Presentation of the 2019 OECD Economic Survey of Italy

OECD ECONOMIC SURVEY OF ITALY 2019

Reviving growth and broadening its benefits 1 April 2019, Rome

www.oecd.org/eco/surveys/italy-economic-snapshot/

@OECDeconomy @OECD

Key messages Stronger, more inclusive and sustainable growth • A clear multi-year reform programme to boost employment and productivity, while reducing steadily the public debt ratio Tackling large social and regional divides • Strengthen work incentives through tax and social benefit reforms and improving public employment services Better public investment and regional development policies • Local administration needs strengthening and rationalising with better support and coordination from the central government 2

Italy performs well in health, social connections and work-life balance OECD Better Life Index

Rankings from 1 (highest) to 35 (lowest), 2017

22

Source: OECD (2017), OECD Better Life Index.

28

30

31

31

32

Jobs & earnings

Housing

Civic engagement

Health status

Social connections

Income & wealth

Work-life balance

28

Personal security

21

Education & skills

18

Environmental quality

17

Subjective well-being

14

Italy

20% bottom performers

60% middle performers

20% top performers

3

More jobs have been created and unemployment has fallen Employment and unemployment rates Unemployment rate

%

Employment rate

%

14

60

12

59

10

58

8

57

6

56

4

2005

2007

2009

* Persons aged 15-64 Source: OECD Labour Force Statistics database.

2011

2013

2015

2017

55 2019

4

Banks are in better health Banks’ return on assets and bad loan ratio % 1.4 1.0

Return on assets 2013

2016

2017

2018š

% 25

Bad loans to non-financial corporations as a share of banks' total lending

20

0.6 15

0.2 -0.2 -0.6 -1.0

10 5 0

2011

2012

2013

2014

2015

2016

2017

1. Data for 2018 refer to either Q1 (United Kingdom), Q2 (France and Italy) or Q3 (Ireland, Portugal and Spain), depending on data availability.

Source: IMF Financial Soundness Indicators database; and Bank of Italy.

2018

5

After a modest recovery, the economy is weakening amid persistent challenges

6

The economy had been slowly recovering but recently it has stalled Real GDP growth

%, Q-o-Q 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 -0.8

Source: OECD Economic Outlook 104 database, including more recent information.

2018Q3

2018Q1

2017Q3

2017Q1

2016Q3

2016Q1

2015Q3

2015Q1

2014Q3

2014Q1

2013Q3

2013Q1

2012Q3

2012Q1

2011Q3

2011Q1

2010Q3

-1.2

2010Q1

-1.0

7

Growth will resume at a modest pace Annual % change, unless otherwise indicated 2018

2019 (p)

2020 (p)

Gross domestic product Private consumption Gross fixed capital formation Exports Imports Unemployment rate (%) Fiscal balance (% GDP) Public debt (gross, % of GDP)

0.8 0.6 3.2 1.4 1.8 10.6 -2.1 132

-0.2 0.5 -0.2 2.7 2.1 12.0 -2.5 134

0.5 0.5 1.1 2.3 2.7 12.0 -3.0 135

Current account (% of GDP)

2.6

2.7

2.4

Note: p denotes projections for 2019 and 2020.

Source: OECD Economic Outlook 104 database, including more recent information.

8

Real GDP is still well below its pre-crisis peak Real GDP, Index 2008Q1 = 100 100

100

98

98

96

96

94

94

92

92

90 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1

90

Source: OECD Economic Outlook 104 database, including more recent information.

9

Italy is the only OECD country where incomes are no higher than in 2000 % difference in real GDP per capita between 2000 and 2018 155

30

30

25

25

20

20

15

15

10

10

5

5

0

0

-5

Bottom OECD ITA

PRT

FRA

JPN

ESP

CAN

GBR

Source: OECD Economic Outlook 104 database, including more recent information.

USA

DEU

OECD

Top OECD LTU

-5

10

Productivity has stagnated Real GDP per worker, 2007 = 100 Italy

115

France

Germany

Spain

Portugal

115

110

110

105

105

100

100

95

95

90

2007

2008

2009

2010

2011

2012

2013

2014

Source: OECD Economic Outlook 104 database, including more recent information.

