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Prof. Francesco Zaccaria

1. The reference framework: public finance, expenditure of the defence, strategic aims

Deciding to intervene and carrying out operationally any kind of military intervention for the Italian State means having to reckon with the relative shortage of allocations that has been ongoing in Italian public finance in recent years. Formerly military expenditure was a leading factor in the development of public expenses in modern and contemporary states. In some decades and above all in times of conflict and preparation for conflicts, military expenditure formed a rather high share of the entire public expenditure and a considerable flow of financial resources was designed for the purchase of war equipment, military technology and relative supports, ammunition and other reserves. The share of military expenditure over the total expenditure provided for by the state budget was the expression of the state’s military policies and, more generally, of the state’s attitude at an international level. Military expenditure is thus an essential tool to reach the state’s strategic aims.

Thus in the XVIII and XIX centuries expenditure for defence increased considerably and covered up to 15-20% of the entire public expenditure. According to the oldest theory of the finance science the increase in military expenditure was seen as one of the main causes of the rise in public expenditure in the XIX century and in the early ’900. This is not the case for the second half of the last century and the start of the XXI century. State expenditure underwent deep changes in that the value regarding government interventions on economy and society increased greatly through ever more expensive and articulated public administrations. The most important items of expenditure of the public administrations are those regarding the retributions of civilian personnel, costs of interventions in the field of economy and social interventions. Social costs in European countries now represent an average amount equal to about 25% of the GNP. Moreover, in some states, marked by high levels of public debt, we have seen consistent expenses for public debt service consisting in interest rates and in refunding costs. Italy must be considered among these countries.

Since 1992, moreover, there is a strategic public policy intervention that tends to reduce the budget of public administrations in compliance with the Maastricht treaty. This international normative, in fact, subjects the access of European states to the single currency system to the achievement of a public administration aggregate balance inferior to 3% of each state’s GNP. In our country the policy followed by the government and by parliament produced a restrictive action on expenditure. 96 As this restriction could not be easily applied to the most rigid expenses, interventions of a social nature, interest rates and salary costs for civilian personnel, it was necessary to reduce the expenses deemed more flexible, among which military costs. This explains why expenses provided for by the defence budget underwent a gradual reduction over the last decades. In fact, expenses dropped from 1.92% of the GNP in 1989 to about 1.75% of the GNP in the years that followed and down to 1.45% in 1999 and 1.47% in 2000-2002, while we can see a slight increase in 2003 up to 1.50% of the GNP (figure 1). It is a matter of very limited allocations, especially if we consider the demands of a modern state committed in intervention actions in defence of peace and international security. The inadequacy of defence expenditure is evident in international comparisons. In figure 1, for instance, expenditure allocations pro-capite for the armed forces of the main European countries are compared and we can easily notice that the pro-capite availability of resources for the armed forces apparatus in Italy is considerably lower to that of our European partners.

2. Features and structure of military expenditure in the budget system of the Italian state

The Ministry of Defence allocates public expenditure designed for the armed forces. In view of the budget, military costs are divided into four different functions: defence (which includes expenditure for the three armed forces formed by the Army, the Navy and the Air Force); public security (which includes allocations designed for the armed force formed by the Carabinieri Corps); external (which includes expenditure activities that are not specifically military but entrusted to the armed forces because of an operational connection with state defence); temporary pensions (regarding the temporary retirement treatment of auxiliary personnel). In its reports the Ministry of Defence applies a fundamental subdivision between expenses bound to laws and expenses bound to programmes. The former regard the ones with allocations pre-determined by a bill of law so that the bodies responsible for deciding on the budget have to keep to the values provided for by law, the latter are bound to a programme because the authorities responsible for deciding on the budget can manoeuvre them by planning acts articulated year by year.

Military expenditure administered by the Ministry of Defence is administered by administrative responsibility centres. Until 2003 there were eighteen of them, but in the 2004 budget they have been reduced to seven.

