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Spending review can free billions if wins full backing

OECD warns Italy needs targeted spending to fix recession damage

18 March, 19:18
Spending review can free billions if wins full backing (By Sandra Cordon) (ANSA) - Rome, March 18 - Spending Review Commissioner Carlo Cottarelli said Tuesday that as much as five billion euros in savings could be found in the final eight months of 2014, depending on the choices made by Italian politicians.

Even using the most conservative estimates, savings of three billion euros could be found and ultimately, as much as seven billion euros could be saved on an annual basis, he told a Senate hearing.

"There is a degree of uncertainty," he said. "It all depends on the political decisions that are taken".

Similarly on pensions, politicians have choices as to where they might cut, "or, you may also decide that you must not touch," retirement incomes at all, said Cottarelli.

Last week, he noted that if spending on upper-income pensions "which are very high" were cut, billions of euros could be freed up for spending on other budget items, including job creation.

Cottarelli also told the Senate finance committee last week that budget savings from his spending review could eventually rise to as much as 18 billion euros in 2015 and reach a total of 34 billion euros by 2016.

On Tuesday, he noted that he had been asked about the sustainability of Italy's national health care and said that this, too, depends on political choices - including a decision on leaving health spending exactly as is.

Or, he said, small changes, including some at the regional level to improve efficiencies, rather than wholesale revisions, could be made. Cottarelli, a former International Monetary Fund head of fiscal affairs, last November began his job of finding inefficiency in Italian public administration to free up cash for programs to stimulate economic growth.

Cottarelli also said that an estimated 85,000 public-sector workers will be subject to the spending review. "It's a rough estimate that should be refined once reforms are put in place during 2014," he added.

As well, certain expenses including the purchase of government goods and services, could be streamlined and better coordinated to cut costs. He added that can be a particular problem among police forces but concerns with overlap would need to be handled very carefully for security reasons. "There is scope for savings...better coordination of plans, including the purchase of goods and services," said Cottarelli. "It's a very sensitive issue....we are talking about synergies, spending less," without risking security.

His comments to the Senate Tuesday came at the same time as a report by the Paris-based Organisation for Economic Co-operation and Development (OECD) warned that the average Italian family saw its income drop by 2,400 euros between 2007 and 2012 - more than double the eurozone average of 1,100 euros.

It blamed a "deteriorating labour market, especially for youth" as well as a "weak level of protection" for workers as other factors contributing to the country's income weakness.

The agency warned that even though an economic recovery appears to have begun in Italy, that still won't be enough to lift the country out of what Premier Matteo Renzi has called the "quagmire" into which the economy has sunk.

Rather, the right investments are needed to create a more resilient and efficient social protection system, said the OECD in its annual report on social indicators. "Economic recovery, even once firmly established, should not be expected to quickly put an end to the social and labour-market crisis," said the OECD which last week predicted economic growth this year will average about 0.6%.

"To prevent economic difficulties from becoming entrenched, Italy now needs to invest in better and more cost-effective social support measures".

Those comments appear to dovetail with targeted spending and labour market reforms introduced last week by Renzi, who has suggested it is time to shift focus from concerns about cutting costs and reducing debt to instead consider policies aimed at encouraging growth and recovery.

Last week, Renzi announced plans to cut income taxes by 10 billion euros, invest 1.74 billion euros in social housing programs, spend 3.5 billion euros on schools, and repay 68 billion euros in outstanding bills for government services by July.

But he has insisted that his program would not cause Italy to breach the 3%-deficit-to-threshold allowed by the EU.