Italy

II - Changes to the Budgetary Process

Budgetary process 
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Italy.

Art. 81 of the Italian Constitution has always provided, both before and after its amendment in 2012 (see Question IX.4) and any Eurozone-crisis-related reform, the role for the Chambers of the Parliament to «(…) approve every year the budget and the accounts submitted by the Government».

In this respect, Law n. 39/2011 has recently amended Law n. 196/2009 (the new law of accounting and public finance), modified its budgetary cycle and the means used for budget planning, and fostered an alignment between national planning and the timing of the European Semester and a centralization of the role of Italian local authorities, for which a more intense involvement in the definition of the economic financial objectives was provided (in close connection with the implementation of Article 119 of the Constitution defined by the law of 5 May 2009, n. 42, in the area of fiscal federalism).

According to the new text of the Law n. 196/2009, the Government, by the 10th of April of each year, has first of all to submit to the Parliament what it is called today the “Economy and Finance Document” (DEF, Documento di Economia e Finanza, Art. 10 Law 196/2009, which has replaced the Public Financing Decision introduced in 2009).

This document has become «the linchpin of economic and financial planning»,[1] is divided into three sections, and includes both the Public Financing Decision – which, in its original version (law n. 196/2009) was to be submitted mid September – and the content of the Economy and Public Financing Report.

The DEF (Art. 10(3) Law 196/2009) has to contain of course an analysis of the revenue account and the cash account of all the public administrations for the previous year, the related forecasts for the following three years, the identification of general rules on the evolution of expenditure of all the public administrations, and detailed information on the results and predictions of the accounts of the major areas of spending, at least for the following three years, with particular reference to those relating to public employment, social protection and health, as well as on the public administrations’ debt.

The DEF also defines the Stability Plan scheme (Art. 10(1) Law 196/2009) – which will have to contain measures to accelerate the reduction of public debt – and the National reform plan scheme (Art. 10(5) Law 196/2009, with an outline of the country’s priorities, the main reforms to be made, national macro-economic imbalances and the macro-economic factors that affect competitiveness, the progress of reforms which have already been set up, the foreseeable effects of suggested reforms in terms of economic growth, the strengthening of competitiveness of the financial system and the increase in employment). Both these documents, according to Art. 9 Law 196/2009 («Relations with the European Union in the field of public finance») are then to be submitted to the European Union Council and to the European Commission by 30 April of each year.

In order to integrate the DEF, by the 30th June, the Minister of Economy and Finance submits to Parliament an attachment outlining the effects of the monitoring on the public financing balance deriving from the measures stated in the budget manoeuvres implemented even during the year.

With regard to the involvement of the local authorities in economic and budgetary planning, Article 7(3) of Law 196/2009 foresees that the DEF scheme should be sent to the Permanent Conference for the Coordination of Public Financing (on its role see also Question VII.12) for its recommendations. The Committee has to give its recommendations in time to permit Parliament to decide on the DEF itself.

An Updating Note to the Economy and Finance Document (Article 10-bis of Law 196/2009) is then to be submitted to the Parliament by the 20th September: the presentation of this document – in coherence with the new European economic planning procedures – is «no longer prospective and connected to the occurrence of considerable gaps in public financing fluctuation patterns»,[2] but mandatory, and may contain an updating to the programmatic objectives and macro-economic and public financing estimate.

Article 10-bis of Law 196/2009 also regulates the cases of possible changes to the public financing objectives stated in the Economy and Finance Document and in its Updating Note, or of considerable gaps in public financing patterns that require remedial action, with obligations for the Government (respectively) to send an update to the guidelines regarding the distribution of objectives to the Permanent committee for the coordination of public financing or to submit a motivated report to Parliament.

The Stability bill (Disegno di legge di stabilità) and the State Budget bill (Disegno di legge del bilancio dello Stato) have to be submitted to Parliament by 15 October of every year: these documents together conclude the budget cycle and compose the three-year Manouvre of public finance (Manovra di finanza pubblica, Article 11 of Law 196/2009), laying down all the measures necessary to achieve the programmatic objectives.

Finally, according to Article 12 of Law 196/2009, the Minister of Economy and Finance shall submit to the Chambers, in the month of April, a General Report on the economic situation of the Country for the previous year.

General change        
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

As already emphasized, the financial/Eurozone crisis had a strong impact on the reorganization and the reform of the Italian budgetary process, but this could be considered to be already in place.

