With reference to the coordination of the tax system, a decision was made to put the taxes of the various
government levels on “equal footing”, with the exclusion of measures, without simultaneous offsetting,
about taxable income bases and about tax rates referable to other government levels. In exercising their
fiscal autonomy, the regions may institute regional and local taxes with respect to transactions not subject
to taxation by the state, and they may determine the framework within which the fiscal autonomy of the
local entities may be exercised and the transactions subject to local taxation.
Fiscal autonomy is also guaranteed by the possibility of the application of state law, in the absence of a
regional law.
With regard to the framework for financing the provinces and municipalities, and in particular, the
coordination role played by the state and regions (which, according to the Constitution, have a concurrent
legislative responsibility on the subject), the bill for the enabling act envisions a framework for municipal
finance, that is differentiated according to the range of services carried out by the municipalities (and
therefore, the demographic reach). On the one hand, this framework affirms the municipal tradition value
of the Italian system, and on the other hand, it assigns a fundamental role to the regions in designing the
specific means for the coordination of the financing of smaller municipalities (in respect, with regard to
the equalisation, of the general criteria set by state regulations).
Finally, with regard to the concrete objectives for the equalisation formats, the spending needs must be
precisely defined. With the final framework, spending needs will no longer simply have to coincide with
historical expenditures (as occurs today). The bill for the enabling act defines the institutional framework
of the financial relationships between various government levels, and sets the general criteria for
embarking on a gradual plan that can restore rationality to the distribution of resources, making the
distribution consistent with objective measures of needs and with the standard cost of the services
provided.
Federalism has positive potential from the standpoint of democratic participation, citizens control and
competition between local communities and governments. In order to ensure that that positive potential is
actually be realised, the playing field must be level for everyone. With the full implementation of Article
119 of the Constitution, the country is moving beyond a period marked by fragmentary measures, often
dictated by urgent needs to ensure the financial balance of the public accounts as a whole, and is defining
a framework of stability and certainty that is needed in order to allow individual local and regional
entities to plan their activity in a meaningful manner. The revenue and spending measures with
repercussions on regional and local finance are today part of the Budget. In the future, such measures will
be part of a specific legislative bill presented in June, after having been evaluated and discussed jointly
with the regions, provinces and municipalities. Such bill will then legally become part of the state budget
package to be passed into law by the end of October. Two important results will be achieved as a
consequence: on the one hand, the new system will streamline the legislative session for approving the
state budget, and on the other hand, it will guarantee the local and regional entities a sufficient timeframe
for being able to formulate their autonomous budget policies.
Fiscal federalism reform needs to be implemented mainly by strengthening budget constraints for local
spending bodies, making the Internal Stability Pact stronger and reviewing the functioning of sanctions
and their credibility, in particular for health sector.
Internal Stability Pact
In the current scenario, there are two fiscal rules, particularly significant, aiming at making local budget policy
aligned to the general objectives set out in the DPEF and the Finance Law.
According to the first rule (known as the “golden rule”,which is permanent) the local governments can borrow
only to finance their investment expenditures, preventing the local administrations from the use of debt for
financing operating activities