MNI INTERVIEW: Lega 2019 Budget Will Be Over-Expansive - Spox

--Populists Party Pledges Tax Cuts To Support Growth

--'Fiscal Multiplier Rule' To Boost Recovery, Consumption

--European Fiscal Parameters "Absurd": Lega Spox

By Silvia Marchetti

     ROME (MNI) - Lega, the party that now leads Italy's centre-right coalition,

has pledged to approve an over-accommodative 2019 budget if it leads a future

government, a budget that could even breach Brussels' strict fiscal rules if

needed, a senior official told MNI in an exclusive interview. 

     Claudio Borghi, Lega's economic adviser and a parliamentary deputy, said

his party would fund all necessary pro-growth measures and curb taxes, even if

the European Commission vetoed it.

     "Italy can no longer be the sacrificial victim of Brussel's constant

finger-wagging and fiscal paranoia. We're ready to boost public spending as much

as needed to support the ongoing recovery and boost consumption rates. Our next

budget will be totally the opposite of what Brussels expects and wants," said

Borghi.

     --PUSH-BACK ON BRUSSELS

     He argued that the 3% deficit-to-GDP threshold was not a sacrosanct

"untouchable rule" and that excessive fiscal austerity had only led to

counterproductive, "boomerang-like effects" on the eurozone economy. 

     "This 3% (deficit) rule is pure nonsense. It's a rigid parameter that

denies all growth logics. Public budgets in this current delicate economic phase

need anti-cyclical, expansionary policies to consolidate the recovery, certainly

not restrictive ones," he argued. 

     Instead of sticking to "absurd" parameters and feeding "Brussels' fiscal

frenzy" with the deficit and debt thresholds, Borghi suggested adopting the

fiscal multiplier rule whereby if government spending exceeds 1, it would boost

growth in the log term.

     "That's the only sound path to growth consolidation. Public expenditure has

a multiplier effect on the economy, consumers' purchasing power and firms'

investment levels, so the more a state spends, the more a country produces. At

the same time, by extension, higher GDP leads to a reduction in the debt and

deficit thresholds," he argued. 

     Lega won nearly 20% of votes and is the now largest party in the

centre-right coalition. Leader Matteo Salvini, a candidate for prime minister,

has stressed that he will be a pillar of the future government. In the aftermath

of the vote, Lega is resuscitating all of its original anti-European stances

dropped during the election campaign.

     Asked if he thinks Brussels will likely reject Italy's 2018 budget law,

Borghi replied that it did not concern Lega. "This year's budget has been

defined by the outgoing Democrat party, it's their responsibility. But we

promise that next year's budget, on which we will work if we do end up

governing, will be purely based on boosting expenditure, not curbing it".

     Lega's recipe to cut Italy's large public debt thus relies solely on

enhanced, "uncapped" pro-growth spending policies, he said. 

     --FLAT TAX

     Lega has made the introduction of a 23% flat tax a cornerstone of its

electoral program (though Salvini originally advocated a rate as low as 15%) and

has promised further fiscal incentives to support ailing businesses. 

     According to Borghi, even tax cuts have a fiscal multiplier effect. "True,

in the short run the state may have lower revenues, but in the long run this

stimulates the economy. It means citizens will spend that extra amount they've

saved on taxes to boost their consumption rate," he said.  

     "At the end of the day, the overall increase in GDP will be greater than

the initial incremental amount of public spending. And Brussels will just have

to acknowledge our strategy," added Borghi. 

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

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