In particular, the process of reform can be described as involving three different stages:[3]

1) the first phase led to the adoption, at the end of 2009, of the original version of the aforementioned new Law of accounting and public finance n. 196/2009, which updated the previous Law 468/1978, and systematized some of the innovations previously introduced on an experimental basis, such as the “reclassification” of the balance and the method of the three-year-planning of resources;

2) the second phase, centered in 2011 with the enactment of Law n. 39/2011, which introduced a number of amendments to Law n. 196/2009 to ensure the consistency of the budgetary and financial planning cycle of the public administrations with the new rules and procedures established by the European Union within the framework of the European Semester, the ex ante coordination of economic policies and budgets of Member States and a tighter financial surveillance;

3 ) the third phase, again a result of the further development of the European discipline and in particular of the adoption of the Fiscal Compact, was realized by the approval of the Constitutional Law 20th April 2012, n. 1 – which introduced into the Constitution the principles of a balanced budget and the sustainability of government debt (see Question IX.4) – and the subsequent Law of 24th December 2012, n. 243, which laid down specific provisions for the implementation of these principles under the new sixth paragraph of Article 81 of the Constitution.

In this complex framework, one can conceptualize the main changes in the process as follows:[4]

– an extension of the scope and boundaries of the accounting rules, with the establishment of a unified regulatory framework for all the subjects of the complex aggregate of Italian public administrations, and the introduction of new procedures for the coordination of public finance between the different levels of government;

– an extension of the scope in time as well of the system of budgetary decisions, now set over three years, both in terms of scheduling policies, objectives and resources, and in terms of implementation of public finance manoeuvres;

– a qualitative improvement of the information supplied by the documents of public finance, in terms of planning, management and reporting, through estimates of income and expenditure described in the different institutional subsectors – central government, local authorities and social security authorities – and through the drafting of several explanatory notes and informative annexes about the methods of study of trends of public finance and the effectiveness of financial maneuvers;

– the formal institutionalization of the system of functional reclassification of the state budget in “missions” and “programs” (previously operated on an experimental basis), with programs as new units of parliamentary vote, and associated with specific performance indicators;

– the redefinition of the content of the instruments of economic and financial planning and of the timing of the budget cycle, which have been revised in the light of the role of the different levels of government in the pursuit of financial goals and the need to harmonize the national budget decisions with the decisions adopted by the European Union under the European semester framework;

– the strengthening of the rules for the financial coverage of the laws and of the instruments for monitoring and quantitative and qualitative control of public spending, coupled with the extension of methods of measurement and evaluation of the results of public policies (so called “spending review”).[5]

Institutional change   
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

It has been remarked by the scholars how the budgetary process has always been placed, in the history of the constitutional state, «on the ground of the contrast and of the clash» between representative assemblies and executive power.[6]

In this respect, it has been common in the literature to  see in the Italian budgetary process of the last decades a symptom of certain pathological dynamics of the two institutions: of the Parliament, unable to exercise a proper control on the financial choices of the Government given the absence of specific parliamentary procedures and powers, and also the traditional difficulties in the access by the two Houses to the information and the data on accounting and finance;[7] but also of the Government, which has no specific tools to contrast the negative legislative influence of the Parliament on the content of its accounting and financial documents, and it is often forced to resort to extreme procedural remedies, such as the abuse of the vote of confidence to contrast maxi-amendments.

In any case, a certain progressive empowerment of the executive branch in relation to the powers of the legislature has been highlighted, since the government has many tools to guide and control the decisions relating to public finance, not coupled with proper control powers of the Parliament:[8] both during authorizations, i.e. in the ordinary legislative procedure of approval of Laws containing effects of expenditure (also by vetoing parliamentary legislation with effects on budget), and during the final balance (“sede consuntiva”), namely when, in implementing the budget, the expenditure laws exercise their legal and, above all, financial effects, and finally through the production of delegated legislation, with which the executive acquires a substantial legislative power.

The same dynamics of creeping empowerment on the form of government and the system of sources were detected by scholarship in the new European constraints and in the ones informally placed by the financial markets[9] : in particular, in the strong forms of prior coordination and convergence of the EU and Eurozone Member States’ economic policies, and the risk of a mere role of ratification left for the Parliament.

In this respect, it will be interesting to study the possibility of a reform of the Standing orders of the Houses of the Parliament (see Questions VII.6, VII.16, and I.1), and, after its establishment in 2014, the role of the new Fiscal Council, the so called «Parliamentary Budget Office» («Ufficio parlamentare di bilancio», see Question VII.5), not by chance established in the Chambers.

Change of time-line       
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

The details, including the recent changes in the time-line, were discussed under questions VII.8, but also II.1 and II.2.

It is in any case important to highlight, as already done in those contexts, that the process of reorganization and reform of the Italian budgetary process was already in place since 2009 at least, and therefore not only directly linkable to the formal “implementation of Euro-crisis law” (though surely linked to the deterioration of the macroeconomic and growth prospects of the country).

