Playing with Dynamite
Playing with dynamite
We have spoken, probably too often, about the fact that the Italian State is flat broke – (here) and (here) – as well as mentioning – (here) and (there) – that a “touch me, feel me” Center-Left government is in the throes of attempting to assemble a budget bill that will allow it to be generous and benevolent while having no cash.
In the process, the country has become a laboratory for innovative public finance. The budget is still being debated – it has been voted by the Chamber of Deputies but must yet face the Senate – so not everything in it will necessarily become law. Still, as a public service to governments everywhere, we think it useful to pass on some of the more interesting of the novelties that have been proposed.
The most important of these, at the basis of the whole construct really, is the seizure of the so-called “liquidations” employees receive when they leave a job. As things stand now, Italian employers must put aside roughly one month’s pay for each year an employee works for them, to be given back as a lump-sum separation payment on resignation or retirement.
The payment, formally known as a “TFR” – an administrative acronym you don’t need to know about – was intended to give dependents a wad of cash with which to pay off the mortgage and so on when their careers ended, something that would have been hard to do on a slender pension. Over the years it has further tended to become a cheap form of self-financing for companies since they continue to pile up this cash in their accounts, but only pay it out in occasional spurts as people leave.
Now, under the new law, any company with more than 50 employees will be required to pass the accumulated sum to the government for its prudent administration. Big companies have cut a special deal to ward off the worst effects of this and really small companies are exempt. Those in the middle though are liable to find themselves with their backs to the wall, since they will have to come up with enormous unplanned outlays to cover the transfer of the funds to the State.
The banks are expected to handle all the re-financing that will result – and may find doing so quite profitable – but the likely effect on interest rates, and even the odds on getting a business loan at any price, can easily be imagined.
The European Union may have something to say about all this later on because the Italian Government makes its budget come out “right” only by considering all that money as simple income, rather than debt – a loan that will eventually have to be paid back to the employees to whom it belongs – as is in fact the case. Even Enron would have blushed, or at least handled the matter with greater elegance, but this accounting trick is the keystone of the fiscal “maneuver” and it pretty much must become law or the government will fall.
At any rate, the real budget fun is in the lesser bits. The Prodi government has today confirmed its intention to seize the deposits in bank checking accounts on which no operation has been performed in the last 15 years on the theory that these have been in practice abandoned and no longer belong to anyone.
The money will be used to permanently hire 300 thousand new State employees presently working under temporary contracts of one kind or another. This will be done slowly, over the next three years, which just might have the effect of stimulating 300 thousand voters – and their families – to prefer the present government to other and more uncertain prospects.
Our favorite though is a change in the law regulating gambling to allow the State Monopoly to offer betting on “virtual” sporting events – ones, that is to say, which do not actually take place. These could be, according to Italian newspaper reports, imaginary horse and automobile races, or even sled racing, all of which would take place through computer simulations. The payout would be half the sum actually bet, making this a very bad deal for punters, but potentially a decent source of income for the public administration.
There is though a kind of credibility problem. The gaming monopoly already refuses to make public the odds of actually winning at any of its scratch card games. This policy was introduced when it was observed that its previously declared odds were not at all in agreement with actual data on winning tickets collected. At that point, the decision was taken not only to refuse to declare the odds, but also to cease distributing statistical data on winnings.
In other words, betting on a “virtual” sporting event operated by an agency of the Italian Government would require a fairly considerable leap of faith – something that might be said about the entire budget bill as well.