MNI: Italy Democrats Pledge Tax Cuts In Vote Gambit

--Increased Pro-Growth Measures Also Lined Up To Win Back Support

By Silvia Marchetti

     ROME (MNI) - Italy's Democrat's have pledged up to E17 billion in tax cuts

and pro-growth spending measures to help win the March 4 elections by recovering

lost support and luring swing voters, Market News understands.

     Luigi Marattin, economic adviser to current premier Paolo Gentiloni and

co-author of the party's ambitious program presented Friday, said its impact on

public finances could be between E15 to E17 billion per year, an amount "totally

compatible with set fiscal targets and lower than the budget laws approved in

the past four years".

     The Democrats, the last party to outline their 2018 election manifesto, aim

to extend the current E80 monthly bonus given to 10 million low-earners, as

leader and former premier Matteo Renzi finally plays his trump card, hoping to

raise his party's support base and win over swing voters.

     According to the Democrat manifesto, a total of E9 billion will go into

funding "a universal family bonus" consisting of an extra monthly E240 tax

credit for each family for each child under-18 and monthly E80 for each child up

to 26. The bonus would be granted to all families with yearly income up to

E100,000 gross.

     The resources for this structural measure (it will not be 'one-off'), would

come from a greater spending leeway though dependant upon several factors,

explained Marattin.

     --DATA DEPENDANT

     Growth rates must be no lower than 1.5% over the next two years (even when

the European Central Bank's APP program ends), debt costs at 3% and structural

reforms pursued to curb public debt.

     "Our forecasts set a primary budget surplus for 2019 at 2.6% of GDP. If we

keep it at 2% we're also able to cut debt down to 100% over the next 10 years,

and if current macroeconomic conditions are maintained we're able to exploit

that extra 0.6% of GDP needed to fund the E9 billion family bonus measure," he

said.

     In anticipation of additional pro-growth measures, the government's 2018

budget has already increased spending targets modestly as a buffer against

potential after-shocks as APP ends, said Mauro Del Barba, a Democrat member of

the Senate budget committee.

     If the Democrats are successful in winning re-election, they would allocate

another E5 to E7 billion per year to fund crucial business taxes and labour cost

cuts, whilst also increasing support for private investments and technological

innovation. Further incentives to push companies to hire full-time employees are

also envisaged in the manifesto, alongside the extension of the monthly E80

bonus to all VAT holders.

     --TAX CRACKDOWN

     This second round of measures would be funded by additional revenues from a

crackdown on tax avoidance (up to E33 billion), public body spending cuts and

privatisation of state-owned companies, said Marattin.

     Marattin noted that pushing pro-growth measures was strictly linked to

pursuing fiscal adjustment paths, though with a certain leeway in timing. In

their program, the Democrats pledge to cut public debt from 132% this year to

100% over the next 10 years "gradually but stably".

     "Each year, investors lend us an average of E400 billion, yet what really

reassures markets is not the level of our debt but the fact that it is finally

on a downward trend," noted Marattin, who argued that only a "credible"

Democrat-led government would be able to boost confidence in the sovereign

issuer.

     The two main risks that could undermine such an ambitious debt target would

be additional austerity measures requested by Brussels and a failure by the ECB

to ensure price stability.

     But officials in Rome have brushed away both concerns, expressing

confidence that the ECB's 2% set target will be reached and that Europe will

"revise" some fiscal stances in the short term.

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

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