MNI INTERVIEW: Italy Budget To Keep Draghi Outline-Meloni Aide

The Italian government to be formed after general elections Sept 25 should base its first budget on blueprints left by Prime Minister Mario Draghi, and continue with reforms promised to Brussels, the chief economic advisor for the far-right Brothers of Italy party which polls suggest will lead a ruling coalition, told MNI.

The outgoing government will present a macroeconomic framework containing projections for 2023 growth, inflation and the fiscal deficit at the end of this month, and the timeframes established mean the next administration will have to keep its budget largely within these parameters, said Maurizio Leo, who advises Brothers of Italy leader Giorgia Meloni, widely tipped as Italy’s next prime minister.

“We want to be very cautious with the deficit and we don’t want a public expenditure problem,” Leo said in an interview, adding that one of the main economic objectives for a right-wing coalition would be to lower taxes, with a flagship measure being a 15% tax rate for the self-employed earning more than EUR100,000, to be funded by downsizing the existing EUR9 billion minimum guaranteed income scheme and by revenues from hidden money declared under tax amnesties.

These measures would be the first step towards introducing a flat rate for all taxpayers, a policy ambition shared across the right coalition, Leo said.

While the three right-wing parties have differences over the eventual design of a flat tax, and the nationalist League is also more prepared to countenance greater borrowing, with its leader Matteo Salvini calling for Italy to run a deficit EUR30 billion higher, outlines of agreement on areas including the elimination of small taxes in order to simplify the system have been published in a joint document.

Tax reform will be a key focus for a coalition government in 2023, said Leo, adding that there was room for the three parties to overcome their differences within their shared broad commitment to a similar vision for taxation.

COMMITMENTS TO BRUSSELS

Italy should also continue to meet commitments for economic reform made under its EUR190 billion NextGenerationEU programme with Brussels, unlocking further tranches, Leo said. While an incoming right-wing government would not try to negotiate major changes to the National Recovery Plan governing the use of the NextGenEU funds, it would ask the European Commission to allow projects to be modified and to increase some funding in line with inflation, he said.

The energy crisis in the wake of the Russian invasion of Ukraine calls for the focus of the Plan to be shifted away from digitalisation and green transition, Leo said, pointing to provisions for amendments in Article 21 of the EU’s Recovery and Resilience Facility.

“There is nothing wrong in discussing things with Europe. We will go there and see what scenario we find,” he said.

But, as meeting Recovery Plan targets are part of the eligibility criteria for the European Central Bank’s Transmission Protection Mechanism – a new facility meant to limit any blowout in eurozone bond spreads –, a Brothers of Italy-led government would strive to meet such criteria, he added.

Talks on reforming borrowing rules under Europe’s Stability and Growth Pact should lead to more flexibility for setting targets according to countries’ differing circumstances, and may even exclude certain spending, such as that for the green transition, Leo said.

“It needs more tolerance with high public debt. We are in good company here with France that has also a high public debt,” he said.

European officials have told MNI that the broad parameters of the SGP are unlikely to change, though more flexibility could be applied to individual debtor countries. (See MNI: Inflation Strengthens Hawks' Resolve In EU Debt Talks)