OECD to Italy: “Cut debt, overhaul pensions and tax wealth”

Brussels –Reduce debt, pay attention to public spending, and overhaul the pension system. For Italy, there was a new rebuke for its accounts and reform agenda. But it did not come from the European Union, which has already placed the country into the spotlight and made it clear how the current government will have to move. The rebuke comes from the OECD, the Organization for Economic Cooperation and Security of European, North, Central, and South American States, Japan, and Australia. The economic study dedicated to the country renews the invitations expressed at the EU level.

On a positive note, Italy, the eurozone’s third-largest economy, “has weathered well” the recent crises. A strong fiscal policy response, enhanced competitiveness, and improved banking sector health have supported growth in recent years,” the international organization says. However, it adds that “public debt is high and spending pressures are rising from population aging, higher interest rates, and the green and digital transitions.” With a debt of 140 percent of Gross Domestic Product, the third highest in the entire OECD area, “a steady fiscal consolidation is needed over several years to put debt on a more prudent path.” Translation: spending needs to be contained, but public investment in the National Recovery and Resilience Plan  (NRRP) should be
protected to minimize adverse effects on growth.
Public spending resulting from costs related to an aging population and debt service as a percentage of GDP is forecast to increase by about 4.5 percentage points between 2023 and 2040. Therefore, it becomes “necessary to overhaul the pension system, particularly to reduce the pressure on spending from high pensions.”

It doesn’t end there. The corporate tax wedge is fine, but the OECD seriously urges Italy to consider a tax reform to make those with real incomes pay taxes. Introduce a wealth tax, in short. “On the revenue side, shifting taxation from labor to property and consumption would protect the country’s tax revenues and, at the same time, make the system more functional for growth.”

The OECD document that takes a snapshot of the country’s situation also urges revamping the labor market. “The country’s employment rate is among the lowest in the OECD due to high youth unemployment and low participation of women in the labor market.” Therefore, it urges measures to increase the number of women in the labor market and to help women not be alone in parenthood. “It would be useful to introduce measures to increase paternity leave, including a ‘father quota’ in parental leave entitlement for both parents.”