The quarterly non-financial sector account summary of Italy’s General Government account gives a brief concise framework of Italy’s public finances and the main economic factors. What caught the eye of keen observers has been the out-of-the-ordinary Q1 fiscal deficit balance that amounted to a ratio of (8.8%) for the first quarter of the year, and it’s a very heavy Government Budget/GDP burden, considered the overall macroeconomic picture and Italy’s Fiscal and Public debt position. Going forward in the summary can be appreciated that most of the deficit accounts for € 25,39 Billion in Gross Capital Formation and investments that are very important and the drivers of structural economic growth and aggregate supply expansion. In fact, the net balance of primary account expenditures/revenue would result in a €-4,8 Billion cash shortfall, which becomes a larger fiscal deficit when accounting for €18,1 Billion in coupon interests on the public debt. The deficit figures released by the Italian Government consider the Q1 ratio of Final consumption expenditure €309,1 Billion that should feed the €-27,25 Billion Primary Balance Deficit, for a ratio of (0,088) 8.8% fiscal deficit. However, the ratio becomes heavier when the primary balance shortfall (€27,25 Billion) is proportioned to the total revenue received into the General Government account €211,68 Billion, which brings the Fiscal Deficit Ratio to (12,88%), well above (12%) fiscal deficit in proportion to what is the Tax Revenue generated by the economy and received by the Government, consider that Italy’s economy is among the highest direct taxation economies globally, that could mean there are structural shortfall in tax revenues for the General Government accounts derived by persistent phenomena of Tax evasion, Tax Fraud and corporate profit shifting.
In a summary extracted from Italy’s Government consolidated Fiscal statement for the year 2024 up to 2026, basic factors have been considered such as the fact that Italy’s GDP in 2023 amounted to €2085376mln, €2.08 trillion euro [2023 prices]. Indeed 2024 Fiscal Budget accounts for €687.5 Billion in revenue, for Government Fiscal expenditure [€886.4] billion, hence requiring a [€ 198.8 billion] Fiscal deficit to be financed, considering the Q1 Fiscal deficit figure could eventually result in a larger Primary account deficit of (€109,0) billion euro for the whole year 2024, compared to the projected (€69,2) Billion shortfall, although these are provisional figures.
FISCAL SUSTAINABILITY
Considering the overall Italian Government Fiscal Deficit figures, however, another important data to consider is the ratio of 32.98% of Fiscal Revenue to the aggregate GDP, compared to the actual effective fiscal pressure on the taxpayers’ base [42.5% | 47.4%]. Hence, taking a ratio between the overall amount of Tax Revenues that Italy’s Government receives in proportion to the overall GDP amount, at current prices not adjusted for inflation, There’s an empirical Fiscal gap between tax revenue/GDP 32.98% and fiscal pressures on taxpayers = 9.5% | 14.4%, which derives from a longstanding structural issue of Italy’s economy such as issues of persistent Tax Fraud, Tax evasion and Corporate Profit shifting, that derive also by a persistent and widespread phenomenon of black market economy, with thousands if not millions of people working without any formal contract and receiving cash in hand wages, often unregulated without any workers rights.
Italy’s economy has been characterized for decades by structural issues of Fiscal Sustainability, which are very High Fiscal Pressure through Direct and Indirect Taxation on Employees and Corporations, that are constantly undermined by persistent offshore tax fraud, tax evasion and the black market economy.
These phenomena are direct consequences of the Fiscal Tax Revenue Gap, which sees Direct Taxation on Employees, Businesses, Enterprises and Pensioners at very high and unsustainable levels that dampen and constrain disposable income, aggregate demand but most importantly the marginal propensity to invest, while posing fiscal constraint of Public services.
Italy has structural issues of employment rights, employment law, minimum wage standards and Corporate Tax bureaucratic structure that make the Italian economy non-competitive, less agile, and a monolithic open-air Roman Empire museum, rather than a dynamic and entrepreneurial developed economy.
