MNI SOURCES: E20Bln Boost Seen To Italy Economy From Budget

--E4-5 Billion Earmarked For Growth Measures, E15 Bln For 'Tax Cuts'

By Silvia Marchetti

     ROME (MNI) - As Italy's parliament prepares to discuss the upcoming 2018

Budget, policy-makers are focused on finding resources to cut taxes and fund

crucial growth-oriented measures to support the ongoing recovery, Market News

understands. 

     Leading officials told MNI that roughly E15 billion is expected to go into

stopping an automatic VAT increase, while a further E4-5 billion will go towards

supporting investment and new job creation. The overall impact of the budget,

initially estimated at E10 billion, may rise to over E20 billion.

     "We have already allocated E10 billion thanks to the additional 0.6%

deficit leeway this year from the higher predicted growth of 1.5%, but still

need to find an additional E5 billion to entirely cover and thus avoid the VAT

spike, and of course to fund growth measures," a senior Treasury source told

MNI.

     The source explained that blocking the automatic VAT rise would trigger a

deficit in tax revenues of E15 billion, adding though that this would be

counterbalanced by higher revenues from tax avoidance crackdowns and the greater

2018 fiscal leeway granted by Brussels for reform efforts. 

     Another leading government official said the budget law would be be focused

on three growth-oriented pillars that could be funded with an additional E4-5

billion.

     The first pillar is supporting employment. "We're considering introducing

tax credits for businesses hiring young workers to cut down on the high youth

joblessness, through labour tax deductions of up to 50% for the first three

years". 

     The second pillar concerns further extending tax deductions for firms

buying new materials and plants, of up to 250% of the total investment, so to

lower tax pressure on key investments, the source explained. 

     According to Democrat Giampaolo Galli, member of the Lower House Budget

Committee and a former director at Italy's top industrial lobby Confindustria,

"measures in this field would also focus on boosting resources to support the

so-called 'Industry 4.0' scheme" recently launched by government. 

     "It's crucial to give firms the necessary tools to be more competitive, and

this is possible through more tax incentives for firms investing in research,

high-tech, innovation and in updating workers' know how and skills to meet

higher standards," Galli said. 

     The third growth-oriented pillar is re-launching public investments through

clearer public tender rules, easier planning and the more efficient allocation

of disposable resources for crucial projects. 

     "In 2016, local bodies left some E6 billion worth of public resources

untouched  simply because they did not use the money for what it had been

allocated  -- investments. We need to exit this stalemate and gain the necessary

know-how to invest and carry out projects," the Italian government official

said. 

     Also, extra, but limited resources would go into the renewal of public

employees' contracts and in boosting the integration fund for the poor. 

     The government is expected to select key budget areas of intervention by

October 10, but the final decision would only be made late in the process as

Italy is already in a pre-electoral campaign mood that is complicating the

political outlook. 

     Another source close to the government noted that the Budget's final

definition could take months, noting that by October 15, Rome will forward to

Brussels only an initial budget draft for the initial green light. Then the

parliamentary approval process, with delays and amendments, would end early

December when the budget law will be finally passed.

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

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