MNI: Italy Ups GDP Forecasts, 2018 Budget "Accommodative"

E10 billion to avoid VAT spike, boost investments and create job

By Silvia Marchetti

     ROME (MNI) - Italy's government intends to fund the crucial investments and

tax cuts to be approved in its upcoming 2018 budget out of the additional

resources at their disposal triggered by the brighter economic outlook, senior

Italian officials tell MNI.

     The newly revised fiscal document, dubbed DEF, raises previous GDP

forecasts for the next three years and allows greater leeway in spending to

boost growth-oriented measures. This newly revised fiscal document will be the

pillar of the 2018 budget, to be debated in parliament in coming weeks.

     "The next budget law is expected to have an impact of roughly E10 billion,

amounting to 0.6% of GDP, which will go into blocking an automatic VAT spike,

into supporting new youth jobs and public and private investments that are key

to making growth go from cyclical to structural," said a Treasury source.

     On Saturday, the Italian government raised its GDP outlook for this year to

1.5% from the previous 1.1% set in April, and to 1.5% for 2018-2019 from 1%. The

more positive outlook was largely from the impact of reforms currently underway,

expected to trigger a 9% GDP rise in the long-run.

     Considering the brighter outlook, deficit levels have been raised modestly

to allow more leeway. According to the fiscal document, it will remain at 2.1%

this year but rise to 1.6% by the end of 2018, up from the previously forecast

1.2%. It will be at 0.9% in 2019 and 0.2% in 2020, when the

medium-term-objective of a structural balance will be fully reached in

accordance with European rules.

     Compared to the April data, debt forecasts have been cut to 130% for this

year from previous 132.5%, to 130% in 2018 from 131%, to 127% in 2019 from

128.2%, and to 123.9% in 2020 from previous 125.7%.

     The government confirmed it will stick to its commitment to boost the

fiscal adjustment by cutting the structural deficit by 0.3% of GDP (instead of

0.8% as previously envisaged) between 2017 and 2018, as agreed with the European

commission this summer.

     "Thanks to our reform efforts and the ability to balance fiscal and growth

needs, for the first time in many years Italy's next budget law will be

accommodative to support the ongoing recovery and will contribute in further

cutting taxes," said Democrat Mauro del Barba, member of the Senate's budget

committee.

     Del Barba, despite arguing that the details of the next budget law still

needed to be set, said that the government would invest some of the additional

resources in funding measures already being discussed in parliament. These

include tax deductions for firms hiring youth on a full-time basis, more

technology investment tax credits for businesses, as well as a beefed-up fund

for the poor.

     Part of the additional resources, coming from state spending cuts and

higher tax revenues from the crackdown on avoidance, would also go into

strengthening public investments through a road-map aimed at identifying key

sectors of growth. According to the revised fiscal document, government spending

for public investments is set to increase by E4 billion in the next two years.

     "Higher growth translates into more money at our disposal to strengthen the

recovery. It is however essential that we target growth measures on specific

areas in order to make the best out of the extra spending leeway granted us,"

warned Ettore Rosato, Democrat party head at the Lower House.

     "The positive economic data is the proof that both firms and families have

confidence in what the government has been carrying-out these past years, and

consumer consumption is on the rise again. We cannot afford to lose such an

opportunity and fail to channel resources to the right spots," he added.

     Del Barba pointed-out that the benefits of growth had not yet reached all

segments of the economy, with the less well off missing out and youth still

struck by a high unemployment rate.

     "We need to exit this emergency phase in which many people are left out of

the recovery and the only way to do so is by making growth sustainable. For the

first time in fours years, we can set out a long-term perspective for the next

five years that will benefit our economic policy planning," said Del Barba.

     Democrat Giampaolo Galli, member of the Lower House budget committee, added

that more resources could be earmarked for so-called "Inclusion Income" in

favour of the poor, which envisages a fund expected to reach E1.8 billion per

year.

     The revised fiscal document is ahead of schedule and demonstrates that Rome

wants to send out a positive message to Brussels ahead of the budget that

parliament must clear by October 15, before forwarding to the European

Commission for the green light.

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

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