Fiscal Balance in Italy
Italy - Fiscal Balance
Italy’s fiscal balance is the most important indicator for measuring the country’s ability to meet financing needs and to ensure good management of public finances. (Fiscal Balance). The Italian National Institute of Statistics (Istat) publishes fiscal balance figures on an annual and quarterly basis. FocusEconomics regularly publishes news on the Italian fiscal balance (Fiscal Balance News). The table below shows the fiscal balance for Italy as a percentage of GDP. A more complete assessment of Italy’s fiscal balance can be found below the table.
Italy - Fiscal Balance Data
|Fiscal Balance (% of GDP)||-2.6||-2.4||-2.4||-2.2||-1.6|
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OverviewFiscal balance is calculated as the difference between a government’s revenues and its expenditures. It is often expressed as a ratio of Gross Domestic Product (GDP). Fiscal balance as a percentage of GDP is used as an instrument to measure a government’s ability to meet its financing needs and to ensure good management of public finances.
Fiscal balance data are produced by the National Institute of Statistics based on the European System of National Accounts (ESA 1995; ESA 2010 as of Q3 2014), which in turn is based on the System of National Accounts (SNA 1993). The National Institute of Statistics also compiles figures according to the methodology for the European Union’s Excessive Deficit Procedure (EDP), which differs from the ESA 1995 for its treatment of interest rates swaps. The office’s quarterly data based on ESA 1995 reach back to the first quarter of 1999, whereas annual data reach back to 1990.
Italian Fiscal Balance Performance
From the beginning of the seventies and well into the eighties, Italy recorded large budget deficits as a result of a relatively lax fiscal policy. Italy was forced to get its finances under control over the course of the nineties as the country struggled to meet the 3.0% budget deficit threshold established by the Maastricht Treaty for accession to the euro. The financial crisis in 2008 and the ensuing recession in 2009 led to a deterioration in the country’s finances, which persisted in the following years—Italy was able to return to a 3.0% deficit only in 2012. Despite an array of austerity measures approved in recent years, Italy continues to struggle to keep its fiscal balance in check, while simultaneously fighting with the problem of a mounting public debt. Against this backdrop, Italy approved an amendment in 2012 that establishes a balanced budget rule in the Constitution.
Structure of Italy’s Fiscal Balance
Ever since reaching a 13-year high of 51.9% of GDP in 2009, expenditures have hovered around 50%. Italy succeeded in slashing spending in the run-up to the adoption of the euro in 1999; however, after falling to a ten-year low of 45.8% of GDP in 2000, expenditures picked up over the course of the 2000s.
According to data for 2013, the largest category of spending—around 40% of total expenditures—is represented by social expenditures, in particular pensions for the elderly. Italy spends around 16% of its GDP on elderly pensions, topping the ranks for this spending category among OECD-countries. The second-largest spending category (38% of total spending) is represented by final consumption expenditures, which basically represent the functioning cost of the public administration.
Revenues as a percentage of GDP have picked up since the mid-2000s as the goal to reduce the fiscal deficit resulted in increased fiscal pressure. Revenue as a percentage of GDP was at an over-20-year high of 47.7% in 2013. In fact, Italy ranks fourth among its Eurozone peers in terms of revenues over GDP. The bulk of revenues (31.7%) is derived from direct taxes on personal and corporate income, while indirect taxes provide around 30.0% of total revenues.
When are Italian Fiscal Balance Data Released?
The National Institute of Statistics publishes fiscal balance data on a quarterly and annual basis. Each year at the beginning of March, the National Institute of Statistics publishes annual fiscal balance data for the previous year, together with revised fiscal data for the two years prior. More detailed annual data, with figures going back to 1990, are published in May and November. Quarterly data are published roughly 90 days after the end of the quarter (i.e., at the beginning of January, April, July and October). Twice a year–in April and October–the National Institute of Statistics reports fiscal balance data to Eurostat, in compliance with the rules for the Excessive Deficit Procedure (EDP). A detailed calendar with the next release dates for Italy’s fiscal balance data is available on Istat's website.
How are Italian Fiscal Balance Figures Computed?
The public sector covered in Istat's fiscal balance data comprises the central government, local administrations and social security funds.
