DEF, the government line on military spending, pensions and spending reviews

DEF the government line on military spending pensions and spending

(Finance) – In the coming weeks, the Meloni government will have to get to work to fine-tune the Economic and financial document (Def) 2023 which will define the economic and financial framework and the public finance objectives for the next three years. First of all, the executive will have to update the estimates of debt growth and inflation for this year. There Update note to the Def (Nadef) of 2022, approved by the Council of Ministers on 28 September last, had forecast for 2023 – due to the weakening of the international and European cycles – a growth trend of 0.6% compared to the 2.4% programmatic of the Def of April 2022. The trend net debt under current legislation was estimated at 3.4%, lower than the programmatic target of 3.9%. A scenario that is, however, expected to improve after six months. Recent OECD estimates see Italian GDP at +0.6% in 2023 and at +1% in 2024 with inflation falling from 8.7% in 2022 to 6.7% this year and 2 .5% in 2024. Growth for 2023 is indicated – according to the projections of the European Commission – at +0.8%.

The Def – according to what Il Sole 24 Ore hypothesizes – could also be the place to give the first indications on the interventions that the government intends to trigger next year. In particular on three chapters: “the resources to be allocated to defence, the pension reform and the expenditure review process”.

L’increase in resources to be allocated to defence is an issue at the center of the political debate in view of achieving the target of 2% of GDP destined for defense in 2024 set by NATO starting in 2014. “We will be the ‘Pierini’ of NATO, the only ones not to reach the target of 2% when others are already talking about 3% or 4% of GDP in Defense” said the defense minister, Guido Crosetto in a hearing before the Joint Defense Committees of the Chamber and Foreign Affairs and Defense of the Senate while emphasizing that “2% is a difficult target to achieve, given the financial conditions and European budgetary constraints”. Crosetto has estimated that Italy will reach 1.48% in 2023, recalling “the commitment of previous governments to reach 2% in 2028”. Currently – as the minister said – Italy is at 1.38%. To proceed with the increase, Crosetto proposed to separate defense expenditure from budget constraints. For the minister, the unbundling of military expenditure from the Stability Pact, which would thus be excluded from budget constraints, represents the only way not to remove resources to be allocated to social interventions.

On the front of pensions, in the Nadef 2022, spending was estimated to have grown from 297.3 billion in 2022 to 320.8 billion at the end of this year and to 349.7 billion in 2025, when its incidence on GDP should be 16.4% against the 15.7% in 2022. In view of the update of the forecast on the costs of social security for this year and for the following ones, the government – according to the analysis by the Sole 24 Ore – will therefore have to, accounts in hand, review models such as ” Quota 41 which, when fully operational, would cost around 9 billion a year”. This bearing in mind that at the end of December the annual experience of Quota 103 will end.

In view of the identification of the aggregate expenditure planning objectives to be indicated in the next Economic and Financial Document relating to the three-year period 2024-2026, during the CDM of last 16 March the Minister of Economy and Finance, Giancarlo Giorgetticarried out a report on the spending review process set in November 2022, as well as on ongoing and planned initiatives for monitoring spending review interventions (including the allocation of resources allocated for strengthening analysis and evaluation skills). The provision, approved in November 2022, provides for savings of 800 million in 2023, 1.200 billion in 2024 and 1.5 billion in 2025. The reduction in spending, explained Giorgetti, will be implemented by each ministry according to criteria based on analyzes and objective assessments of the quality and effectiveness of individual measures. For the first time, to help ministries rationalize and evaluate the quality of expenditure, individual central administrations can request a loan of 1,250,000 euros for the year 2023, 1,562,500 euros for the year 2024 and 1,875,000 annually starting from 2025. This update on the current spending review process should, therefore, be present in the Def.

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