2015

2016

2017

2018

90

11

Poverty rose during the crisis, especially for the young % of age groups living in households in absolute poverty Below 18

% 14

18-34 years

35-64 years

65 years and over

Total

% 14

12

12

10

10

8

8

6

6

4

4

2

2

0

0

2005

Source: ISTAT.

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

12

Italy’s large regional disparities have widened Employment rate and relative poverty rate Employment rate % of population, 15-64 year olds

Relative poverty rate, % of persons living in households in relative poverty

North

Centre

70

30

65

25

60

South

20

55

15

50

10

45 40

5

35

0

1977

1985

Source: ISTAT.

1993

2001

2009

2017

1997

2001

2005

2009

2013

2017

13

Rising numbers of the young are emigrating Italian emigrants Thousand of persons

Italian emigrants by age group Thousand of persons Until 17 years 40-64 years

180 160

70

140

18-39 years 65 years and over

60

120

50

100

40

80

30

60

20

40 20

10

0

0

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Source: ISTAT; Eurostat; and OECD calculations.

2002

2005

2008

2011

2014

2017

14

Population ageing will soon shrink the workforce Age groups’ share of population, % Below 24 years

60

25-64 years

65 years and over

60

50

50

40

40

30

30

20

20

10

1980

1985

1990

1995

2000

2005

Source: UN World Population Prospects database.

2010

2015

2020

2025

2030

2035

2040

2045

2050

10

15

High public debt poses risks and reduces fiscal options Gross public debt-to-GDP ratio

% 140

%

140

130

130

120

120

110

110

100

100

90

2000

2002

2004

2006

2008

2010

2012

Source: OECD Economic Outlook 104 database, including more recent information.

2014

2016

2018

2020

90

16

Reforms to enhance growth and wellbeing while reducing the public debt

17

A broad multi-year reform programme would boost growth Trend annual real GDP growth rate, % 2.5

%

% 2018 policies

2.0

2.0

2019 policies Recommended reform package

1.5

2.5

1.5

1.0

1.0

0.5

0.5

0.0

0.0

-0.5

-0.5

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

Note: the recommended reform programme includes actions, among other things, to raise the efficiency of the public administration, introduce an in-work benefit scheme, strenghten active labour market programmes and additional support for R&D spending.

Source: OECD calculations.

18

Reforms to boost growth through higher employment, investment and productivity % difference in level of GDP, relative to 2018 policies Activating workers: Raise active labour market spending per unemployed person by 130% by 2025 More effective public administration and justice systems: Reform the public administration and justice system, to close half of the gap in ‘rule of law’ between Italy and the OECD average by 2030 Reducing inequality and the labour income tax wedge: Introduce a moderate guaranteed minimum income scheme, in-work benefits, and reform social security contribution rates and tax credits Invest in innovation: R&D spending rises from 1.3% of GDP to 2.0% of GDP by 2025, near the G7 average Support labour force inclusiveness and participation: Raise in-kind family benefits, such as child and elder care, by 40% by 2030, to reach the OECD average

Overall effect1.

1. Components do not sum to overall effect due to interactions between individual reforms.

Source: OECD calculations

2025

2030

2040

0.9%

3.7%

6.3%

0.2%

1.1%

4.4%

0.9%

2.4%

3.8%

0.0%

0.1%

0.6%

0.0%

0.2%

0.5%

2.0%

7.8% 16.2% 19

A larger primary surplus and the reform package would put debt on a downward path Public debt, % of GDP 220 200 180 160

220

2019 policies, OECD projections, 2% primary surplus

200

Recommended reform package + primary surplus at 2% of GDP Recommended reform package + lower interest rates (spread declines to 100) + higher primary surplus (3.3% of GDP)

180 160

140

140

120

120

100

100

80 2000

2005

2010

2015

2020

2025

2030

2035

2040

80

ďƒ˜ Set out a medium-term fiscal plan within the EU Growth and Stability Pact, aiming to steadily raise the primary surplus. ďƒ˜ Reverse the changes in early retirement rules introduced in 2019.

Source: OECD calculations.

