertains to Italy's South-North divide.



Some believe that handing fiscal rights and responsibilities to the provinces will result in a more effective response from local political spheres. In particular, this thinking goes, Italy's southern regions will eventually have to come to terms with their excessive spending and tax evasion, to become out of necessity, more responsible in handling their public debt.



On the other hand, critics of fiscal federalism suggest the practical fallout that a law designed solely to fulfill Northern interests (and pursued strongly by the Lega Nord) might afflict on national cohesion, only exacerbating the problems of the Mezzogiorno. Whereas the Northern economic strongholds such as Lombardia, Piemonte, Veneto and Friuli are ready for fiscal federalism, others are not. Indeed, the fear is that in those regions unready for independent management, services that are already underfunded, such as health care and education, will fall into greater disarray.



As far as Tuscany is concerned, local government officials have expressed doubt about the government passing quick decreti attuativi without consulting properly the individual needs of the different regions, especially when it comes to discrepancies in public health care. Although Tuscany enjoys a strong reputation for keeping its budget on course and for fighting tax evasion, it recognizes that other regions might not enjoy the same status and thus need to work together to achieve a one-size-fits-all system.



It is undeniable: something must be done to address Italy's excessive public debt, caused by a considerable amount of overspending and tax evasion. But under the present reform, will the South have the proper tools to handle this new level of autonomy? How does the government intend to help the more disadvantaged regions to live up to their fiscal responsibilities? Only time will tell whether federalismo fiscale will result in greater fiscal responsibility throughout Italy.





President of the Chamber of Deputies Gianfranco Fini: ' compromise national cohesion, helping to deepen internal division and reducing levels of competition of the economic system,' Cited in 'Al Sud Governatori Dimezzati,' Il Sole24ore, July 27, 2010.



Conferenza Episcopale Italiana (CEI): ' appropriate the territorial ambiguities of the country perverse effects the federalism of abandonment.' (Cited in 'I Vescovi approno al federalismo ma bocciano quello fiscale,' Corriere della Sera, May 10, 2010.



Sociologist from the University of Torino, Luca Ricolfi: 'The proposed mechanisms remain muddled and there is a concrete scenario that a collapse in the government will lead to a recurrence of secessionist drives.' Cited in 'Federalismo Fiscale, incognite sulle Risorse,' L'Avvenire.



Writer and journalist, Roberto Saviano: 'The Mafias are betting on fiscal federalism; they like a certain kind of federalism, that which will turn over to them much of the South ... The Mafia mentality is essentially predatory, waiting to devour resources and it is much easlier to do so in the regional capital cities than in Rome.' Cited in L'Espresso.





Finance Minister Giulio Tremonti: 'Fiscal federalism will provide us with less costly services, more transparency for actions taken in the public sphere and with Italy's realignment to the rest of Europe. It will bring us back to where we were in better times.' Speech given during a meeting by the Circoli Nuova Italia, July 23, 2010. 'Fiscal federalism and the eventual territorial autnomy, guaranteed by article 119 of the Constitution, in force since 2001, will mean transparency, responsibility and control over resources; it is the exact opposite of what Mafia clans would want.' In response to statement by Roberto Saviano in the L'Espresso interview cited to the left.



Prime Minister Silvio Berlusconi: 'An important reform that should change the structure of our country savings and equity rendering the country more efficient.' After final approval of fiscal federalism in the Council of Ministers, September 11, 2008.



President of the Technical Commission for the implementation of Fiscal Federalism and Professor Luca Antonini: 'Nowadays, public administrators are not adequately made responsible. Fiscal federalism is the cure for these problems' In an interview with La Stampa, July 12, 2010.





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