3. Financial costs of the MSU and coverage

The characteristics of military expenditure in the state budget make the funding of MSU costs a problem. It is a matter of a rather consistent increase in costs, both as regards absolute values and as far as the GNP and the total public expenditure are concerned. The development of military techniques and above all the complexity of technological tools and logistic supports, in fact, have made the operations of the armed forces in the contemporary world more and more expensive. The additional costs required by carrying out MSU operations have no space in ordinary budget allocations, but governmental and legislative authorities have had to turn to more complex methodologies to find the consistent resources needed to carry out the interventions. The political MSU intervention choice has thus implied legislative decisions to fund such interventions. This was taken care of in the legislative ambit authorizing the missions: the same provision authorizing the armed forces’ commitment in the war or crisis theatre decided - in compliance with a precise disposition contained in art. 81, paragraph 4 of the Constitution - on matters of cost funding and coverage. There are two theoretically possible coverages: - added revenue forecasts from new taxation by a rate increase; - the use of general expense funds set aside for unforeseen expenses or for costs due deriving laws under approval.

Thus, as an example of the first item, we must consider the 1 July, 1996 decree, converted by law No. 428 of 8 August 1996 providing for the funding of the Italian participation to the peace restoration operations in Bosnia, valued in 240 billion lire, by increasing the excise tax rate, that is the duty on production and on unleaded petrol. Public finance also had to face the considerable additional cost of interventions in Albania and Macedonia within the NATO mission with humanitarian and military protection tasks; intervention authorized by Decree No. 110 of 21 April, 1999, converted by law No. 186 of 18 June, 1999. Taxes were not put up, but art. 1 paragraph 63 of law No. 549 of 28 December, 1995, a norm of a general kind, was applied. The text of the mentioned law establishes that expenses related to military interventions abroad, those of a humanitarian kind as well, authorized by Parliament connected with international agreements, the procedure provided by art. 9 of the 5 August, 1978 law may be adopted, on a deliberation by the Council of Ministers, on the proposal of the Treasury. Art. 9 of law No. 468/1978 foresees the power of the Cabinet to employ a special reserve fund for cash authorizations aiming at integrating budget allocations.

The amount of funds provided for by budget supply services is established annually by the budget law. A further expense authorization for the Italian participation in military operations abroad has been provided for by legislative decree No. 4 of 20 January, converted by law No. 42 of 18 March, 2003. Here too the law did not provided for coverage through new or higher taxation, but found the necessary funds in the budget. In this case, the special fund designed for the coverage of costs deriving from laws submitted for approval during deliberation of the budget law was used. The fund is provided for and regulated by art.11 a) of law No. 468 of 1978. In fact, the funding of the MSU creation costs is episodic and partly guaranteed by added taxation and partly by funds within the current state budget. Actually, budget allocations of the Ministry of Defence are increased by withdrawing money from budget funds or higher fiscal revenue on the basis of the above mentioned laws.

As regards the Carabinieri Corps, since the year 2000, there have been budget variations with a fund flow to allocations included in the administrative responsibility centre Carabinieri Corps of the Ministry of Defence expenditure forecasts for the values stated in Table 1. As shown in the Table, the highest fund flow took place in the financial year 2002 reaching over 41.5 million euros. table 1 Variations in the increase of State Ministry of Defence expenditure forecast allocations (Carabinieri Corps for the funding of M.S.U. missions) (amounts in euro) 2000 2001 2002 2003 Total Kfor Kosovo 19.653.767,29 16.596.755,62 18.090.220 54.340.742,91 Sfor Sarajevo 21.225.862,5 21.094.010,65 23.433.256 22.109.267 87.862.396,15 Kfor Pristina 17.136.469 17.136.469 40.696.672,46 37.690.766,27 41.523.476 39.245.736 159.339.608,1 Suorce: data supplied by the Budget Office of the General Command of the Carabinieri Corps.

However, in the year 2000 the amount of incremental variations of the allocations to the Corps was considerable and over 40 million euros. The mission that required the highest fund flow as regards defence forecasts was the SFOR Sarajevo with almost 88 million euros. We can reckon the total fund flow amount needed in the financial years 2000-2003 from the tables.

4. Effects and fall-out of MSU expenses. Productivity of MSU expenses

The public administration’s tendency to assess public expenditure as regards efficacy and profitableness in achieving targeted results and aims is gradually gaining ground in the theory of the science of finance. In other words, such an assessment should allow to verify the administration’s performance and, in particular, ascertain whether the administration itself has achieved targeted results with the minimum outlay of resources or whether it has optimized the products of available resources (efficacy). Controlling methods apt to allow to assess whether an adequate functional relation between resources and targeted aims has produced a good management of resources (productivity). Such kind of controls becomes prevailing and central through a vast succession of administrative law and public accountancy regulations.