The bulk of the information on the central government is sourced from the General Statement of State Accounts, elaborated by the State General Accounting Department of the Ministry of Economy and Finance. The General Statement of State Accounts summarizes the budget results for the previous year; it is elaborated by the Accounting Department before the month of June of the financial period subsequent to that which each annual budget refers to and is then presented to Parliament for legislative approval. For this reason, when the National Statistical Institute compiles the annual budget data in March, government data are only half final. Quarterly information for the central government is derived from the quarterly reports on cash borrowing requirements elaborated by the Treasury Department.
A centralized system of cash flow reporting allows the National Institute of Statistics to collect data for regions, provinces and municipalities. These data are integrated with budget reports transmitted by the regions to Istat, data from the Ministry of Interior on provinces and municipalities, and quarterly and annual survey data from the Ministry of Health on the income and expenditure statements of local health units. Budget reporting is the source for social security funds data, which is integrated with surveys conducted by Istat.
Most of the administrative data sourced by Istat are elaborated according to cash accounting; revenues are recorded when cash is received, and expenses when they are paid in cash. Istat revises the data—for consistency with the accrual principle—established in the ESA 1995, according to which revenues are recorded when they are earned and expenses where they are incurred, regardless of the flow of cash. Other adjustments to the original data are required, in particular to elaborate quarterly series over the course of the year when the annual information is not yet available. Italy’s fiscal balance data are mainly consistent with its national accounts and balance of payments statistics.
How Accurate are Italian Fiscal Balance Numbers?
Quarterly fiscal balance data may be very volatile. Data are, in fact, elaborated and published by Istat in millions of euros at current prices without calendar and seasonal adjustments. Raw data for gross domestic product at current prices—not adjusted for calendar and seasonal effects—are also used to calculate fiscal balance as a percentage of GDP, which can result in large fluctuations for these figure at a quarterly level.
Fiscal balance data are revised regularly. The timeline for budget reporting differs at each level of government, which means that new information needs to be incorporated every quarter. Over the course of the reporting year, Istat revises information for each quarter and for the two years prior. At the end of the year, information can be revised up to five years prior. Press releases include specific information on which data have been revised.
In addition, Istat performs extraordinary revisions, when new methods are adopted for the elaboration of fiscal balance data. Against this backdrop, Istat performed a comprehensive major revision of the national accounts in summer 2014, when all Eurostat member states switched from the European System of National and Regional Accounts 1995 (ESA 1995) to ESA 2010. The ESA 2010 will be first applied for the revision of the Italian national accounting data for 2013 released in the beginning of October 2014. According to the ESA 2010, the list of institutional units belonging to the government sector will be revised, which will have an effect on the elaboration of fiscal balance figures.
Why is the Italian Fiscal Balance Important?
Fiscal balance as a percentage of GDP is the most important gauge of a country's ability to meet its financing needs and efficiently manage its public finances. In the case of Italy, fiscal balance data are of particular importance for evaluating the sustainability of the country's large public debt. Next to the headline fiscal balance figure, the fiscal balance reports provide relevant information on the way Italian governments manage their finances. Italy is Europe’s fourth largest economy and the ninth largest in the world, therefore Italian fiscal balance data have a notable impact in the market and are closely watched.
Where Can I Get forecasts for Italy’s Fiscal Balance?
Forecasts for the Italian fiscal balance are elaborated by many sources. The government, banks, consultancies and think tanks monitor the Italian economy attentively and regularly update their projections for Italian fiscal balance. FocusEconomics collects more than 30 different forecasts on the fiscal balance of Italy and provides an average (Consensus Forecast) from the economists surveyed. Together with the minimum and the maximum projections, you receive a comprehensive overview on Italy’s future fiscal balance.
Forecasts for Italy’s fiscal balance are included in the monthly FocusEconomics Consensus Forecast for Italy, the monthly FocusEconomics Consensus Forecast for the Euro area and the monthly Major Economies (G7 and BRIC) reports. All reports are available both on an ad-hoc basis and via an annual subscription (including optional Excel support). Download a free sample or purchase the report directly via our Online Store. The report is available immediately after purchase.
|Bond Yield||1.31||-0.40 %||Jan 01|
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