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REPEAT: MNI: Lega 2019 Budget Will Be Over-Expansive - Spox

MNI (London)
Repeats Story Initially Transmitted at 10:49 GMT Mar 14/06:49 EST Mar 14
--Populists Party Pledges Tax Cuts To Support Growth
--'Fiscal Multiplier Rule' To Boost Recovery, Consumption
--European Fiscal Parameters "Absurd": Lega Spox
By Silvia Marchetti
     ROME (MNI) - Lega, the party that now leads Italy's centre-right coalition,
has pledged to approve an over-accommodative 2019 budget if it leads a future
government, a budget that could even breach Brussels' strict fiscal rules if
needed, a senior official told MNI in an exclusive interview. 
     Claudio Borghi, Lega's economic adviser and a parliamentary deputy, said
his party would fund all necessary pro-growth measures and curb taxes, even if
the European Commission vetoed it.
     "Italy can no longer be the sacrificial victim of Brussel's constant
finger-wagging and fiscal paranoia. We're ready to boost public spending as much
as needed to support the ongoing recovery and boost consumption rates. Our next
budget will be totally the opposite of what Brussels expects and wants," said
Borghi.
     --PUSH-BACK ON BRUSSELS
     He argued that the 3% deficit-to-GDP threshold was not a sacrosanct
"untouchable rule" and that excessive fiscal austerity had only led to
counterproductive, "boomerang-like effects" on the eurozone economy. 
     "This 3% (deficit) rule is pure nonsense. It's a rigid parameter that
denies all growth logics. Public budgets in this current delicate economic phase
need anti-cyclical, expansionary policies to consolidate the recovery, certainly
not restrictive ones," he argued. 
     Instead of sticking to "absurd" parameters and feeding "Brussels' fiscal
frenzy" with the deficit and debt thresholds, Borghi suggested adopting the
fiscal multiplier rule whereby if government spending exceeds 1, it would boost
growth in the log term.
     "That's the only sound path to growth consolidation. Public expenditure has
a multiplier effect on the economy, consumers' purchasing power and firms'
investment levels, so the more a state spends, the more a country produces. At
the same time, by extension, higher GDP leads to a reduction in the debt and
deficit thresholds," he argued. 
     Lega won nearly 20% of votes and is the now largest party in the
centre-right coalition. Leader Matteo Salvini, a candidate for prime minister,
has stressed that he will be a pillar of the future government. In the aftermath
of the vote, Lega is resuscitating all of its original anti-European stances
dropped during the election campaign.
     Asked if he thinks Brussels will likely reject Italy's 2018 budget law,
Borghi replied that it did not concern Lega. "This year's budget has been
defined by the outgoing Democrat party, it's their responsibility. But we
promise that next year's budget, on which we will work if we do end up
governing, will be purely based on boosting expenditure, not curbing it".
     Lega's recipe to cut Italy's large public debt thus relies solely on
enhanced, "uncapped" pro-growth spending policies, he said. 
     --FLAT TAX
     Lega has made the introduction of a 23% flat tax a cornerstone of its
electoral program (though Salvini originally advocated a rate as low as 15%) and
has promised further fiscal incentives to support ailing businesses. 
     According to Borghi, even tax cuts have a fiscal multiplier effect. "True,
in the short run the state may have lower revenues, but in the long run this
stimulates the economy. It means citizens will spend that extra amount they've
saved on taxes to boost their consumption rate," he said.  
     "At the end of the day, the overall increase in GDP will be greater than
the initial incremental amount of public spending. And Brussels will just have
to acknowledge our strategy," added Borghi. 
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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