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POLITICS

Italy’s political parties have made big promises to voters, but do the numbers add up?

The major parties and coalitions contesting Italy's March 4th election have been making some big promises to voters, plenty of which have economists looking at the country's monstrous debt and scratching their heads.

Italy's political parties have made big promises to voters, but do the numbers add up?
People walk past a board with the parties' logos. Photo: Filippo Monteforte/AFP

How costly are these electoral promises? 

Former prime minister Matteo Renzi's Democratic Party (PD), which leads the centre-left coalition, has presented the lowest-cost manifesto of the election's big players, despite promising tax cuts for businesses and families.

The party estimates extra spending of 35 billion euros ($43 billion), roughly in line with analysis from the Sacred Heart Catholic University's Italian public accounts observatory (OCPI), which puts the cost of the PD's
pledges at 38.6 billion euros.

However, according to Roberto Perotti, an economist at the Bocconi University in Milan, the PD's promises would cost some 56.4 billion euros.

READ MORE: Italy's fragile economic recovery hangs on the election Ex-PM Renzi's dad investigated for 'influence trafficking'
Matteo Renzi, leader of the Democratic Party. Photo: Andreas Solaro/AFP

Meanwhile the Five Star Movement (M5S) — which is proposing a monthly basic income of 780 euros for those living in poverty — calculates its promises at 78.5 billion euros, but they are estimated at 103.4 billion by the OCPI and 108 billion by Perotti.

Those numbers rocket skywards for the right-wing coalition led by Silvio Berlusconi, which is pledging to abolish progressive taxation in favour of a flat rate.

The OCPI estimates costs of 136.2 billion euros, while Perotti offers a best case scenario of 171 billion and a worst case scenario of as much as 310 billion.

Why the escalation? 

“Election promises are of a different scale to the past,” says Perotti.

The populist League, formerly the Northern League, and the Five Star Movement have begun making grand promises in a bid to stand out from their traditional rivals.

“The other parties have had to adapt,” he added.


Matteo Salvini, leader of the League. Photo: AFP

Nicola Nobile from Oxford Economics speaks of “unrealistic or unhelpful” promises and believes that the country should instead pursue reforms that encourage growth rather than return to areas such as pensions where reform has already been carried out.

“Not enough progress has been made on the removal of tax and regulatory disincentives, the improvement of public administration, infrastructure or the judicial system,” he says.

What about the flat tax? 

One of the right's flagship promises is to institute a “flat tax” in place of the current progressive system.

Berlusconi's Forza Italia (Go Italy) is proposing a flat rate of 23 percent, while his far-right partners the League has lowered the bar further to 15 percent.

The League also proposes a tax exemption of 3,000 euros per individual in each household, including children, before the flat tax is applied, while Forza Italia is pledging to exempt 12,000 euros per working adult.

Forza Italia politician Renato Brunetta says that the idea is to cause a “fiscal shock that will enable the country to escape the trap it's stuck in”, and increase growth levels to “more than three percent” from the current rate of 1.5 percent.

READ ALSO: Inside a campaign event with Berlusconi's supporters

'He's blessed by the gods': Inside a campaign event with Berlusconi's supporters
Photo: Piero Cruciatti/AFP

Perotti estimates the cost of the policy to be around 65 billion euros, while the League forecasts 30 billion and Forza Italia around 50 billion.

Capital Economics analyst Jack Allen doubts the proponents' growth claims and believes that the wealthiest will benefit the most from the reform.

“A 2015 study by the Bank of Italy estimated that households with low wealth would respond to a one euro increase in disposable income resulting from a tax cut by raising their spending by 60 cents,” he says.

“High-wealth households … would increase spending by just 40 cents.”

How will public debt be affected? 

Italy is groaning under the weight of a public debt of 2,256 billion euros, 131 percent of GDP — the second highest ratio in the EU behind Greece.

The big parties have promised to lower it, but the OCPI says that in the event they are unable to cover the cost of their policies, the debt would reach 134.8 percent of GDP under the PD, 135.8 percent under Forza Italia and 138.4 percent under the M5S.

Political cheat sheets:

“If we implement just a third of what has been promised, Italy will not be able to respect the (EU-imposed) deficit to GDP threshold of three percent,” says Perotti.

“Currently we are at 2.5 percent and we would just need to spend 8 billion euros more to reach three percent.”

Perotti calculates that “if implementing a flat tax has a cost of around 65 billion euros, to recover this money GDP growth would have to reach 160 billion, or 9 percent of current GDP. That is unthinkable.”

All parties apart from the League have promised to respect the threshold, and Allen claims that in order to do so they will have to cut spending.

“The government would have to accompany big tax cuts with big cuts to spending if it was to avoid a blow-out in the budget deficit,” he says.

By Celine Cornu

For members

ENERGY

What does the shut-off of Russian gas supplies mean for Italy?

After Russian energy giant Gazprom suspended gas deliveries to Italy on Saturday, many are wondering what consequences the stoppage will have on the country’s energy supplies.

What does the shut-off of Russian gas supplies mean for Italy?

What’s going on?

Over the past three days, Italy has received none of the gas supplies it expected from Russian energy giant Gazprom. 

The impasse officially started last Saturday, when Gazprom announced it would not be able to deliver gas to Italy due to “the impossibility of gas transport through Austria” – Russian gas supplies are delivered to Italy through the Trans Austria Gas pipeline (TAG), which reaches into Italian territory near Tarvisio, Friuli Venezia-Giulia. 

