Italy, Commission: pensions will be a growing problem for public finances

Brussels – Italy faces a pension problem, which will place an increasing burden on public finances and their sustainability in the future. This is nothing new, but the European Commission is issuing a new wake-up call that already applies to the current government, implicitly asking it to take action to remedy the situation. The annual report on taxation drafted in Brussels clearly warns: “The balance of pension systems is given by the difference between contributions and gross expenditure,” and “in this regard, four Member States (Italy, Romania, Bulgaria, and Austria) are expected to have an average deficit of more than four per cent of GDP in the period 2022-2050.”

Therefore, Italy risks incurring the cost of a national system comprising an elderly population and many workers with atypical contracts who are unable to afford the necessary contributions to provide pensions, which are, in any case, a burden on the country’s public finances. Brussels’ experts calculate that over the entire projection period 2022–2070, Spain (16 per cent of GDP), Italy (15.5 per cent), and Belgium (14.6 per cent) will have the highest average pension expenditure among the Member States. This means that Italy will have to allocate on average 38.8 per cent of its tax revenues to the payment of public pensions over the period 2022–2050.

The outlook for Italy is one of sacrifice. “Other conditions being equal,” the EU executive’s document further notes, “the future increases in pension spending will reduce the margin of spending on other ageing-related areas” such as health, long-term care and education, and those “not related to ageing” such as research and development, defence or housing. Another scenario, to avoid paying more pensions, is to delay the moment of leaving the labour market by increasing the retirement age, as suggested by the European Commission itself.
The increase in the retirement age, in the Italian case, risks being an easily realised prophecy. The European Commission believes that “some countries with a relatively high tax burden (e.g. Belgium and Italy) tend to have high public deficits and are destined to significantly increase their pension expenditure by 2050, while having limited room for manoeuvre to further increase the tax burden.”