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Less spending, less government, more growth

The national reform program proposed by Minister Tremonti is possible, thanks also to austerity, which means less government interference with the economy.

Less spending, less government, more growth

This is Italy Team

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By Giampiero Cantoni (who is)

«The deficit is a product of the previous left-wing governments». This statement by Silvio Berlusconi, made when the Prime Minister expressed a strong personal commitment to support the action for reduction of government spending undertaken by Giulio Tremonti, is as harsh as it is significant. For too many years the reasoning went like this: «Is there a problem? Well, let's throw some money at it and make it go away». The result is a debt of such huge proportions that now we even have difficulty paying the interest on it. There are only two ways to lower the debt. This is what Tremonti says, using words of great power. The two ways are reduction of expenses and a return to economic growth. In a country with high tax rates like Italy, it is not possible to increase taxes: it would be like «driving the wrong way in the fast lane on the freeway». The fantasies of raising the fiscal pressure on the rich, proposed by Susanna Camusso (Cgil) and large sections of the public opinion on the left are exactly what makes even the thought of a return to power of those political forces unbearable. Italy has a sick economy but you won't cure it by strangling the patient.

 

Tremonti has proposed a national plan of reforms which, just by existing, will bring additional growth of 0.4% annually to the GDP, between 2011 and 2014. The goal is to «overcome the bottlenecks that are still a hindrance to growth in this country». From all sides (Alessandro De Nicola in Sole 24 Ore, for example) there are complaints that the plan does not include any liberalizations. Not true: there will be liberalizations, and they will be strong and effective. But it is necessary to put things in the proper perspective. These last twenty years have taught us an important lesson: to have less government and more society, austerity is much more effective than any ambitious plan of liberal reforms. Liberal reforms often remain on paper, and the large and small agendas of brilliant economists like Francesco Giavazzi never get off the ground. Worse yet: the governments that make them clash with their own reference constituencies, and have to compensate politically for the earnings that, by opening the market to the competition, they have eroded. The result, paradoxically, is an increase in public spending. Let us take, for example, the second Prodi government: to get the electorate of the neo-communist Rifondazione party to accept Bersani's liberalizing package (half of which, in any case, was never implemented) he had to coat the pill with the sugar of Visco's tax-and-spend policies, which those voters preferred.

Austerity has a great advantage. It forces a reduction of public interference in the economy, without the need of an ideological adherence to the principles of the market. It serves to convince the rebels. Now is the time: the debt obliges us, once again, after crossing the desert of entrance into the euro, to reduce the radius of action of the government. The cupboard is bare. We have to reduce our spending. Seriously reduce it: too often, for politicians, reducing public spending is just a smaller tax increase than they originally planned.

To grow economically and relaunch the south, we have to get rid of the bureaucracy and make public operations move faster, increasing the strategic infrastructures to modernize the country.

That is why Tremonti's reform program pivots not only on fiscal reform, with the long awaited rebalancing of the taxation of people and property, but also on a vast work of reduction of expenses, for example with more efficient management of the allocation of funds for the National Health Service. Because less expense is already less government, and less government is essential to have more development and growth.

 

 

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