Budget cuts are easier to make than structural reforms, Bini Smaghi said at an event in Florence today, adding that in Italy, reforms have been resisted by vested interests. Now “financial markets” have emerged as a new lobby, he said.
“In order to make the debt sustainable you need to make the adjustments on the fiscal side, but also on growth,” he said. “That’s the biggest challenge and I guess it’s the program of the new government.”
Italian Prime Minister Mario Monti won a final parliamentary confidence vote today, granting full power to his new government, which will focus on cuts to balance the budget in 2013. Bini Smaghi said Italy tends to blame external factors for its economic problems and that it needs to recognize its shortcomings and become more European.
He said imposing a wealth tax could hurt investment and spending, adding that this measure would be useless without economic reforms. He recommended that the new government cut the IRAP regional business tax that reduces “growth and employment,” and reintroduce the so-called ICI tax on main properties, Bini Smaghi said.
The ICI would generate revenue of 0.6 percent of gross domestic product and this would make it possible to reduce Irap by 30 percent, he said. If Italy can’t manage to boost growth that has lagged the European Union average for more than a decade, the country’s pension system will need to be overhauled, he also said.
Bini Smaghi resigned from the ECB Executive Board on Nov. 10, before the official end of his term in May 2013. He will join Harvard University’s Center for International Affairs on Jan. 1, 2012.
To contact the reporter on this story: Chiara Vasarri in Milan at firstname.lastname@example.org