Italy budget talks get under way with investors on edge
TWO PARTIES IN RULING COALITION PLEDGE TO KICK OFF BOLD SPENDING PLANS NEXT YEAR
Italy’s government fired the opening salvo in what promises to be a fractious period of negotiations ahead of the 2019 budget, in a high-stakes process that’s already sparking investor concern.
As budget talks began in Rome on Friday, the two parties in the ruling coalition pledged to start implementing their bold spending plans next year, risking putting Premier Giuseppe Conte’s cabinet on a collision course with European Union partners. A spike in the yield of Italy’s €2.3-trillion ($2.7 trillion, Dh8.44 trillion) public debt on Friday showed how closely markets will be following the talks.
The budget discussions will be key to gauging whether Finance Minister Giovanni Tria will be able to withstand pressure from Conte’s political sponsors to deliver on their electoral promises. Tria has pledged to keep the deficit within the EU’s limit of 3 per cent of gross domestic product.
“We have agreed on the economic and financial planning that will be presented in September,” Conte said in a statement after meeting with Tria, Deputy Premier and Five Star Movement leader Luigi Di Maio, Foreign Minister Enzo Moavero, Europe Minister Paolo Savona and Cabinet Undersecretary Giancarlo Giorgetti. Conte gave no details on budget figures.
Flat tax
Cabinet Undersecretary Giancarlo Giorgetti, a representative of the League — a partner in the ruling coalition — who was at the meeting, said in interview with Italian daily La Stampa yesterday that he is confident that both flat tax and citizen’s income measures will be included in the budget law.
The government coalition has advocated populist economic policies that could cost over €100 billion (Dh425.34 billion). The Five Star leader’s priority is the citizen’s income proposal aimed at helping the poor, while the League wants the flat tax and limits on immigration.
The outcome of the meeting confirms that the government’s spending plans are “compatible” with current budget targets, Tria said in a statement.
Treasury officials will start working on a draft budget law, as Tria proposed on Friday, to finance the flat tax with a higher VAT, according to La Repubblica. A follow-up meeting is set for August 8, the newspaper said.
The government’s coalition agreement calls for sweeping fiscal measures. The anti-immigration League wants tax cuts for businesses and individuals while the Five Star Movement, Italy’s largest party, wants to introduce a so-called citizen’s income for the poor, with spending projected to rise as much as €120 billion in the first full year, according to calculations by Carlo Cottarelli, a former International Monetary Fund executive who nearly became premier himself.
Public finance targets
Italy’s government is due to set new public finance targets in late September, and to submit a draft budget to the European Union for review by October 15. The budget law will have to be finally approved by the Rome-based parliament by year-end.
In July, Tria told Bloomberg News in an interview that the government won’t pass any supplementary budget adjustments this year and will stay within the deficit and debt forecasts set by the previous administration.
That means a deficit of 1.6 per cent of GDP and a debt ratio of 130.8 per cent. Yet Di Maio confirmed on Thursday that the citizen’s income draft law will be presented to parliament “shortly.”