20

Few payments are done electronically, abetting tax evasion and supporting informality Non-cash payments, % of GDP, 2017

6000

6000

5000

5000

4000

4000

3000

3000

2000

2000

1000

1000

0

ITA

PRT

ESP

FRA

DEU

GBR

Top OECD CZE

0

ďƒ˜ Lower the maximum threshold for cash payments. Continue to improve voluntary tax compliance and avoid repeated tax amnesties. ďƒ˜ Continue to improve coordination across tax administration agencies.

Source: ECB.

21

Removing obstacles hindering the growth of small, productive firms would boost productivity Labour productivity, 2016 or latest available

120

1-9 persons

10-19 persons

20-49 persons

50-249 persons

250 persons or more

120

100

100

80

80

60

60

40

40

20

20

0

0

Bottom OECD - MEX

PRT

ESP

ITA

DEU

FRA

GBR

Top OECD DNK

ďƒ˜ Continue to pursue reforms to boost productivity including measures to improve the efficiency of the judicial system through improvements in administration processes and greater use of alternative dispute resolution. ďƒ˜ Complete the reform of the insolvency regime.

Note: Labour productivity is computed as value added per person employed, thousands of USD, current PPPs. Source: OECD Entrepreneurship at a Glance Highlights 2018.

22

Ensuring all regions have effective waste management can lift well-being Waste management by region, % of total waste collection Recycling waste collection

100%

Non recycled waste collection

100%

ďƒ˜ Restructure operations relating to waste management of sub-national governments that repeatedly fail to reach targets for waste collection and recycling.

Source: ISPRA.

Veneto

Trentino-Alto Adige

Lombardia

Sardegna

Marche

Umbria

Piemonte

Friuli-Venezia Giulia

South

Emilia-Romagna

Centre

Valle d\'Aosta

North

Abruzzo

0%

Toscana

0%

Campania

20% Liguria

20% Lazio

40%

Basilicata

40%

Puglia

60%

Calabria

60%

Molise

80%

Sicilia

80%

23

Main recommendations A multi-year reform programme to enhance growth and well-being while boosting fiscal credibility  Develop a multi-year programme of institutional, economic and social reforms and do not reverse important measures taken in recent years.  Boost fiscal credibility by setting out a medium-term fiscal plan within the EU Growth and Stability Pact, aiming to steadily raise the primary surplus.  Continue to pursue reforms to boost productivity including measures to improve the efficiency of the judicial system through improvements in administration processes and greater use of alternative dispute resolution.  Reverse the changes in early retirement rules introduced in 2019 and preserve the link between retirement age and life expectancy.  Abolish tax expenditures that are poorly targeted or have outdated objectives.  Restructure operations relating to waste management of sub-national governments that repeatedly fail to reach targets for waste collection and recycling.

More in ‘Key policy insights’ 24

Addressing Italy’s social and regional disparities

25

Social disparities are large and follow regional lines Value added per employee EUR, 2016

Source: ISTAT Regional database.

Relative poverty rate % of persons living in households in relative poverty, 2017

26

Wide regional differences in employment rates drive income disparities Dispersion of employment rates across regions* 0.25

Males

0.25

Females

0.20

0.20

0.15

0.15

0.10

0.10

0.05

0.05

0.00

0.00

Smallest OECD ISL

JPN

DEU

GBR

CAN

PRT

ESP

Note: Coefficient of variation in employment rates across regions, 15-64 year olds.

Source: OECD Regional Statistics database. Eurostat data for France.

USA

FRA

Largest OECD ITA

27

Employer social security contributions are high, stifling employment growth Average, % of labour cost, 2017 Employer SSC

60

Employee SSC

Income tax

60

50

50

40

40

30

30

20

20

10

10

0

Smallest OECDMEX

CAN

GBR

USA

JPN

OECD

ESP

PRT

FRA

ITA

DEU

Largest OECD BEL

ďƒ˜ Reduce the labour income tax wedge on low-income workers and second earners by lowering employer social security contributions and tax and benefit reforms, while maintaining the tax system’s progressivity.

Source: OECD Taxing Wages database.

0

28

Transfers do not reach the poorest households Transfers to poorest 20% of working age population, 2016 % of total transfers

% of total transfers

50

50

45

45

40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

Lowest OECD GRC

ITA

PRT

ESP

JPN

FRA

USA

OECD

Source: OECD calculations based on the OECD Income Distribution database.