READ ALSO: Russia suspends gas to Italy after ‘problem’ in Austria

Though Gazprom originally attributed the problem to Austrian gas grid operators refusing to confirm “transport nominations”, Austria’s energy regulator E-Control said that the Russian energy mammoth had failed to comply with new contractual agreements whose introduction had been “known to all market actors for months”. 

Additional information about the incident only emerged on Monday, when Claudio Descalzi, the CEO of Italy’s national energy provider ENI, said that supplies had been suspended after Gazprom failed to pay a 20-million-euro guarantee to Austrian gas carrier Gas Connect. 

Descalzi also added that ENI was ready to step in and deposit the guarantee itself in order to unblock deliveries to Italy.

Logo of Italian energy regulator ENI.

Italian energy regulator ENI said it was ready to pay Austrian gas carriers a 20-million-euro guarantee to unblock deliveries. Photo by Marco BERTORELLO / AFP

READ ALSO: Italy’s ENI ready to pay guarantee to unblock Russian gas

At the time of writing, however, no agreement between ENI, Gas Connect and Gazprom has yet been reached, with the stoppage expected to continue until Wednesday at the very least.

What would an indefinite stoppage mean for Italy’s upcoming winter season?

Though energy giant ENI appears to be confident that a compromise between all the involved parties will be reached shortly, the “indefinite shutdown” of the Nord Stream 1 pipeline in early September is somewhat of a menacing precedent. 

After fears of a long-term supply suspension cropped up over the weekend, outgoing Ecological Transition Minister Roberto Cingolani publicly reassured Italians that “barring any catastrophic events, Italy will have the whole of winter covered”.

It isn’t yet clear what exactly Cingolani meant by “catastrophic”, but the latest available data seem to suggest that Italy wouldn’t have to resort to emergency measures, chiefly gas rationing, should Gazprom halt deliveries indefinitely. 

Italian Minister for Ecological Transition Roberto Cingolani.

Outgoing Minister for Ecological Transition Roberto Cingolani said that, “barring any catastrophic events”, Italy will have enough gas supplies for the winter. Photo by Andreas SOLARO / AFP

In 2021, prior to Russia’s invasion of Ukraine, Italy received around 20 billion cubic metres of Russian gas per year, which accounted for about 40 percent of the country’s annual gas imports. 

But, thanks to the supply diversification strategy carried out by outgoing PM Mario Draghi and his cabinet over the past few months, Russian gas currently accounts for, in the words of ENI’s CEO Claudio Descalzi, only “about nine to 10 percent” of Italian gas imports.

READ ALSO: Italy’s Draghi criticises Germany over latest energy plan

Granted, Italy still receives (or, given the current diplomatic deadlock, expects to receive) a non-negligible total of 20 million cubic metres of Russian gas per day. But, should supply lines between Rome and Moscow be shut off until further notice, Italy could fall back on existing gas stocks to meet winter consumption demands. 

Last Wednesday, Cingolani announced that the country had already filled up 90 percent of its national gas stocks – Italy has nine storage plants for an overall storage capacity of 17 billion cubic metres of gas – and the government was now working to bring that number up by an additional two or three percentage points.

These supplies, Cingolani said, are set to give Italy “greater flexibility” with respect to potential “spikes in winter consumption”.

Gas storage station in Loenhout, Belgium.

Italy has nine storage plants for an overall storage capacity of 17 billion cubic metres of gas. Photo by Kenzo TRIBOUILLARD / AFP

Finally, Italy is expected to receive an additional four billion cubic metres of gas from North Europe over the winter months – deliveries which will be complemented by the first shipments of LNG (Liquefied Natural Gas) from Egypt.

Both of these developments are expected to further reinforce Italy’s position in the energy market for the cold season.

What about the long-term consequences of an indefinite stoppage?

An indefinite shut-off of Russian gas supplies would effectively anticipate Italy’s independence from Moscow by nearly two years – Draghi’s plan has always been to wean the country off Russian gas by autumn 2024.

However, the Italian government’s strategy is (or, perhaps, was, as a new government is about to be formed) centred around a gradual phasing out of Russian supplies. As such, although not immediately problematic, a ‘cold-turkey’ scenario might create supply issues for Italy at some point during 2023.

READ ALSO: EXPLAINED: How much are energy prices rising in Italy this autumn?

Granted, Algeria, whose supplies currently make up 36 percent of Italy’s national demand, is expected to ramp up gas exports and provide Rome with nine billion cubic metres of gas in 2023.

But, even when combined with LNG supplies from several African partners – these should add up to a total of four billion cubic metres of gas in 2023 – there’s a risk that Algerian gas might not be able to replace Russian gas on its own.

An employee works at the Tunisian Sergaz company, that controls the Tunisian segment of the Trans-Mediterranean (Transmed) pipeline, through which natural gas flows from Algeria to Italy.

Algerian gas supplies, which reach Italy through the Trans-Med pipeline (pictured above), might not be enough to replace Russian gas in 2023. Photo by Fethi BELAID / AFP

Therefore, should an indefinite shut-off be the ultimate outcome of the current diplomatic incident between ENI, Austria’s Gas Connect and Russia’s Gazprom, Italy, this time in the person of new PM Giorgia Meloni, might have to close deals with other suppliers or ask existing suppliers to ramp up production. 

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