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
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