Economy

Italian cabinet due to approve budget as EU and markets fret

Plan to raise debt to fund basic income and earlier retirement draws ire in Brussels

Italian students protest in Rome against the policies of the right-wing Five Star Movement-League government. Photograph: Massimo Percossi/EPA

Gavin Jones
Mon Oct 15 2018 - 10:23

Italy's cabinet was due to meet later on Monday but the approval of the 2019 budget, which envisages a jump in the deficit that has upset financial markets and drawn criticism from the European Commission, has slipped to Tuesday.

The government, backed by the right-wing League and the anti-establishment Five Star Movement, has already issued the financial framework for the budget, raising the target for next year’s deficit to 2.4 per cent of gross domestic product.

The commission says the budget will push up Italy's public debt, which already amounts to 131 per cent of GDP, proportionately the highest in the euro zone

That is comfortably below the European Union's 3 per cent ceiling, but up sharply from a targeted 1.8 per cent this year, flouting EU rules which call on highly indebted countries like Italy to narrow deficits steadily towards a balanced budget. The reaction from Brussels has been fierce, with EU commissioners threatening to reject the package before even formally receiving it, triggering a war of words with the ruling parties in Rome.

With many aspects of the budget measures still to be defined, key government ministers met ahead of the full cabinet session set for the evening. But deputy prime minister Luigi Di Maio stayed away, reflecting what government sources said were tensions between his Five Star Movement and their ruling allies, the far-right League, over plans for a partial tax amnesty to be included in the fiscal decree, a separate law linked to the budget.

READ MORE

The commission says the budget will push up Italy's public debt, which already amounts to 131 per cent of GDP, proportionately the highest in the euro zone after Greece's. They rejected Rome's argument that the expansionary package would lower debt by boosting economic growth. The budget marks "a change of gear for Italy", prime minister Giuseppe Conte said on Sunday, adding that he was confident the EU would soften its stance after the government has had the chance to explain its growth strategy properly.

Deficit

Economy minister Giovanni Tria said last week the deficit would rise by €22 billion next year, with €37 billion in spending projects and tax cuts partly offset by €15 billion of extra revenues and spending cuts in other areas.

Ministers have said about €10 billion will be devoted to Five Star’s flagship policy of a basic income for the poor, while around €8 billion will finance a lowering of the retirement age. Less than €1 billion will go to fund tax cuts for the self-employed, a project championed in particular by the League.

After the cabinet approves the budget it will move on to parliament, where it must be passed before the end of the year. Despite international criticism and a sell-off of Italy’s government bonds, the budget is popular with Italians. A survey by pollster Demopolis last Friday showed 52 per cent backed the plan, compared with 38 per cent who were against it. – Reuters

LATEST STORIES