Italy’s Fiscal Plans

By Giuseppe Fonte

ROME (Reuters) – Italy is set to confirm its commitment to reduce the deficit-to-GDP ratio below the European Union’s 3% ceiling by 2026, as part of the Treasury’s upcoming medium-term structural budget plan, expected to be presented by mid-September, according to sources familiar with the matter.

Italy was placed under an Excessive Deficit Procedure by the EU this year, prompting the need for a new budget framework to align with EU fiscal prescriptions and reforms. This procedure mandates Italy to decrease its structural budget deficit (excluding one-off factors and business cycle fluctuations) by 0.5% to 0.6% of GDP annually.

New fiscal regulations will require gradual deficit and debt reduction starting in 2025, over four to seven years. Sources indicated that Italy’s deficit remains aligned with budget estimates from April and May, where the government projected a reduction in the fiscal gap from 4.3% this year to 3.6% in 2025 and 2.9% in 2026, despite current trends showing slightly higher levels.

Italy’s deficit for 2023 is reported at 7.4% of GDP, the highest in the euro zone, attributed to significant incentives for energy-saving home improvements, known as the Superbonus.

The structural budget plan, which sets the framework for the 2025 budget, must be submitted to EU authorities by September 20.

Despite the commitment to reduce the deficit, Prime Minister Giorgia Meloni’s government has expressed intentions to extend temporary social contribution cuts and tax reductions for individuals earning up to 28,000 euros ($31,125) through 2025. These measures, already in place until December, will cost around 15 billion euros if extended.

Additionally, reports suggest the government is working on another package of tax cuts for individuals earning up to 60,000 euros. However, details about financing these measures remain unclear.

Meloni is scheduled to meet with her coalition’s key members on Friday to discuss the budget plans. ($1 = 0.9001 euros)