MNI: Italy Seeks EUR13-14 Bln From Taxes For 2024 Budget

The Italian government is considering limiting planned tax cuts or imposing new levies as it struggles to find EUR13-14 billion in revenues to balance its budget plans for 2024, when Europe’s fiscal rules are due to come back into force, governing coalition sources told MNI.

After being forced by a negative market reaction into watering down a windfall tax on banks announced earlier this month, the government is now considering whether to trim planned reductions in taxes on employment or raise taxes elsewhere, the sources said. Increasing Italy’s 2024 borrowing target by a few tenths of a percent of gross domestic product has not been ruled out, but the chances are small, one source said.

Meanwhile, additional spending cuts are off the table after the government announced a gradual end to the minimum-guaranteed income for 2024.

“We are not going to be able to do everything that we promised,” a finance ministry source told MNI, stressing that the government will update its fiscal projections when it updates its macroeconomic outlook in September.

Higher fiscal spending than expected in the first half of the year together with an economic contraction in the second quarter versus the Jan-March period are adding to the pressure at a time when Prime Minister Giorgia Meloni also faces a potentially expensive pension reform.

Meloni is also keen to avoid running foul of Brussels by increasing its borrowing plans just as Italy is both seeking approval for a revised National Recovery Plan which governs the spending of EUR200 billion in European aid and while the European Union debates reforms to the bloc’s fiscal rules. (See MNI: Italy Seeks To Avoid More NextGenEU Payment Delays)

In its macroeconomic outlook unveiled in April, the Italian government announced that it would close 2024 with a deficit of 3.7% of gross domestic product –above the 3% limit—but reducing the structural deficit by 0.7 percentage point. In Brussels, this was perceived as a commitment to follow EU rules.

ESCAPE CLAUSE EXPIRING

The government could opt for a temporary patch, as per its phasing-in of pension reforms, but will still have to find the resources to meet the 3.7% deficit target.

This year is the last before the so-called “escape clause” on the EU’s 3%-of-GDP limit on borrowing expires, and any breach of this from 2024 on would require formal procedures. (See MNI: Chances Rising Of Return To EU's Old Fiscal Rules IN 2024)

“An additional year with a suspension of the escape clause would help us in this moment”, a source close to Meloni told MNI, adding that they recognised this was not possible.

Some within the Italian government are arguing that any additional spending should be brought forward to this year, so that the country can meet its targets in 2024 while hoping that the EU’s new fiscal rules will be more relaxed from the following year. These voices though remain a minority, with other officials arguing that such a move would detract from Italy’s influence in the negotiation of the new rules for the Stability and Growth Pact.

The government still hopes to receive an additional EUR3.5 billion from its tax on the banks, and is working in parliament to “improve” the decree to make it more acceptable, one source said.