Following the questioning of the 2007 budget proposal (and here) over severance pay and pension funds, the draft 2007 budget has now been amended so that businesses with fewer than 50 employees need not transfer severance pay to the state pension fund.
This debate seems to have two components: the one inside Italy itself - which relates to the financial burden on small companies which was posed by the original proposal - and the one being held at the EU commission and the ECB about how to treat this budget item. Really I think there is little doubt on the latter. As Moritz Kraemer, head of European sovereign ratings at S&P, says in the extract posted below "We would not consider this to be revenue". Nor do I think would anyone else. So the agreement resolves the first question, but not the second one, which is still how to bring the 2007 budget within the current guidlines of the EU Stability and Growth Pact.
Companies with more than 50 employees will have to transfer 100 percent of the severance pay to the state, according to an agreement reached late yesterday between the government, unions and businesses. The severance payments will bring in about 5 billion euros ($6.3 billion) to the pension fund.
The agreement caps almost seven years of debate over the so-called Tfr pay. Businesses often use severance pay they are required to withhold for employees as an inexpensive form of financing.
Standard & Poor's and Fitch Ratings both cut Italy's credit rating yesterday on concern Prodi's plan to reduce the government's debt and deficit doesn't go far enough. Moritz Kraemer, head of European sovereign ratings at S&P, yesterday said the severance transfer was a ``liability in the future.....We would not consider this to be revenue,'' Kraemer said on a conference call.
Employees working for a small company will have until June to decide whether their severance pay should go to either a private or state-run pension fund or remain within the company, Labor Minister Cesare Damiano said. The 23,000 companies in Italy that have 50 or more employees will automatically transfer the entire amount to the state fund, according to the agreement.
``The government predicts that about 37 percent of the Tfr in 2007 will end up in funds and the rest will end up in part self-financing the companies, and in part sustaining the state pension fund for investment in infrastructure,'' Damiano told la Repubblica in an interview published today.
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Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Italy related comment. He also maintains a collection of constantly updated Italy economy charts together with short text updates on a Storify dedicated page Italy - Lost in Stagnation?