So, summarizing, the new Law of accounting and public finance n. 196/2009 took the place of the previous Law 468/1978.[10]

This last provided for a system as follows: a “Combined report on the economy and public finances” was issued by 28 February of each year; an “Economic and Financial Planning Document” by 30 June (as well as a “Final Statement of Accounts” and a “Budget adjustment bill”, these two not being planning documents); a “Forecasting and Planning Report”, as well as the formal “Finance Bill” and “Budget Bill” were submitted by 30 September. Any accompanying legislation (bills) followed, by 15 November.

The new system changed as follows: a “Report on the economy and the public finances” due by 15 April; again, a “Final Statement of Accounts” and a “Budget adjustment bill” (not planning documents) by 30 June; a “Public Financing Decision” (see Question II.1) by 15 September; the Stability bill (Disegno di legge di stabilità) and the State Budget bill (Disegno di legge del bilancio dello Stato) (see again Question II.1) submitted to Parliament by 15 October, any accompanying legislation (bills) following, by 28 February.

The main amendment in the new system made by Law 39/2011 (see Question II.1) is the anticipation of the obligation of the Government to submit by 10 April of each year to the Parliament (and not by mid-September) what it is called today the “Economy and Finance Document” (DEF, Documento di Economia e Finanza, Art. 10 Law 196/2009, which has replaced and includes the Public Financing Decision introduced in 2009).

Miscellaneous
II.5
What other information is relevant with regard to Italy and changes to the budgetary process?


The Constitutional Law n. 1/2012 (see Question IX.4) also calls for a reform (still to be implemented) of the internal procedural rules of the two parliamentary Chambers, which are the other relevant sources of law to be studied in the budgetary process, apart from what described above. They will possibly contain new rules on the monitoring of the national and subnational budgets, and maybe also new tools pertaining to the envisioned “permanent dialogue” of art. 13 of Regulation (EU) No 1176/2011 with the European Institutions.

[1]               L. Mercati, The ‘European Semester’ and Changes to the National Accounting Discipline. Annual Report – 2011 – ITALY, in Ius Publicum Network Review, available at the site http://www.ius-publicum.com/repository/uploads/21_07_2011_16_50_Mercati2UK.pdf, p. 3.

[2]               L. Mercati,  The ‘European Semester’ and Changes to the National Accounting Discipline. Annual Report – 2011 – ITALY, in Ius Publicum Network Review, available at the site http://www.ius-publicum.com/repository/uploads/21_07_2011_16_50_Mercati2UK.pdf, p. 4.

[3]               See, on this, the conceptualization made by the website of the Camera dei Deputati, in its pages on the “Topics of Parliamentary activity”: http://www.camera.it/Camera/browse/292?area=8&Contabilit%C3%A0+e+strumenti+di+controllo+della+finanza+pubblica.

[4]               Again relying also on the “official” view of the website of the Camera dei Deputati, in its pages on the “Topics of Parliamentary activity”: http://www.camera.it/Camera/browse/292?area=8&Contabilit%C3%A0+e+strumenti+di+controllo+della+finanza+pubblica.

[5]               See on this http://www.camera.it/Camera/browse/522?tema=535&Il+controllo+della+spesa+e+la+spending+review.

[6]               See the rich historical analysis of M. Luciani, Costituzione, bilancio, diritti e doveri dei cittadini, in Questione Giustizia n. 6/2012, with a reference to K. H. Friauf, Der Staatshaushaltsplan im Spannungsfeld zwischen Parlament und Regierung, Bad Homburg v.d.H.-Berlin-Zürich, Gehlen, 1968.

[7]               See E. Griglio, Il “nuovo” controllo parlamentare sulla finanza pubblica: una sfida per I “nuovi” regolamenti parlamentari, in Osservatorio sulle Fonti, fasc. 1/2013, p. 12.

[8]               See for instance A. Brancasi, Le misure urgenti per il controllo, la trasparenza ed il contenimento della spesa pubblica, in Diritto pubblico, 2003, p. 962; M. Degni La decisione di bilancio nel sistema maggioritario, Ediesse, Roma, 2004, p. 244 ff.

[9]               See for instance G. Rivosecchi, Parlamento e sistema delle autonomie all’ombra del governo nelle trasformazioni della decisione di bilancio, Rivista AIC, 1/2012, available at the website http://www.associazionedeicostituzionalisti.it/sites/default/files/rivista/articoli/allegati/Rivosecchi_2.pdf .

[10]              See also the short explanatory note published by the Ragioneria generale dello Stato in its website: http://www.rgs.mef.gov.it/_Documenti/VERSIONE-I/Servizio-s/Note-brevi/La-legge-d/Versione-inglese-La-legge-di-contabilit—e-finanza-pubblica-.pdf.