Italy’s ruling populist government published a 2019 budget proposal last week which would see the budget deficit rise to 2.4 percent, just shy of the three percent threshold and three times greater than the previous administration’s targets.
The budget intends to deliver on key campaign promises, which includes the pledge to cut income and corporate tax, as noted by the leader of the far-right Lega party, Matteo Salvini.
Luigi Di Maio, leader of the anti-establishment 5-Star Movement, also vowed to introduce a minimum income for the poor in order to “abolish poverty”.
Lorenzo Codogno, former chief economist and director general at the Italian Treasury Department, has criticised the Italian government’s “expansionary model” and warned that no attempt had been made to balance the budget.
He said: “The targets disregard the European and domestic fiscal framework, with a structural deterioration to the tune of 0.7 percent – the worst deterioration on record for countries in the preventive arm of the Pact.”
In a stark warning, he added: “More importantly there is no attempt to reach a balanced budget within the next three years.”
He warned the government’s spending splurge will leave the country searching for €23billion in financing.
Pointing to the added expenditure within the latest budget, he noted: “Tentatively, €12.4billion will be used to cancel VAT increases; €1.5billion to pay back investors who lost their money in bank restructuring/resolution; €8billion for the rolling back of the pension reform and allowing early retirement for 400,000 workers; €10billion for the citizenship’s income for about 6.5million people resident in Italy for at least 10 years; and finally €3.5-4.5billion for lower taxes.”
The plans have already drawn sharp criticism from EU chiefs, with Commission President Jean-Claude Juncker warning Italy’s breach of EU rules threatens the euro’s existence.
He also raised the concern of a future bailout package for Italy, drawing a comparison with Greece.
He said: “Italy is distancing itself from the budgetary targets we have jointly agreed at EU level.
“I would not wish that, after having really been able to cope with the Greek crisis, we’ll end up in the same crisis in Italy.”
Mr Salvini nevertheless responded defiantly, saying: “The European Commission President Juncker, by equating Italy with Greece, sends the spread gap crazy. He could have spared us that.
“He should drink two glasses of water before opening his mouth, and stop spreading non-existent threats. Or we’ll ask him for damages.”
The Italian government is now obliged to send its draft budgetary play to Brussels by October 15, with the actual budget being published by October 20.
The European Commission will then issue a response by October 22.
Mr Codogno warned the EU will likely report they are “worried about developments” and will offer a further week for adjustments, which is expected to be rejected.
The former official stated: “Most likely, the government will insist with its original targets and budget, and thus by October 29 there will be an official rejection by the Commission.”
Mr Di Maio has indeed already rejected calls for the government to amend their budget, stating: “We are not turning back from that 2.4 percent target, that has to be clear; we will not backtrack by a millimetre.”
Mr Codogno consequently warned the EU could implement sanctions against Italy “as a last resort” in the event on non-compliance.
The European Commission may also take its first measures to pushing Italy into excessive deficit procedures before the end of the year.