CAN

DEU

GBR

Highest OECD NZL

0

29

The Citizen’s Income provides a large boost to poor households Net household income for households receiving guaranteed minimum income, % of median disposable income Single

70 60 50

Couple, 2 children

70 60

relative poverty line

50

Note: CI indicates “Citizen’s Income”, while REI indicates “Reddito d’Inclusione”.

Source: Calculations based on OECD Tax-benefit model.

Highest OECD IRL

JPN

GBR

0

ITA, CI

0

DEU

10

FRA

10

OECD average

20

ESP

20

CAN

30

PRT

30

ITA, REI

40

Lowest OECD USA

40

30

The Citizen’s Income discourages moving into lowwage work, especially in single-earner households Effective tax rate when moving into work, % ITA REI

ITA CI

ITA refom package

10th-90th percentile range of OECD countries

Couple, 2 earners, 2 children

Single

120 Weak work incentive 100

120 Weak work 100 incentive

80

80

60

60

40

40

20

20

0

0

% of average wage Note: CI indicates “Citizen’s Income”, while REI indicates “Reddito d’Inclusione”.

Source: Calculations based on OECD Tax-benefit model.

150%

130%

110%

90%

70%

50%

30%

10%

150%

130%

110%

90%

70%

50%

30%

-20 10%

Strong -20 work incentive -40

-40

Strong work incentive

% of average wage 31

The proposed reforms (tapering CI benefits, lowincome in-work benefits, and reformed tax credits) would boost incomes % gain in net income from the reform package relative to 2018 policies Single, 2 children

25

Couple, 2 earners, 2 children

25

20

20

15

15

10

10

5

5

0

0

-5

-5

-10

0

20

40

60

80

100

120

140

160

180

200

-10

% of average full-time earnings

ďƒ˜ Lower and taper off Citizen’s Income benefits to encourage beneficiaries to seek employment in the formal sector and introduce an in-work benefit for low-income earners.

Source: Calculations based on OECD Tax-benefit model.

32

Low access to childcare in many regions is a barrier to work Childcare places, ages 0-2, per 100 children, 2014 Public structures

35

Private structures

35

North

Centre

Sardegna

Molise

Abruzzo

Basilicata

Puglia

Sicilia

Calabria

0

Campania

0

Umbria

5 Toscana

5 Lazio

10

Marche

10

Emilia-Romagna

15

Valle d'Aosta

15

Liguria

20

Lombardia

20

Trentino-Alto Adige

25

Veneto

25

Friuli-Venezia Giulia

30

Piemonte

30

South

ďƒ˜ Provide more quality infant care places at a low cost relative to average wages, prioritising regions with low female employment.

Source: ISTAT (2017) and OECD calculations

33

Strengthening public employment services is key to job creation % of employees who found a job through public employment services* 25

25

20

20

15

15

10

10

5

5

0

0

Bottom OECD ITA

ESP

GBR

DEU

FRA

PRT

Top OECD HUN

ďƒ˜ Implement a multi-year plan to revamp public employment services based on enforcing essential service standards and higher investments in IT systems, profiling tools and human resources. ďƒ˜ Grant to ANPAL the power to restructure public employment services that repeatedly fail to meet commonly agreed performance targets. * Employees aged 25-64 who started a job during the previous 12 months, 2014 data.

Source: OECD calculations based on EU-LFS 2014.

34

Social services are weak where they are most needed Severe material deprivation rate, %

North

30 High material deprivation Weak efficiency

Centre

South

High material deprivation 30 Strong efficiency 25

25 20

20

15

15

10

10

5 0

Low material deprivation 5 Strong efficiency

Low material deprivation Weak efficiency -60

-40

-20

0

20

40

Efficiency in social care provision, region average

60

80

 Ensure capacity to administer the Citizen’s Income by building on and strengthening, where necessary, municipalities’ social assistance services and establishing strong collaboration with public employment services.

Source: ISTAT; Eurostat; OpenCivitas; and OECD calculations.

