Rethinking the state budget in Europe. The case for a dedicated budgetary mission to promote demographic resilience and intergenerational justice within the European economic governance framework
By Vincenzo Bassi, president of FAFCE
The Public Budget as the Legal Instrument Supporting the Analysis of Epochal Change
The present moment represents an epochal transformation that is redefining the priorities of globalized societies. Rural depopulation, the demographic crisis, migration flows, and the instability of the international order challenge the traditional paradigms of economic governance.
In this context, the public budget cannot be reduced to a mere accounting exercise; rather, it must serve as a tool for understanding these dynamics to promote resilience and social justice, as provided for by the Italian Constitution: “The State budget shall ensure equilibrium between revenue and expenditure, taking into account the adverse and favourable phases of the economic cycle” (Article 81).
This document, which embodies the principles of balance and truthfulness in public budgeting, is not limited to imposing a simple arithmetic exercise of balancing accounts. Instead, it reflects a broader vision of the budget as an instrument of political direction and economic planning. It is not merely a document recording revenues and expenditures, but an act that translates strategic choices into numerical terms, directing resources toward objectives of general and collective well-being.¹
The budget constitutes the defining feature of the government’s financial activity, for which the executive bears responsibility in identifying its political objectives (the so-called “political moment”). At this stage, the executive establishes the country’s strategic priorities—such as promoting economic growth, reducing inequalities, or responding to demographic emergencies—on the basis of political assessments that reflect both the electoral mandate and social needs.
On the basis of these political choices, the process moves to the “economic moment,” during which the economic instruments required to achieve these objectives are selected. These may include incentives, infrastructure investments aimed at increasing productivity, or welfare programmes. Such measures should not always be regarded merely as expenditures; rather, they may be designed to generate social and economic added value, thereby influencing GDP growth and the distribution of resources.
Subsequently comes the “financial moment,” which concerns the determination of the net borrowing requirement—that is, the difference between projected expenditures and estimated revenues—necessary to finance the identified objectives. At this stage, available resources are assessed, deficits or surpluses are estimated, and allocations are planned to ensure fiscal sustainability in both the short and long term.
Finally, the “legal moment” determines how the necessary resources are to be obtained by identifying the legally appropriate instruments to meet the financing requirement. These instruments include taxation, the disposal of public assets, the collection of previously granted credits, or, where borrowing is necessary, the issuance of government securities.
This sequence—political, economic, financial, and legal—ensures that the budget is not merely a technical accounting document. Rather, it illustrates how political visions are translated into concrete policy measures while respecting constitutional and legal constraints for the responsible management of public finances.
Unlike a corporate budget, whose primary objective is to create value through profit generation and the maximization of shareholder returns, the State contributes to the creation of social value with the aim of enabling redistribution and equity by creating the conditions necessary for access to essential public goods such as education, healthcare, and infrastructure, which the market would not otherwise adequately provide.²
This distinction, rooted in the very nature of the functions of the State, highlights the non-neutral character of the public budget. As noted above, because it reflects political priorities, the public budget responds to changing historical and social contexts.
Within this political, socio-economic, financial, and legal framework, the central argument of this contribution is that the demographic challenge—characterized by population ageing, declining birth rates, and intergenerational imbalances—constitutes the defining emergency of the present era and, consequently, requires a profound rethinking of the allocative function of the public budget.
Traditionally, demographic issues have been regarded as circumstances rather than causes of economic and social imbalance, and therefore as phenomena to be managed through redistributive social policies. Put more simply, demographic momentum and human capital, both in quantitative and qualitative terms, have always been viewed as “the passenger in the vehicle rather than the essential component of its engine.”
Today, however, it is crucial that demographic policy acquire its own distinct identity and be recognized as a strategic investment in human capital, essential for ensuring economic sustainability and social justice. Italy’s and Europe’s “demographic winter”³—characterized by low birth rates, an ageing working-age population, and deficiencies in childcare and care services—undermines productive capacity and the sustainability of the welfare system in the medium term. This situation makes stable interministerial coordination among fiscal, social, labour, and health policies indispensable.
Only in this way can the principle of the truthfulness of the budget (as set out in Article 1 of Law No. 196 of 31 December 2009, which establishes the principles governing the coordination of public finance in accordance with European Union requirements) faithfully reflect the underlying economic reality, thereby avoiding distortions that would otherwise undermine the country’s future.
¹ The purposes of the public budget are clearly identified in classic works of economic and legal scholarship, including Luigi Einaudi, Prediche inutili (Turin, 1959), and Benvenuto Griziotti, Principi di politica, diritto e scienza delle finanze (Padua, 1929).
² The distinction refers to the different purposes of public finance and private enterprise: while firms pursue profit maximization, the State pursues the creation of social value and the provision of public goods.
³ The expression “demographic winter” is widely used in Italian and European policy discourse to describe prolonged low fertility, population ageing, and declining demographic replacement.
The State Public Budget as an Instrument of Resilience and Intergenerational Justice – The Responsibility of the Governments of the Member States of the European Union
Demographic policy is not merely a matter of redistribution, but of reproducing the human capital that is essential for the future.
The establishment of a new budgetary Mission entitled “Demographic Policies” among the expenditure items of the State Budget could transform demographic policies into a strategic public investment for the common good, promoting economic resilience and intergenerational justice, provided that it is supported by rigorous and measurable investment criteria.
