MNI: Italy Seeks To Cover EUR6.2 Bln Shortfall In Budget Plan

The Italian government is looking at cutting some spending or raising taxes in order to cover a EUR6.2 billion shortfall in its draft 2023 budget plans, two officials working in the budget told MNI.

While the government of new Prime Minister Giorgia Meloni plans to spend the roughly EUR22 billion planned increase in Italy’s budget deficit next year versus earlier plans on support packages for companies and households facing higher energy bills, other measures in the draft would take the deficit over the targeted 4.5% of gross domestic product on current spending, which remains a firm ceiling, the officials said. Italy has increased its planned 2023 fiscal deficit from the 3.4% of GDP envisioned under former Prime Minister Mario Draghi. (See MNI: Italy's Coalition Eyes Bigger 2023 Deficit Target-Sources)

The members of the three-party coalition have agreed to discuss proposed fixes in order to avoid a drawn-out process of parliamentary approval for the budget, which must be passed by the end of the year, and which Meloni hopes to see on the statute books by Christmas. The officials did not say what taxes or spending could be modified.

The budget as it stands assumes EUR14 billion in savings and revenue will come from measures including new corporate taxation, a revaluation of taxable assets, a small reduction in the guaranteed minimum income and a tax amnesty. But while an extension of a windfall tax on energy will raise EUR2.5 billion, the combined measures are unlikely to raise the total hoped for, the officials said.

COSTLY PLANS

At the same time, the right-wing coalition is keen to press ahead with costly policies, including preserving a 2-percentage-point reduction in taxes paid by employers for workers earning less than EUR35,000 a year, which was introduced by Draghi and will cost between EUR4-5 billion a year in lost revenues.

It also wants to raise the threshold for a 15%-flat tax on the income of the self-employed to EUR85,000 from EUR65,000, as a step towards later increasing it to EUR100,000 and eventually extending the flat tax to all workers at some point over the next five years. While the government officials told MNI that the flat tax move next year would boost revenues by reducing evasion, an official document suggested that the opposite effect might occur as higher-earners look for ways to squeeze into the EUR85,000 threshold.

The budget must also have find money for another one-year fix for Italy’s pension system, as the government seeks to avoid returning to the unpopular reform passed in 2012 under former Prime Minister Mario Monti which called for almost all workers to stay in employment until 67. Draghi’s temporary arrangement allowed retirement at 62 after at least 38 years of employment, and the new government is already looking at a similar solution, opening the way to a pension if the sum of a worker's age and years in work is at least 103.

At the same time, the cost of paying state pensions is being pushed up by inflation, seen averaging 7.3% this year. The government has estimated that higher prices alone will increase its pensions bill by EUR50 billion by 2025.