MNI EXCLUSIVE: Italy Plans Bond Sales To Finance Deficit: Srcs

--Italy Government Plans E27 Bln Bond Sales For Funding: Sources

--Gov't Working On "Massive" E53 bln Investment Plan Over Next 3 Years

By Silvia Marchetti

     ROME (MNI) - Italy's government aims to fund its enlarged 2.4% of GDP

deficit target for 2019 through bond issuance and "ambitious" spending cuts,

alongside a public investment plan worth up to E53 billion over the next three

years which it hopes will spur economic growth, sources close to the budget

talks told MNI.

     Roughly E27 billion, or 1.6% of GDP, will be funded through financial

markets, while expenditure cuts, currently under scrutiny by a special

committee, are likely to raise E10-15 billion, said the sources.

     The 2.4% deficit target, raised from the 0.8% set by the previous

centre-left administration, was decided after a crunch meeting Thursday between

the two governing parties -- Lega and 5 Star Movement.

     The deficit figure will also be kept down by economic growth higher than

the 1% previously estimated for 2019. Finance Minister Giovanni Tria told Il

Sole 24 this weekend that increased infrastructure spending would help push the

rate of economic expansion to 1.6%. The governing coalition has also ditched

plans to increase value-added tax.

     --NO VAT HIKE

     "We are sure that in a moment of economic recovery, the overall impact of

this accommodative budget, that avoids a E12.4 billion VAT hike and includes a

mix of tax cuts and other pro-growth measures, will further spur the economy",

said Economy Undersecretary of State Massimo Bitonci, of the Lega party.

     Alvise Maniero, a 5 Star Movement member of the Lower House finance

committee, stressed that "the support to consumption and fight against poverty

(including a "citizens' wage" worth some E10 billion per year for 5 million

poorer Italians), alongside massive public investments, no more redundant

spending and a series of tax cuts for businesses and VAT holders will boost

internal demand and contribute in defining a rosier economic outlook for Italy".

     Asked whether markets will be willing to fund the higher deficit, Maniero

replied that "investors are interested in the solidity of our financial system,

which is reflected in Italy's credible state bonds" and supported by other

factors, too.

     "The fact that Italy's private debt, usually perceived as more risky than

public debt, is low, boosts market confidence," said Maniero.

     Another 5 Star Movement source suggested overall tax cuts could be in the

range of E3-5 billion, while E38 billion worth of public investments over the

next three years will focus on strategic infrastructure, lowering the digital

divide and boosting public-private partnerships through less red-tape and

greater allocation of resources. Another E15 billion, currently "frozen", have

already been allocated by previous cabinets and will be unblocked.

     "The spending cuts are now being identified and will come into effect as of

next year, when state expenditures will be made more efficient and public

tenders' procedures less rusty. This will also help to attract investors," said

the source.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

[TOPICS: MFIBU$,M$E$$$,M$I$$$,M$X$$$,MC$$$$,MI$$$$,MT$$$$,MX$$$$,MFX$$$,MGX$$$]