Italy’s new government plans to raise its deficit target for 2019 to around 1.4% of economic output against a goal of 0.8% drawn up by the previous administration, two sources said on Friday.
Economy Minister Giovanni Tria told parliament on Tuesday he thought the original 0.8% target was “too drastic” but gave no indication of where he thought the deficit should go, Reuters reported.
One of the sources with knowledge of the matter said: “The treasury aims to raise the 2019 deficit to 1.3 or 1.4% of GDP. This translates into a margin of around 0.6 percentage points of GDP.”
The increased deficit would provide some €11 billion ($13 billion) of additional spending capacity which would be used to help stave off the threat of an automatic increase in sales taxes because of previously missed deficit targets.
The previous center-left administration promised Brussels that Italy’s fiscal deficit would fall this year to 1.6% of GDP from 2.4% in 2017. The European Commission has asked Italy to lower the deficit by more, but Tria said on Tuesday that with the economy slowing there would be no additional belt-tightening for 2018.
A source said the planned rise in the 2019 target would be presented to the EU Commission “as a one-off increase that does not impact the structural deficit”. It remains to be seen how Brussels will react. Italy has repeatedly increased its deficit targets in recent years, while maintaining a downward trend and keeping the fiscal gap inside the EU’s 3% limit.
The approach has normally been treated indulgently, with the commission granting Rome so-called “flexibility” in interpreting its fiscal rules.
Think tanks are scaling back their forecasts for growth next year, which will complicate the treasury’s task in meeting its budget goals. Credit rating agency Standard & Poor’s on Friday forecast Italian 2019 growth of 1.2%, compared with the official goal of 1.4%.
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S&P cuts Italy’s 2019 growth forecast to 1.2%.