The specific nature of demographic policy, recognized as a productive driver rather than merely a social intervention, responds to the need to address demographic decline as a structural cause of economic and social imbalance, rather than as a passive phenomenon to be managed, consistently with the European Union’s reformed framework for economic governance established by Regulation (EU) 2024/1263.4
From an ethical and political perspective, accounting truth must reflect social truth, echoing the Thomistic concept of adaequatio intellectus et rei as a metaphor for the correspondence between representation and reality. The budget is not an abstract model to be imitated, but a common language for representing the reality of each country. Only by rethinking it through a demographic perspective can Italy and Europe address the challenges of the future with fairness and strategic vision.
Accordingly, while respecting the objectives established by the European Union framework—namely, the sustainability of public finances and more effective coordination of the economic policies of the Member States—the State Public Budget must be adapted to reality.
In other words, while economic and financial objectives are established at the European level, it is for the individual Member States to determine how those objectives are to be achieved. The identification of investments—or, as discussed above, expenditures capable of generating returns—falls within the responsibility of each Member State. Each State must nevertheless establish:
- (i) transparent rules governing information relating to the financing and costs of investments; and
- (ii) reporting mechanisms capable of verifying the effectiveness and efficiency of expenditure in achieving the intended objectives.
In particular, under the new European fiscal rules, each Member State may depart from budgetary constraints by excluding from the deficit calculation expenditure relating to investments that concern economic and social policy choices considered by the Member State itself to be essential for achieving the objectives established under the European economic governance framework.5
It is therefore important to promote a flexible practical application of the reform of the European fiscal rules, whose objective should not be to impose economic policy decisions on individual Member States through predetermined forms of intervention, but rather to permit a range of economic policy measures, provided that they are capable of reducing the debt-to-GDP ratio and budget deficits in a gradual, realistic, durable, and growth-friendly manner, while at the same time safeguarding reforms and investments in strategic sectors.
In practice, when negotiating their medium-term national fiscal-structural plans with the European institutions, Member States will not only present their fiscal adjustment path in terms of reducing net expenditure but will also identify the investments intended to strengthen national growth. Demonstrating the essential nature of such investments prevents, as noted above, the European Commission from subjecting a Member State to an excessive deficit procedure.6
Member States therefore have a crucial responsibility: identifying the investments that are most beneficial for their own countries. In this way, they will be able to secure sufficient resources to support economic policies consisting not only of direct interventions (for example, financial bonuses or subsidies), but also of indirect measures such as a fairer tax system.
The following question therefore naturally arises: What is the best investment for a country such as Italy, in the midst of a demographic winter, struggling to sustain social and healthcare expenditure while facing a productivity deficit partly caused by a shortage of qualified labour?
It is evident that by investing today in policies supporting birth rates, these problems can be addressed tomorrow, while also improving the country’s growth potential.
The first priority, therefore, is to convince the European institutions, including the European Commission, that demographic policies should be regarded not as social costs but as fundamental investments, at least as important as other forms of structural investment.
Indeed, it is beyond dispute that a country unable to emerge from demographic winter will be incapable of guaranteeing intergenerational solidarity and, consequently, sustainable development. In other words, without serious demographic policies, even the much-desired ecological transition will remain little more than an ideological banner.
Moreover, this is an issue of European relevance. Although under the European Treaties, family policy remains an exclusive competence of the Member States, demographic issues fall within the broader field of social cohesion, which constitutes a shared competence.7
In conclusion, the establishment of an autonomous Mission on “Demographic Policies” is both constitutionally legitimate and politically appropriate. It does not infringe the constitutional allocation of powers; rather, it clarifies the scope of several subject matters listed in Article 117 of the Italian Constitution and strengthens the effectiveness of action against demographic winter.
By recognizing birth rates as both a reward for parental responsibility and an investment in human capital, it transforms demography from a mere appendage of the welfare system into a strategic driver of resilience and intergenerational justice, in accordance with Regulation (EU) 2024/1263 and COM(2023) 577 final.
Policies supporting birth rates should therefore be regarded as investments that are essential for achieving the development objectives of the strategic sectors identified by the reform of the European Stability and Growth Pact.
In this regard, it is important that the Member States of the European Union work together to develop a coherent approach to the practical implementation of the Stability and Growth Pact.
4 For further discussion, see G. Rivosecchi, L’indirizzo politico finanziario tra Costituzione italiana e vincoli europei (Padua, 2007), pp. 46 ff.
5 A similar development is already occurring with respect to defence investments by individual European Member States.
6 In addition, all national expenditure used to co-finance European Union-funded programmes will be excluded from the calculation of a government’s expenditure.
7 The division of competences between the European Union and the Member States in the fields of family policy and demographic policy reflects the complexity of the European institutional framework. Family law remains an exclusive competence of the Member States, as it is not expressly conferred upon the Union by Articles 3 and 4 of the Treaty on the Functioning of the European Union (TFEU) or by any other Treaty provision. Demographic issues, however, are closely connected to economic, social, and territorial cohesion, which constitutes a shared competence under Article 4 TFEU. Within this framework, the Union may act through support measures or by enabling appropriate fiscal policies, coordinating and complementing the actions of the Member States.