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MNI SOURCES: Next Italy Govt To Seek E10-15B Fiscal Leeway

By Silvia Marchetti
     ROME(MNI) - Italy's likely next government will seek additional fiscal
leeway of up to E10-15 billion from the European Union, on the grounds of slower
growth and the cost of both migrant relief operations and infrastructure
investments made this year, sources at the two potential coalition parties told
     Officials from the left-leaning Democrat Party and the 5-Stars Movement
said that if they clinch a deal to form a government by Wednesday they were
confident Brussels will be more "open" in granting extra fiscal space, allowing
Italy to avoid an automatic E23 billion increase in value-added tax it has
promised European authorities if it fails to raise revenue from other sources.
The departure of the eurosceptic League party and its combative leader Matteo
Salvini should favour relations, they said.
     "It's pretty obvious that with Salvini out of the way and no more daily
verbal attacks on the European institutions that Brussels will happily grant us
extra fiscal leeway, particularly given that Germany is also facing a technical
recession," said a source with ties to the Democrat party who is familiar with
budget issues. "The new commission seems to be taking a less austere approach",
     A source close to Eurogroup confirmed to MNI that relations between
Brussels and Rome may well improve.
     "While the new government will not fundamentally change anything, the
atmosphere certainly ought to be better and it will certainly be in the interest
of the Eurogroup to help them out," the source said.
     Separately, a European Commission official indicated that a large VAT hike
might have a detrimental effect on the Italian economy given very low growth and
added that that had never been something that the Commission had 'insisted' on.
     Other measures may have to found, the official said, but there would
certainly be flexibility against the backdrop of weaker growth in Italy and
across Europe, given the advent of a more pro-European Italian government.
     If the centre-left and 5 Stars strike a deal there would even be headroom
for tax cuts, though not as large as Salvini's promised E15 billion flat tax,
the Italian party sources said.
     "There would also be additional labour cost cuts and incentives to support
firms and investments", said another Democrat source.
     Budget resources would be primarily raised through a cut in public
expenditures and higher revenues, said a 5 Stars source familiar with the
     Roughly E7 billion are expected to flow into state coffers by the end of
this year thanks to the introduction of electronic invoicing, which has
permitted a crackdown on tax dodgers. An extra E3 billion in savings would come
from lower-than-expected costs from the 5-Stars' "citizens' wage" for the less
well off, which would be incorporated into an expanded version of the so-called
"social inclusion income" to support the jobless introduced by the former
Democrat government two years ago.
     Designated premier Giuseppe Conte is expected to announce between Tuesday
and Wednesday whether the two parties are able to form a government. Sources
close to former Democrat premier Matteo Renzi are confident a deal will be
struck. The 5-Stars founder, comedian Beppe Grillo, has also called for an
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: MFIBU$,M$E$$$,M$I$$$,M$X$$$,MC$$$$,MT$$$$,MX$$$$]

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