The government's costly fiscal indecision on pensions

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Control of public finances, along with political stability, is the government's most prized asset. Minister Giancarlo Giorgetti won the "Finance Minister of the Year" award, and the spread has narrowed. But debt control has not been achieved through courageous decisions or structural reforms. It was achieved through a healthy dose of inertia, riding the wave of inflation: the tax burden has increased without formally raising rates, due to the fiscal drag on the incomes of employees and pensioners, while the revaluation of pensions above €2,100 has been cut, producing automatic savings .

Meanwhile, the government has skimped on transfers to municipalities and regions and cut over €15 billion from businesses, including the abolition of the ACE (the measure that rewarded business capitalization), tax relief for the South, and funding for the automotive industry. In compensation, it promised billions in Industry 5.0 and National Recovery and Resilience Plan (NRRP) funds to respond to US tariffs, but has spent nothing. In the case of tariffs, this was a good thing, because the idea of compensating exporting companies with NRRP funds would be a bad-faith illusion. Regarding electricity distribution concessions, it has chosen the path of least friction: automatic twenty-year renewal, without a competitive bidding process and without revenue, with the cost passed on to consumers through their bills.

After the strategy of inertia, disguised as prudence, with the budget law looming, a real choice opens up . And there are three options, all with an estimated cost of around €4 billion. The first: cut taxes for workers with an annual income of over €35,000, those who have paid the bulk of the bill silently, amounting to an additional €1,000 each. The second: a new tax relief plan, as proposed by the League. The justification? Bizarre: those who join the two-year preventive settlement agreement cannot then find themselves paying old tax bills. A rule conceived as if the taxpayer were a soul to be saved, not a debtor to be regularized.

But the third option is the most likely: freezing the three-month adjustment of the retirement age to life expectancy, scheduled for 2027. It's the most convenient choice: it doesn't displease anyone and can be presented as a technical delay "pending the comprehensive reform." And above all, it allows the government to postpone everything until after the 2027 general elections. Unfortunately, it costs as much as the other two options, and with worse long-term effects . According to INPS data, between 400,000 and 500,000 new retirements are recorded every year, with an average monthly payment of just over €1,200. Freezing the increase in the retirement age is equivalent to giving each of these pensioners three months' pay. The math is simple: freezing the adjustment to life expectancy for a couple of years costs €3-4 billion. We'll see, after the elections. Yet, no one talks about it as a spending measure. Because it's invisible, distributed, and seemingly harmless. But in reality it means postponing an automatic mechanism established by law, with a permanent impact on pension spending dynamics.

Meanwhile, the government continues to wave flags with no real impact, as documented by this newspaper: the VAT on diapers was first cut and then raised , baby bonuses proposed each year with different formulas, the tax relief for mothers transformed into a one-off bonus. All this while pension spending is set to rise until 2040 , when the pure contributory system will be fully implemented, as the Parliamentary Budget Office points out. And the subsequent decline, due to lower contributory pensions, is far from guaranteed: those with fragmented careers and inconsistent contributions today will not accept poverty pensions tomorrow without making demands. Those future savings, therefore, are far from certain. So much so that there has been talk for years of revising the contributory pension system, to guarantee a minimum supplement for those who have collected too few contributions. But this is a structural reform and therefore won't be implemented until the system is fully operational, around 2035-2040. But then, in all likelihood, it will have to be done.

The lack of a decision on the three-month freeze risks becoming emblematic of the government's fiscal stance: avoiding political costs today, passing on the consequences tomorrow, diluting all responsibility in a common-sense narrative . But in economics, not deciding is already deciding, and almost never in the right direction.

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