MNI: Italy Seeks EUR9-11 Bln Savings Or Extra Revenue-Sources

The Italian government will need to find around EUR 9-11 billion in additional savings or revenue to keep within its fiscal deficit guidelines for 2024 while still prioritising cuts in taxes on employment and on families with young children as well as reforming the pension system, governing coalition sources told MNI.

While the government’s new macroeconomic framework presented on April 12 includes EUR4.5 billion available for tax cuts, this is insufficient for all of Prime Minister Giorgia Meloni’s tax plans. Definitive changes to the rules governing the age at which workers can retire, which have for several years have been subject to temporary fixes, will also be expensive, government sources said.

Part of the additional EUR9-11 billion required will come from a reduction in the number of available rebates in a major tax reform, which will also cut the number of income thresholds to three from four and will be prepared in the next few months, sources said.

In addition to reducing taxes on families with children, Meloni wants to extend this year’s temporary EUR4.5 billion tax cut for those earning less than EUR35,000 and EUR25,000 a year into 2024. Officials are already drafting a detailed package of measures to further extend those cuts in the second half of this year, using higher-than-expected revenues, which will be announced in the next few days, the sources said.

SPENDING REVIEW

The government is preparing also an “intense” spending review, with officials eyeing cuts to measures helping businesses and consumers cope with higher energy costs in the wake of Russia’s invasion of Ukraine.

The sources also believe that growth could surprise to the upside, beating the government’s 1% forecast, in the absence of further negative shocks. But for that to occur Italy needs to unlock its EUR19 billion third NextGenerationEU tranche, which is currently delayed following a request from the European Commission for an extra month to consider Italy’s progress on targets under the post Covid aid programme. (See MNI: Italy's Delayed NGEU Funds Approved In Weeks-Official)

Last year, better-than-expected growth boosted revenues by EUR3 billion, helping to keep the 2023 fiscal deficit targeted at 4.5% of gross domestic product.

As always, tough budget discussions are further straining relations within the coalition, particularly between Meloni’s Brothers of Italy and their junior partners from the League. Brothers of Italy officials have also been irritated by League parliamentarians who have stated publicly that officials are struggling to find ways to spend money allocated under NextGenerationEU.

“This comes from the most eurosceptic part of the League, which wants to show that Brussels is failing. But that money saves us a lot in interest payments,” said one senior member of Brothers of Italy.