It must be said that for now it is an innovative tax proposal by Brussels, but it is difficult to imagine that it will get out of the negotiations as it is about to enter. Already now it meets the opposition of some countries, such as the four “frugal” ones (Denmark, Sweden, Holland and Austria) opposed to the principle of direct transfers to the countries, to which have been added the Czech Republic and Hungary, the latter in his opinion penalized in the balance between contributions and payments. In Ireland, then, we are already starting to discuss the effects of a digital tax on the web giants since some have their European offices right there and certainly will not be happy with the tax. The negotiation is therefore only at the beginning.
To these unknowns is added a not a little element: the aids are not free or free from constraints. Each beneficiary country will have to prepare a reform plan to be implemented with the money received from Brussels, and their disbursement will take place in tranches with the achievement of the objectives agreed with the Commission. Installment suspended, therefore, if the commitments made are not respected. Among these there is certainly the use of a good part of resources in pre-established sectors, such as the transition to a more sustainable economy and investments in digital. But the reform plan must first of all be based on the recommendations provided by Brussels in the framework of the European Semester. Here some measures with potentially very high political costs can lurk.
Ten days ago, presenting the country-specific Recommendations, Commission Vice President Valdis Dombrovskis said that there is “a clear link” between the Recovery Fund and the European Semester, explaining that it will be an “additional tool to facilitate the implementation of the specific recommendations for each Member State “. The Commissioner for Economic Affairs Paolo Gentiloni, speaking to Corriere, said that the resources must be spent not only in green and digital but also in the implementation of “the recommendations” and in particular “in the medium and long term, the debt must also stabilize and resume falling thanks to strong primary surpluses (balance between income and expenses before paying interest on debt, ed) “. EU Budget Commissioner Johannes Hahn explained to the Financial Times that the disbursement of funds will be accompanied by reforms by individual states to make them less dependent on helping others in the event of future crises: “It is untenable that a country always asks for support why not able to finance the recovery alone. It is a kind of alarm bell for some states. ”
What do the Brussels recommendations foresee for Italy? Those of last May represent a unique because with the suspension of the Stability Pact the usual tax warnings were deliberately eliminated. This year, in fact, budget discipline was set aside to respond to Covid’s economic impact. But things could be very different already in six months. In fact, we read in point 25 that “while these recommendations focus” on Covid, those of July 2019 “also concerned essential reforms to face the medium and long-term structural challenges”. And they have not been forgotten: “They remain relevant and will continue to be monitored throughout the annual cycle of the European semester” of 2021.
The recommendations of July 2019 have a very different tenor than those presented on May 20. They contain a series of legitimate requests (contrasting tax evasion, corruption and undeclared work, active policies, reducing the time of justice etc.) but the emphasis is placed first of all on tax discipline. The first recommendation calls for “to ensure a reduction in nominal terms of net primary public expenditure of 0.1% in 2020 corresponding to an annual structural adjustment of 0.6% of GDP”. Extraordinary revenues must then be used to “accelerate the reduction of the debt / GDP ratio”. It then remains necessary to rationalize the VAT rates, “in particular those reduced”, the “cut of tax breaks and the reform of outdated cadastral values”.
Finally, it is necessary to “fully implement past pension reforms”, “aimed at reducing the implicit liabilities deriving from an aging population”, in order to “reduce the weight of pensions in public expenditure and create margins for other social and public expenditure conducive to growth “. Brussels then suggests “to achieve savings by intervening on large pensions that do not correspond to the contributions paid, in compliance with the principles of fairness and proportionality”.
These requests will therefore form part of the package of reforms that Rome and Brussels will have to agree on already in October of this year, according to the Recommendations of May. In the draft Regulation of the main instrument for recovery, the Recovery and Resilience Facility (Rrf), it is clearly stated that “the recovery and resilience plans must contribute to responding effectively to the country-specific recommendations made by the Council to the Member States in the context of the European semester “. Progress will then be closely monitored both in progress and at the end of 2024 and the Member State will have to report every three months. Article 16 of the Regulation establishes the criteria of the Commission for the eligibility of the project presented by the State and in the first place it appears effective in addressing “the challenges identified in the specific recommendations or in other relevant documents officially adopted by the Commission in the European semester “.
France has asked for the suspension of the tax rules also for 2021 but no official answers have yet arrived from Brussels. Other countries, on the other hand, have repeatedly expressed their opposition to helping those with a high public debt through subsidies and not (only) loans. It is difficult, if not impossible, to be granted without stringent rules and a forced debt reduction plan.