Renzi Pushes corporate Tax Cut, Investments

Italian Prime Minister Matteo Renzi’s cabinet passed a budget law that includes a corporate tax cut and measures to boost investments in an effort to revive political support and economic prospects ahead of a key constitutional referendum in early December.

“Italy isn’t going well yet, but after two and a half years it’s going a bit better than before,” Renzi told reporters in Rome Saturday, after the cabinet approved the 2017 law that must pass the Italian parliament by year-end. The tax cuts “are very important for small companies” and the money “isn’t going to bankers, it’s going to small and medium businesses and artisans,” Bloomberg reported.

As he faces a Dec. 4 referendum that could mark the end of his government, Renzi needs to maintain the budget discipline requested by the European Commission while pushing through measures to restart economic growth. To do so, he set a deficit target of 2.3% of gross domestic product, lower than this year’s 2.4%, though higher than previous estimates.

It’s a compromise to appease the European Commission which will review the budget and wants Italy to control its deficit. Renzi said the extra flexibility on deficit will cover spending related to migrant flows and a recent earthquake in central Italy.

The budget law includes, among other measures, a reduction of corporate tax (IRES) to 24% from 27.5%, a boost to public investment, increases to lower pensions, and extra money for towns willing to host migrants. The government targets 1% economic growth next year.

On Thursday, the country’s central bank called on the government to pass budget-law measures aimed at ensuring that its growth targets for 2017 are viable.

Italy’s debt, the second-biggest in the euro region as a percentage of GDP, fell to €2.22 trillion ($2.46 trillion) in August, after reaching a record high of €2.25 trillion the previous month.