From the Stability Law to the new Budget Law: what real changes are there in the tool governing the country’s economics.

1. IT’S BUDGET TIME FOR THE
STATE
FROM THE STABILITY LAW TO THE NEW
BUDGET LAW: APART FROM THE NAME,
WHAT REAL CHANGES ARE THERE IN
THE TOOL GOVERNING THE COUNTRY’S
ECONOMICS
October 2016

2. CHANGES TO THE CONSTITUTIONAL
TRIGGER CHANGES TO THE LAW
28 July 2016: the Senate of the Republic approved Draft Law “Changes to
Lawn.196/2009,concerningthecontentsofthebudgetlaw,implementing
art. 15 of Law n. 243/2012” (L. 163/2016).
A new law. Why?
To give effect to Art. 81 of the Constitution which in 2012 obliged Italy to
fulfil the balanced budget rule.
Only the political movement M5S said NO because the new law complies
withtherulesimposedbytheEUinthe Fiscalcompact(TreatyonStability,
coordination and governance of the European Union of 2 March 2012),
i.e., that Member States introduce the balanced budget rule “through
binding, permanent and preferably constitutional provisions”.
So beginning in 2016 envisaged budget borrowing has to comply with
this new provision.

3. The new regulation incorporates:
the old annual budget law;
the more recent stability law.
For additional details about the budget
cycle before this reform just click here.
THE FINANCIAL PLAN IN A SINGLE MEASURE
A cold temperature fusion
or a real reform?
The new Law not only
merges pre-existing norms,
it is a new tool to plan the
State Budget based on real
income/borrowing.
Parliament will be able to
make political choices vis-
à-vis borrowing and decide
priority regarding public
interventions.

4. THE FIRST ADJUSTMENT: THE TIMESCALE
The deadline to present the budget cycle documents has been
postponed (by just a few days, but nevertheless it’s an important
change):
the note updating the Multiannual Financial Framework (MFF) has
been shifted from 20 to 27 September in order to take into account
the latest updated figures regarding public finance, notified by ISTAT
(Italian National Institute of Statistics) to the European Commission
before 30 September;
as a result, the draft budget bill is postponed from 15 to 20 October.
The other deadlines remain the same:
30 January, the draft bills linked to the budget law;
30 june, presentation of the MFF to Parliament.

5. The MFF indicates the envisaged income/borrowing trend for the next
three years and whether or not it is in line with the pre-established
goals; hopefully from next year it will also take into account the Fair
Wellbeing indicators (in Italian, BES) determined by an ad hoc
Committee composed of the following members:
Minister of Economy and Finance
President of ISTAT
Governor of the Bank of Italy
two experts
Committee members, nominated by a Prime Ministerial Decree, provide
their expertise free of charge.
THE ECONOMY ISN’T JUST NUMBERS:
INTRODUCTION OF THE BES

6. To ensure that the economic forecast of the Multiannual Financial
Framework (MFF) is based on realistic premises, a technical report will
be attached to the document. The report will:
calculate the financial effects of every provision in the MMF;
define and illustrate the criteria used to establish the provisions;
describe the coherence between programmatic net borrowing and
programmatic debt, specified in the Note updating the MFF.
WILL THE MFF PASS MUSTER?

7. THE SAFEGUARD CLAUSE
The safeguard clause is a legacy of the Letta Government. It was
established to reassure the EU that Italy would achieve a balanced
budget (initially in 2015, then in 2017, and now who knows!).
The clause stated that if in 2017 the annual public finance objectives
were not met then the clause would automatically be implemented,
i.e. an automatic increase in VAT – to 13% (reduced VAT rate) and
25.5% (ordinary VAT).

8. ELIMINATION OF THE SAFEGUARD CLAUSE
Thenewbudgetlawhaseliminatedthesafeguardclause.However,
if expenses exceed envisaged borrowing, funds will be found either
by reducing borrowing or by increasing income, to be decided on a
case by case basis:
possible reduction of the funds earmarked for a Ministry (by
means of government decrees requiring an opinion by the Chamber
of Deputies and the Senate);
in any event it will no longer be possible to use either the eight
per thousand income tax devolved to the State, or the five per
thousand income tax freely assigned by the taxpayer.

9. A MORE FLEXIBLE BUDGET
Some parts of the new budget law will be more flexible, for example:
Ministers will be able to modify resource allocation for their
ministry in order to achieve the latter’s objectives but without being
obliged to compensate, i.e., without having to re-establish financial
balance exclusively between programmes that are part of the same
mission (i.e., the objective to be achieved);
it will be possible to insert measures to refinance, disinvest and re-
programme, even for a multiannual period, the current account and
capital account appropriation envisaged by current legislation, but
only as regards legislative expenses, i.e., the expenses authorised
by a law indicating the exact amount and the period when it will
be inserted in the budget.

10. OTHER PROVISIONS
31 December 2016 to 31
December 2017.
Every MP will be able to
access the databases of the
Public Administration.
Genderequality:theMinistry
oftheEconomyandFinanceis
required to send Parliament a
report regarding the impact of
gender equality measures.
Bank/postal accounts: the State
Administration will be able to open
new bank and postal accounts only
if envisaged by law or authorised by
the State General Accounting Office
after a well-reasoned request by the
administration in question.
Interest on these deposits must be
paid to the State which will reassign
them to the Ministry in question.
New Accounting Code: the deadline
to adopt a single Text vis-à-vis State
accounting and the Treasury has
been postponed by one year, from

11. CONSTITUTIONAL REFERENDUM ON
4 DECEMBER: CHANGES ON THE HORIZON?
How will the system to approve the
budget law change if the YES vote
wins?
A brief summary on the new
parliamentary procedures.
The legislative function of both the
Chamber and the Senate (the so-
called double conformity reading)
would be used only as regards
constitutional laws and laws revising
the Constitution, plus several other
laws.
All remaining laws will be approved
only by the Chamber of Deputies
(unicameralism procedure).
It is possible for the Senate to
interveneduringthelegislative
process, but said intervention
must be initiated no longer,
than ten days after the law
is approved by the Chamber
and after a request by one
third of the Senate members.
The proposed changes,
debated by the Senate during
the following 30 days, will be
examined by the Chamber of
Deputies which has the final
say.

12. CONSTITUTIONAL REFERENDUM ON
4 DECEMBER: AND THE BUDGET LAW?
Theunicameralismprocedurewillbeappliedtothebudgetlaw.The
review by the Senate is automatic, and any proposed changes have
to be approved within 15 days from the day the text is transmitted by
the Chamber of Deputies.
The latter, however, will always have the last word.

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