Thu. Dec 1st, 2022

Italy’s new government, led by Prime Minister Giorgio Meloni, signed a new budget on Tuesday with a 35 billion euro spending plan and fiscal policies that appear to be intended to avoid a collision with Brussels.

The recently appointed prime minister hopes the spending boost will spur a faster recovery in the eurozone’s third-largest economy, which the Finance Ministry has predicted will shrink in the current quarter and the first quarter of next year.

The new budget plans were approved at 12:30 a.m. Tuesday by Melonia’s cabinet after a three-hour conference, her office said. The law will now be put to a vote in parliament, which must adopt it before the end of the year.

Part of the budget plans include a tax cut for the self-employed by increasing the single tax rate of 15% from an annual income of €65,000 to €85,000, cutting VAT on certain basic goods by half and conditionally lowering the retirement age to 62, provided that individuals have paid contributions for at least 41 years.

Tackling skyrocketing energy prices was high on Meloni’s list of priorities during the election campaign, and is indeed the centerpiece of the package. Next year, it allocates more than 21 billion euros to help companies and households pay their bills.

The plan further limits the “reddito di cittadinanza” (‘citizen’s income’) poverty reduction scheme, which has been heavily supported by the populist Five Star Movement party, with the aim of ending it entirely by 2024. Meloni and others in her coalition have often criticized the program, comparing him with “methadone”, a popular painkiller, and accusing him of encouraging laziness.

Among the more controversial budget measures are plans to restart a state-owned company aiming to build a bridge between Sicily and the Italian mainland — a long-standing right-wing aspiration rejected by parliament 16 years ago — as well as an amnesty for tax debts of up to €1,000 from before 2016 Critics argue that such amnesties, which are not uncommon in Italy, encourage people not to pay taxes

The measures amount to almost 35 billion euros, and Rome plans to finance about 60% of the package by increasing the budget deficit for next year to 4.5% of gross domestic product (GDP) from the 3.4% forecast in September, as well as from the windfall tax on energy companies .

Such a budget deficit figure could be above the traditional EU deficit ceiling of 3%, but it does not seem too outlandish for a high-debt country and should allow the spread between Italian and German 10-year government bonds to remain close to the current 190 basis points – – far below the peak of the crisis in the eurozone.

While Meloni’s election raised eyebrows in the EU institutions — the prime minister is often described as a “Eurosceptic” thug, a label she rejected in an interview with Euronews earlier this year — some concerns may have been eased now that her a government willing to rein in its spending plans and align itself with a more Brussels-friendly line.