Union confederations unite against budget law

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In September-October 2005, the Italian government issued the draft state budget law for 2006. The budget is strongly opposed by the trade union confederations, which have jointly proposed amendments and called a four-hour general strike on 25 November. Many local authorities have been equally critical and have protested against the major financial cuts envisaged by the budget law for municipalities, provinces and regions. The Confindustria employers' confederation has been more cautious in its reaction, praising some provisions of the law while criticising others.

On 30 September 2005, the centre-right government published the 2006 state budget law, involving a decree law and a number of subsequent amendments (the last of which made on 28 October). The law must now go before parliament, whose approval the government has decided will constitute a vote of confidence (the Senate approved the law on 11 November).

Of the EUR 25 billion covered by the budget law, more than EUR 16 billion is to be used to cut the public deficit as a proportion of GDP to 3.8% in 2006 from the predicted 4.9%, as required by the European Commission. One of the distinctive features of the budget is a reduction of financial transfers to local authorities, with payments of 3.8% less than in 2004 for regions, and 6.7% for municipalities and provinces.

Another key aim of the budget law is to curb spending in the public administration, with the renewals of all public sector collective agreements being postponed to 2006 (with the exception of those covering ministries, public undertakings, schools and universities). Moreover, spending by local authorities must not exceed 99% of that in 2004; the costs of part-time contracts must not exceed 60% of those in 2003; and spending on freelance contracts (for conferences, exhibitions and publicity) must be cut by 50%. Finally, the budget law envisages a 10% reduction in the resources allocated to certain sectors of the justice system (self-government bodies, and the ordinary, financial, fiscal, and military judiciary) and to the National Council for Economic Affairs and Labour (Consiglio Nazionale dell’Economia e del Lavoro, Cnel), and cutbacks in the funds allocated to the arts (cinema, theatre etc) and in the resources allocated to international cooperation with developing countries.

As regards spending and income, the main novelties are: a reduction in labour costs through a 1% cut in the social contributions paid by employers; the allocation of EUR 480 million to the 'social shock absorbers' system (the measures that support employees during restructuring - IT0311306T) for schemes to counter employment crises; the optional allocation by tax-payers of 0.5% of their tax to research (following the example of the system already in place for the church); and the creation of an 'innovation fund' to promote growth and employment. Finally, as regards public health, resources will be allocated to reduce waiting lists for healthcare and to pay a 'baby bonus' (an allowance of EUR 1,000 for all births or adoptions in 2005).

Reactions

The publication over September-October 2005 of the budget law provoked numerous reactions, most of them negative.

First, the document published by the government has been criticised by many representatives of local authorities, the majority of which are headed by centre-left coalitions. The 2006 budget law requires local authorities to contribute to reduction of the public debt by saving around EUR 3 billion, with cutbacks in expenditure on personnel on top of this. For these reasons, the National Union of Italian City Councils (Associazione Nazionale dei Comuni Italiani, Anci) has drawn up a document stating that the municipalities have no desire to shirk their responsibilities with regard to the public finances, but propose alternative means to achieve the same ends without sacrificing projects for local development. The document argues that 'the most harmful impact will be on sectors of crucial importance for local communities: nursery schools and primary and secondary education, pollution and local public transport, the clean-up of towns, public lighting, and the administration of justice.'

The reaction of the General Confederation of Italian Industry (Confederazione Generale dell’Industria Italiana, Confindustria) has been twofold. While Italy's largest employers’ association is satisfied with the 1% reduction in labour costs, it has criticised the EUR 400 million cut in funding for universities. According to the Confindustria vice-president, Gianfelice Rocca, 'public spending on universities is markedly below the average disbursed by the other countries of the European countries. Italy allocates around 28% less funding to its university system than do France, Germany, Spain and the UK, the total amount being 0.9% of GDP'.

The reaction by the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro, Cgil), the Italian Confederation of Workers’ Unions (Confederazione Italiana Sindacati Lavoratori, Cisl) and the Union of Italian Workers (Unione Italiana del Lavoro, Uil) - which were not involved at all in the drafting of the bill - has been entirely hostile. For the general secretary of Cgil, Guglielmo Epifani, the budget law 'is unconcerned with the living standards of citizens, it supports neither consumption nor development, it does not contain a policy for the Mezzogiorno (South), and none of its measures will restore the public accounts to financial health'. The leader of Cisl, Savino Pezzotta, has asked the government 'to hold serious talks with the social partners on the budget law, For that matter, concertation is a resource that has not been utilised for the last three budget laws'. For Luigi Angeletti, general secretary of Uil, 'the manoeuvre must be revised in its entirety. There should be two priorities: tax abatement on wage increases over the next three years, and a policy to assist the Mezzogiorno.' Finally, the union confederations maintain that, in 2006, the budget law will cause the loss of 70,000 flexible jobs (on fixed-term and freelance contracts) in the public administration, a large part of them in universities and research institutes.