0

35

Main recommendations Addressing Italy’s social and regional disparities  Implement a multi-year plan to revamp public employment services based on enforcing essential service standards and higher investments in IT systems, profiling tools and human resources.  Grant to ANPAL the power to restructure public employment services that repeatedly fail to meet commonly agreed performance targets.  Ensure capacity to administer the Citizen’s Income by building on and strengthening, where necessary, municipalities’ social assistance services and establishing strong collaboration with public employment services.  Provide more quality infant care places at a low cost relative to average wages, prioritising regions with low female employment.  Reduce the labour income tax wedge on low-income workers and second earners through lowering employer social security contributions and tax and benefit reforms, while maintaining the tax system’s progressivity.  Taper Citizen’s Income benefits to encourage beneficiaries to seek employment in the formal sector and introduce an in-work benefit for low-income earners.

More in Chapter 1: Tackling Italy’s social and regional divide

36

Improving public investment and regional development policies

37

Public investment has slumped Government investment, % GDP Italy

5.0

France

Germany

United States

5.0

4.5

4.5

4.0

4.0

3.5

3.5

3.0

3.0

2.5

2.5

2.0

2.0

1.5

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

ďƒ˜ Simplify the most complex aspects of the public procurement code, but protect the powers of the anticorruption authority.

Source: OECD Economic Outlook 104 database, including more recent information; and OECD National Accounts database.

1.5

38

Perceived infrastructure quality is lagging Global Competitiveness Index, scale from 1 to 7 (best) Roads

8

8

6

6

4

4

2

Top

JPN

USA

Top

JPN

USA

GBR

DEU

ESP

FRA

CAN

OECD

ITA

 Develop a comprehensive public investment and spatial plan linking infrastructure developments with land use management.

Source: World Economic Forum (2018).

DEU

ESP

FRA

GBR

PRT

OECD

CAN

ITA

Bott…

Bottom

Top

USA

JPN

GBR

0

DEU

0

ESP

2 CAN

2 FRA

4

PRT

4

OECD

6

ITA

6

Bottom

Air transport

8

PRT

Ports

8

0

Top

PRT

JPN

FRA

USA

ESP

DEU

CAN

GBR

OECD

ITA

2 Bottom

0

Railroad

39

Investment by subnational governments is falling Public investment, EUR billions 60

Local government

Central government

60

50

50

40

40

30

30

20

20

10

10

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ďƒ˜ Create as planned a technical support unit for public investment using existing administrative structures and ensure it is well staffed.

Source: OECD General Government Accounts database.

0

40

Absorption of EU funds is low, especially in the south 35

Spending of EU funds 2014-2020 programming period, at end September 2018, % of planned investments

35

30

30

25

25

20

20

15

15

10

10

5

5

0

0

National

South

Centre and North

ďƒ˜ Rationalise and improve coordination among bodies involved in regional development policies by strengthening the role and expertise of central government bodies.

Source: European Commission, Open Data Portal for the European Structural and Investment Funds. (https://cohesiondata.ec.europa.eu/)

41

Metropolitan areas’ administration is somewhat fragmented, weighing on efficiency Number of municipalities in metropolitan areas per 100 000 inhabitants, 2014

25

25

20

20

15 Catania Florence

10

Naples

5

Bari Palermo Venice

0

Lowest OECD IRL

GBR

JPN

15

Milan Genova Turin

10

Bologna Rome

CAN

ITA

USA

DEU

5

ESP

OECD

PRT

FRA

Highest OECD CZE

0

ďƒ˜ Empower metropolitan governance bodies with the transfer of some of the powers of regions and provinces.

Source: OECD Metropolitan Areas database; and OECD Regional Statistics database.

42

Main recommendations Improving public investment and regional development policies

 Create as planned a technical support unit for public investment using existing administrative structures and ensure it is well staffed.  Simplify the most complex aspects of the public procurement code, but protect the powers of the anticorruption authority.  Develop a comprehensive public investment and spatial plan linking infrastructure developments with land use management.  Rationalise and improve coordination among bodies involved in regional development policies by strengthening the role and expertise of central government bodies  Empower metropolitan governance bodies with the transfer of some of the powers of regions and provinces.

More in ‘Key Policy Insights’ and Chapter 1: Tackling Italy’s social and regional divide

43

For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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