These norms reached the climax in legislative decree No. 286 of 30 July, 1999. Expenditure for the creation of the MSU is an interesting case within public expenditure in general and military expenditure in particular. This is an entirely new situation compared to the tendencies risen in recent decades. Actually, it is true that military expenditure has, in several recent historical situations, been the object of some kind of unfavourable prejudice, which turned, in substance, into an allegation of unprofitableness from an economic viewpoint. In other words, a kind of Il Deserto dei Tartari (The desert of the Tartars) complex, to quote a fascinating contemporary novel, has been experienced according to which the presence of border troops or sea patrols by naval teams and of the air space by the air force are by no means productive economic factors of a true and proper service subject to a defined quantity assessment.

The fact that the enemy potential could remain “potential” for years, the circumstance that the last defence in a global conflict could be entrusted to a foreign armed force equipped with non-conventional weapons, and lastly a pacifist political approach had contributed in marking military expenditure of unprofitableness. As we know, the paths of history are endless and have proposed developments and events unforeseeable only fifty years ago. The feared global world conflict did not occur and finally disappeared from the forecasts, but local situations of great instability jeopardize the security of certain critical areas, the life of fellow citizens and of entire populations worthy of attention, respect and care and, above all, prevent the functioning of democratic institutions in some countries around the world.

Interventions of a conventional military kind, very specific as regards methods, armed forces employed and strategic objectives thus become absolutely necessary. In this respect MSU interventions offer the opportunity to assess productivity in a different manner. Actually, these military interventions may be valued on the basis of the outcome of actions carried out in terms of the number of human lives rescued, people saved when in danger of death or serious offences, guaranteed security conditions when all situations of conflict, upheaval or guerilla would have caused enormous damage to numerous subjects. These results must certainly be considered in choosing to employ military resources in MSU interventions. These results, however, are not easily quantifiable in mathematical terms. However, there are situations when it is possible to specifically assess the productivity in carrying out a successful MSU intervention; assessment in terms of saving on other costs that would have been necessary in the absence or failure of an intervention.

This occurs when the restoration of legality and the establishment of efficient police forces on the territory forming the MSU intervention theatre allow to withdraw other military forces sent to the territory. In other words, we can compare two possible scenarios: the first in the absence or failure of MSU intervention when other military forces need to prolong their presence on the territory; the second is the result of a successful MSU intervention.

In the latter event it is possible to withdraw the other military forces in the brief term due to the security situation reached and later to the MSU contingent. The productivity of the MSU action can thus be assessed in terms of quantity by calculating what is saved by withdrawing the other military forces following the successful action of the MSU. Saving is reached by the economic and financial cost of the presence of military forces on the territory and by the cost in general terms (political and administrative) of prolonging the presence of military forces in the war theatre or of other facts determining instability and military insecurity. Actually, the situation of expenses for the MSU action appears very peculiar and for these expenses it is easier to indicate the productivity and overcome the Deserto dei Tartari complex. This fact appears to be the reason for deciding to fund expenses designed to carry out this kind of intervention and of decided support, through state budget expenditure Financing directed at strengthening those military forces designed for humanitarian interventions, peacekeeping and MSU in particular.

The time when armies and fleets lay in wait of the enemy, perhaps powerful and dangerous, but long inactive in its position, is over. The strategic-military situation is marked by important transformations. The most serious dangers in the political and geographical balance will no longer arise from traditional declared conflicts, but from military actions apparently separated, without an organic plan and preceded by formal declarations of war, which represent a danger for the stability and the security of entire areas or which jeopardize the survival of millions of people by pollution, famine, plunder and destructive attitudes. Interventions designed to face these situations require well trained personnel, the use of modern weapons fit for very qualified actions (it is no longer a matter of hitting the enemy in any manner, but of a sophisticated combat technique because of the presence of helpless populations and many subjects in need) as well as the use of very sophisticated technologies, informatic tools and developed and very efficient communication systems.

This is the reason why ordinary budget allocations are always inadequate for the needs of an intervention in favour of international safeguard and security. It is thus necessary to resort to manoeuvres employing special funds, reserve funds or other extraordinary tools. It is high time that ordinary state budget allocations for the armed forces, including the Carabinieri Corps, became sufficiently consistent to guarantee the steady funding of interventions in favour of peace and security. This is why government authorities and parliamentary forces can reasonably assess the possibility of a cautious, though consistent budget increase in military expenditure apt to overcome the drawback of insufficient allocations which has so far marked the budget of the Italian state.

(*) - Dean at the faculty of Economics at the “Libera Università S. Pio V” in Rome.