In order to protest against a manoeuvre 'which does not address the country’s problems and does not meet the needs of development and social equity', Cgil, Cisl and Uil published a joint document on amendment of the budget law (see below) and announced a four-hour general strike to be held on 25 November.

Cgil, Cisl and Uil document

On 13 October 2005, the three trade union confederations sent to parliament, the government, Confindustria and the provinces a joint document setting out proposals for amendment to the 2006 budget law. The document sent to the government and Confindustria also asked for talks to be convened.

The first part of the document assesses the method and contents of the budget law. As regards the method used by the government to draw up the budget, the unions claim that it was in breach of the provisions of national tripartite agreement of 23 July 1993 on consultation of the social partners (IT9709212F), as the unions were given no prior information at all about the budget.

As far as the budget law’s contents are concerned, the unions’ main criticisms are as follows.

• Research and innovation. The opportunity given to taxpayers to allocate EUR 5 in every EUR 1,000 of their tax payments to research and social activities in their municipality of residence is, according to the unions, mere window-dressing. The benefits will not accrue until 2007 and will amount to only EUR 200 million for the two-year period 2007-8, a sum insufficient to raise Italian research spending to the European average (2% of GDP).

• Economic growth and employment creation. The 'innovation fund' created at the Prime Minister’s Office will initially consist of EUR 3 billion deriving from the sale of publicly-owned real estate. It will thus provide only one-off coverage which will be unrepeatable in the future and consequently uncertain. The budget law does not specify the financial coverage for the reduction of labour costs (the 1% decrease in social contributions), nor to which categories the relief will apply.

• Fiscal policy. The taxation of unearned income (which is taxed at a lower rate than earned income) is seen as inadequate, and there is said to be no coherent strategy against tax evasion.

• Local government. The unions’ document criticises the further cutbacks in funding for local administrations, which were already heavily penalised by previous budget laws. The government’s attempt to off-load the public deficit onto local authorities will jeopardise public services and lead to greater local taxation, the unions say.

• Civil service. By not allocating resources to cover collective agreement renewals in 2006-7, the budget law will provoke conflict in the public sector, according to the unions. The drastic cutback in spending on flexible contracts will cause job losses, with severe repercussions on public services.

• International cooperation. The reduction of funds allocated to developing countries will mean that Italy spends only 0.1% of its GDP on 'third world' aid, as opposed to its commitment of 1%. The amount could be increased by reductions in arms spending.

The second part of the document sets out the unions’ proposals.

1. Social emergencies- refinancing of the National Social Policy Fund (Fondo nazionale per le politiche sociali) with definition of essential levels of social welfare, and the creation of a National Non Self-Sufficiency Fund (Fondo nazionale per la non-autosufficienza) for elderly and disabled people.

2. Unemployment and industrial emergencies- increased income support benefits for job losers, refinancing of the 'rescue fund' in order to tackle current industrial crises, and implementation of the necessary sectoral policies.

3. Mezzogiorno- tax relief on investments in the South, also in view of the reduced allocations to Italy from the European Social Fund, with talks to be held on the matter with the European Commission, upgrading and completion of infrastructures, and closer cooperation between universities, research centres and business innovation.

4. Civil service- allocation of resources for the renewal of collective agreements in 2006-7, and the holding of talks on stabilising flexible contracts (fixed-term, training/work, temporary agency, freelance) across all branches of the civil service.

5. Prices and tariffs- introduction of a price governance policy by means of decentralised concertation with service providers, the purpose being to keep price rises below the forecast inflation rate. This would involve:

   • curbing fuel prices by fostering greater competition in the distribution network, and curbing speculation on petrol pump prices;

   • greater openness of the banking system to competition in order to reduce the costs of financial services; and

   • inducing a commitment by insurance companies to reduce their tariffs, following measures to reform the sector that reduce claims, disputes, and therefore the costs of insurance companies.

6. Housing. Measures to stabilise the housing market, and the introduction of a policy to assist first-home buying, including by couples on flexible employment contacts (through access to mortgages).

Commentary

The budget law for 2006, it is widely thought, will be unable to achieve its objective of reducing the public debt while at the same time revitalising Italy’s stagnant economy. According to a survey carried out by Economics and Social Research Institute (IRES), in 2006 the deficit/GDP ratio will be well above the 3.8% established by the European Commission. Even more worryingly, public indebtedness will reach 109.6% of GDP compared with 106.5% in 2004 (the highest increase in the past 10 years). Moreover, while the budget's 1% reduction in labour costs may be welcome to employers, it will not give any significant impetus to the economy, given its modest amount and the absence of selectivity criteria. The difficulties of Italian industry require specific policies to favour greater productive specialisation.

To be regretted is the government’s failure to involve the social partners in discussion on the budget law by means of dialogue and concertation, the revival of which is an alternative to increased social conflict and deteriorating industrial relations. (Livio Muratore, Ires Lombardia)