Transition Plan 4.0: an unmissable opportunity

Broaden the base of potential users, facilitate access to available resources for SMEs, channel interventions into investments earmarked for supporting companies that do business in the Made in Italy value chain. These are some of the key components of the Transition Plan 4.0.

The original version, dating to late 2016, was the National Industry Plan 4.0 (aka the “Calenda Plan,” named after the then-head of the Ministry of Economic Development (MISE)). The objective was to promote business innovation and technological development in the country. This intervention was repeatedly proposed and financed over the years, eventually evolving into the Enterprise Plan 4.0 and more recently into the Transition Plan 4.0. Revamping the contents of the new Plan was a response to the need to consolidate and build on the outcomes of the previous one and to contend with the criticalities that emerged in the operational stage. Specifically, Enterprise Plan 4.0 saw investments in tangible and intangible capital goods totaling around €13 billion, with beneficiary businesses numbering 53,000. These overall figures can be seen in a positive light, but looking at the big picture, we can see that the incentives linked to the hyper-amortization of tangible assets were geared to medium-large companies for the most part (64%). In contrast, only 9% went to micro enterprises and 27% to small companies. The majority of investments were in machinery, with a small number of firms investing over €10 million, and even fewer more than €20 million (MISE data).

The new Plan replaces hyper-amortization and super-amortization with tax credits set at various rates for different categories of goods, deferred over time. The tax credits can be used over a five-year period; the limited timeframe was designed to encourage companies to act promptly to take advantage of the incentive. In addition, the Plan introduces a new tax credit which applies to expenses relating to R&D and design. The idea here is to stimulate spending on human resources and skills development, in addition to investments in machinery.

The top priority of the Plan is to promote private investments, to provide stability and minimize uncertainty for companies by implementing measures that aim to hit medium-term targets (2023). To do so, tax credits apply for two years, and the measure takes effect as of 16 November 2021, facilitating business planning for the companies concerned. Second, the modifications also intend to expand the base of potential beneficiaries, which is estimated to increase by 40%. What’s more, the intervention aims to foster skills development which will serve in the ongoing technological evolution, the circular economy, and digitalization processes in companies.

The 2022 draft budgetary plan, approved on 19 October 2021, contains an extension for the fiscal incentives in the Transition Plan 4.0, as well as the contribution for SMEs for the purchase of capital goods, along with additional interventions including an internationalization fund for companies and a guarantee fund for SMEs. These maneuvers taken together are part of the bigger picture - the National Recovery and Resilience Plan (NRRP) – in particular with regard to the missions linked to digitalization, innovation, competitiveness and culture, the green revolution, the ecological transition, education and research. The amount earmarked for all these interventions totals nearly €150 billion. This is a unique opportunity to relaunch and modernize the production system of Italy, a country that ranks second in Europe and seventh in the world for its industrial system. The vision is clear and the intentions align with the needs of the country. And the hope is that the massive amount of resources that are being made available will correspond to the concrete execution capability of public and private players that are singled out as the enactors of the guidelines established in the Plan.

The purpose of the Transition Plan 4.0 is to rectify the more glaring limitations that emerged in the operational phases of the previous plans. Italy is a country where the vast majority of companies are SMEs, where skills gaps are acute (the percentage of university graduates, in particular in STEM, is lower from a structural standpoint than the average of other comparable countries), and where skill mismatches are common. (In other words, a sizeable share of workers possess skills that do not align with what companies actually need, and the more intensive their digital transformation, the more this mismatch tends to grow.) Beyond making it easier for SMEs to take advantage of the benefits of the Plan, it’s necessary to equip these companies with the skills they need to fully integrate new technologies into their business processes. And this isn’t only about technological retrofitting, but also actions that serve to discover the business potential of these companies. So, investments must be made in developing the human capital companies need, people who can act as enablers and levers for qualifying and boosting productivity in the Italian industrial system. But all this has to begin in our high schools and universities, with the aim of bridging the current skills gap – a real constraint on growth - putting a stop to the drop out phenomenon, and promoting youth employment.

Italy is a country where one of the highest rates of unemployment sadly goes hand in hand with one of the lowest levels of schooling and higher education. The investment in human capital has medium-term returns, but without a policy that encourages interventions in technologies and the skills people need to use them effectively, the delay can only get worse.