Italy Moves to Slim Down Bloated Public Sector and Save Billions

By Giovanni Legorano Features Dow Jones Newswires

Italy is set to cut its public services spending by around EUR30 billion ($33 billion) in 2017, as a review aimed at improving the country's finances and sclerotic bureaucracy appears to gather steam.

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The reduction is equal to nearly one-fifth of the government's primary costs, excluding personnel expenditure, and a further EUR31.5 billion of cuts is set for 2018, Yoram Gutgeld, Italy's ruling Democratic Party's spending chief, said Tuesday.

"It is like with someone who wants to get back in shape," Mr. Gutgeld said. "You need to be on a diet, but you also need to change lifestyle."

Mr. Gutgeld said the review, which started in 2014, had helped Italy cut its deficit to 2.4% of gross domestic product in 2016 from 3% in 2013 and reduce the tax burden on businesses and individuals, while offering additional public services and improving the efficiency of existing ones.

Nonetheless, Italy's public expenditure, which is equal to roughly half of its gross domestic product, remains higher than the eurozone average, mainly due to the costs of servicing its huge debt and of paying pensions. Interest payments on government debt are equal to 4% of the country's GDP, while pensions paid by the state amount to 17%--both among the highest in Europe.

Mr. Gutgeld said his 1,000-person review team had focused on the EUR328 billion in public costs--around 40% of the total--that primarily involve the health sector, local administration and national security.

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One of the main changes introduced was to centralize public sector procurement processes, cutting the number of purchasing centers to 35 from around 36,000.

In 2016, 82% of health sector purchases in cost terms were made through the centralized procurement process, compared with 27% the year before.

"The figures are considerable and will create large room to reduce current expenditure," Italy's Economy Minister Pier Carlo Padoan said.

This spending review follows earlier attempts at steadying Italy's financial tiller, after it teetered on the edge of financial collapse toward the end of 2011. These efforts often clashed with individuals' and businesses' vested interests and didn't reduce Italy's debt-to-GDP ratio of 133%--one of the largest in the world.

Write to Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

June 20, 2017 11:35 ET (15:35 GMT)