Italian spending review takes bite out of public sector

A government decree was approved Friday that slashes spending by 26 billion euros over the next three years and must now go before the House. 'The government decided to discard the easiest path of across-the-board cuts in order to go down a more complex road, but one that is structurally profitable, according to analysis of the spending structure,' said Italian Premier Mario Monti. The long-awaited spending review will cut 4.5 billion euros in 2012, 10.5 in 2013 and 11 in 2014. One of its most controversial measures will cut 10% of staff and 20% of managers in Italy's large public sector, widely considered a sacred cow of well-paying jobs with rich benefits untouchable by policy makers. Those offices and employees will now undergo mandatory progress reports, according to the review, which also removes a rule closing public offices in the week of Ferragosto, a national holiday on August 15, and the week between Christmas and New Year. Further cuts to those jobs would include reduced meal vouchers and prohibiting employees exchange vacation days for payouts. Italy's provincial governments will be cut by half, from 110 to just over 50, effective immediately. In military spending, 10% of soldiers will be demobbed and various programs will be defunded: weapons spending by 100 million euros; peace-keeping missions by 8.9 million; benefits for victims of depleted-uranium exposure by 10 million; and recruiting programs by 5.6 million. Government purchasing will be slashed, especially in healthcare, but small hospitals have been saved after an initial draft culled them. In another change from the first draft, university funding will not be cut by 200 million euros but will be kept at current levels and there will not be a controversial boost for private Catholic schools. The spending review may also lead to eliminating roughly 30 courts, 37 prosecutors' offices and 220 judicial offices. One of the most emblematic displays of government belt-tightening comes in the form of a 50% funding cut for hired limousines, or 'auto blu', a nearly ubiquitous sign of political power in Rome. The measures were contained in a decree to avoid tinkering by parliament. The spending review, which will go before the House at the end of the month, set out to avert a 2% increase in VAT scheduled for October, which was part of Premier Mario Monti's 'Save Italy' austerity package passed in December to avoid a financial meltdown. The savings mean that the VAT hike, likely to deepen Italy's current recession, can be put off until mid-2013.