MNI SOURCES: Italy Sees E3B+ Savings From Spending Review

By Silvia Marchetti

     ROME(MNI) - An Italian government spending review key to its hopes of

meeting budget deficit targets agreed with the European Union should raise at

least E3 billion, thanks mainly to digitalisation, top officials told MNI.

     "If things go well, we could raise even more than E3 billion, but for now

let's keep our feet on the ground," said a high-level source familiar with

budget issues.

     In a draft 2020 budgetary plan submitted to the European Commission, the

Italian government said it aimed to keep its budget deficit stable at about the

same level as this year's expected 2.2% of gross domestic product. The plan

forms the basis for a budget law being drawn up by the governing coalition

between the centre-left Democrat Party and the populist 5-Stars Movement, which

must be approved by parliament by the end of December. The budget factors in a

crack-down on tax dodgers, but also cuts labour taxes while still avoiding a

E23-billion increase in value-added taxes.

     In a letter to the European Commission Oct. 23 in response to concerns over

potential deviation from EU rules on debt reduction, the government said it

would stick to its target and that a spending review would save more than 0.1%

of GDP. The Italian government now thinks these cuts could bring in E3 billion

or more, the source said.

     --PREVIOUS PLAN 'UNREALISTIC'

     Officials expect the Commission to approve the plan, despite a slightly

higher deficit than foreseen under Italy's previous government, which included

the far-right League and collapsed in August.

     "The previous government had forecast roughly E5-6 billion in savings from

an overly ambitious and unrealistic spending review. If we do that and miss the

target, it could have a boomerang effect and send out a very negative message

both to investors and observers in Brussels," said the official, close to the

Democrats, who have all top economic jobs in the coalition.

     According to a source close to the 5-Stars Movement, most spending review

savings would come from public digitalisation and cutting down on red tape.

     "State computerisation has enormous potential if well implemented. A minor

part (of the spending review) would be savings derived from cuts to state bodies

and ministries, though to a lesser degree," added the 5 Stars source.

     Reductions in state employees' pay and bonuses are also envisaged. "We're

well aware that we cannot expect significant resources here, but these are still

baby steps to further stabilise our budget."

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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