Italy releases budget forecasts but political priorities conflict with fiscal responsibility

Italy releases budget forecasts but political priorities conflict with fiscal responsibility

Italy’s government will release its forecast targets for next year’s growth, budget deficit and debt today. Prime Minister Giuseppe Conte’s

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Photo: Reuters

Italy’s government will release its forecast targets for next year’s growth, budget deficit and debt today.

Prime Minister Giuseppe Conte’s Eurosceptic government, struggling to rein in 131% debt to GDP ratio,  must present its draft budget to Brussels by mid-October. Under regulations set out in the EU’s Stability and Growth Pact, Brussels could technically reject the budget if spending and deficits both exceed 3% of Italy’s GDP. However, this has never happened. Member-states have almost routinely breached these rules since their 1997 introduction, including past Italian governments.

The anti-establishment Five Star Movement campaigned on a basic income for the poor, while the far-right League promised wide-ranging tax cuts. However, the expensive policies would amount to 4% of GDP and, according to some estimations, send the budget deficit to 5%.

In the likely event that Italy’s treasury breaks the EU’s budget deficit rules, it will petition the European Commission for leeway. The prospects of this being granted once again depends on Rome showing more fiscal discipline. Expect Brussels and Rome to negotiate a compromise—perhaps staged implementation of tax cuts and universal basic income over a number of years—which broadly complies with EU rules. Rome will want project strength ahead of next May’s parliamentary elections.

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