MNI INSIGHT: Italy 2018 Budget Law To Aim At Job Creation

--Budget Will Also Aim To Meet Current Fiscal Targets

--"Very Probable" Government To Raise Previous Growth Forecasts

By Silvia Marchetti

     ROME (MNI) - Italy's 2018 budget will have the double objective of boosting

the ongoing economic recovery through growth-oriented measures aimed at creating

new jobs while pursuing its current fiscal targets, Market News understands.

     Several top officials told MNI that even though it is "very probable" that

previous growth forecasts could be raised, "available resources are limited" and

therefore the upcoming budget document is expected to focus on four main

priorities.

     The measures are those to support youth employment through tax cuts for

hiring firms, the renewal of public employees contracts, refinancing of

international missions and funds to block automatic VAT spikes.

     "Despite a brighter economic outlook, we must not forget that we are moving

along a narrow path that forces us to concentrate on growth-oriented measures

that support the recovery and curb youth joblessness. But at the same time it's

crucial to send the message that Italy continues to further stabilize public

finances," a Treasury source told Market News.

     The International Monetary Fund, the Bank of Italy, Italy's statistics

office ISTAT and even rating agency Moody's have all recently raised country

growth forecast for this year well beyond the government's predicted 1.1%.

     Yet the whole point is whether the budget, given the brighter outlook, will

be expansive thanks to rosier growth or keep tight to meet crucial fiscal

commitments. Political parties and trade unions are gearing up for discussion

with the government to discuss budget measures.

     "We believe there are grounds to raise our forecasts later in September

when we will approve a revised fiscal document with fresh economic data. It is

very possible, but it is too soon to give any figure and above all, that does

not mean we will have more funds available for the budget document," warned the

source.

     The "limited resources" at hand suggest that the next budget might not be

as accommodative as trade unions and low earners hope. In a recent interview to

local press, Deputy Economy Minister Enrico Morando said the budget law could

have an impact of roughly E12 billion, which is well beyond that of budgets

approved in past years.

     The schedule is tight: the government must approve it by October 15, send

to parliament for clearance and then forward to the European Commission for

final approval.

     "Even if our economy has shown some great results lately, this does not

mean that we have more leeway in spending. We cannot afford to to do too many

things and must target our resources to meet fiscal goals," the Treasury source

added.

     Lowering taxation for firms hiring unemployed youth and pursuing fiscal

adjustments remain paramount, specifically sticking to the commitment of curbing

structural deficit by 0.3% this year.

     "We have pledged this to Brussels in a formal letter, and we will stick to

this target", said a second source, who ruled out increased growth leading

eventually to greater deficit cuts "given that 0.3% is part of an agreement".

     Brussels has already granted the government a "discount" on how much

structural deficit could be trimmed this year, added the Treasury official, down

from a previous request of 0.8%, in consideration of the reform efforts and the

improved overall country evaluation.

     "Also, it would be counter-productive to increase our fiscal effort just

when growth is picking up as it would stifle the recovery," said the official.

     Italy's leading industrial lobby, Confindustria, has called for "targeted

and efficient measures" in the budget to create new jobs, by allowing the hiring

of roughly 900,000 youth through a 3-year labour tax cut favouring firms willing

to take on staff.

     Democrat deputy Giampaolo Galli, member of the Lower House budget

committee, warned that the top priority of the 2018 budget must be to further

stabilize public finances, by accelerating the target of a structural balanced

budget that government has set for 2020.

     Galli argued that finally having a healthier country after the triple-dip

recession meant its fiscal adjustment capacity was also stronger.

     "I wonder what will happen if the government does raise growth forecasts

for this year and the following ones. This could trigger a different outcome

actually: a higher GDP could, and maybe should, translate into a greater

structural deficit reduction," he said.

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

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