• EU.Italy challenges Brussels and raises pressure on the risk premium

The Italian Council of Ministers approved on Monday an update of the Economy and Finance Document (DEF), which marks the economic policy that the Transalpine Executive will follow in the coming years, which contemplates a 2.2% deficit for 2019 and 2020, one tenth more than promised to the EU. The Government of Prime Minister Giuseppe Conte confirmed that the transalpine country will have expansive budgets but without neglecting the objective of reducing public debt that in 2018 exceeded 134% of the Gross Domestic Product (GDP).

DEF is a three-year text that includes measures that Parliament must later convert into laws. The main objective of the Giuseppe Conte Executive was to find the 23,000 million needed to neutralize the VAT increase. To this end, the Government announced that it will allocate almost 29,000 million euros to the budget plan, of which more than half correspond largely to measures against tax fraud and the review of public spending. "We will never solve the problems of this country if we do not end tax evasion," said Economy Minister Roberto Gualtieri, presenting the document at a press conference.

Among the main novelties included in the text, the introduction of a kind of prize to encourage Italians to use credit and debit cards and abolish the use of cash in a country where only 14% of purchases are made by card, according to a report by the European Central Bank.

The objective of this measure is to avoid the tax evasion that each year costs the transalpine country about 100,000 million euros, of which about 35,000 million for unpaid VAT, according to estimates by the Italian Ministry of Economy. The hypothesis that the Government is studying is to restore up to 475 euros to taxpayers who spent the previous year up to 2,500 euros in card purchases. The Transalpine Executive calculates that the measure will allow recovering about 4,000 million euros.

The recent alliance of the Five Star Movement and the Democratic Party has updated the macroeconomic picture advanced by the previous Executive, which set a growth of 0.8% by 2020, a deficit of 2.1% of GDP and a debt of 131, 3%. Regarding the deficit, the Italian Government now estimates that the threshold will fall from 2.2% set for 2020 to 1.8% in 2021 and 1.4% the following year. Specifically it means more than 14,000 million euros additional. A flexibility in the public accounts that Italy hopes to obtain thanks to the improvement of relations between Rome and Brussels, a year after the previous cabinet challenged the EU with ambitious budgets that raised the country's deficit ignoring the European Stability Pact .

"We are convinced that we can change the economic policy with the next Budget Law and that an opportunity has been opened to design incisive reforms and relaunch the Italian economy," said the Transalpine Economy Minister. In the coming weeks the Italian Government will send to Brussels the draft of the General Budgets that must be approved in Parliament before the end of the year.

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