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Indebta > News > Italy’s fiscal deficit predicted to hit 5.3% of GDP this year
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Italy’s fiscal deficit predicted to hit 5.3% of GDP this year

News Room
Last updated: 2023/09/27 at 4:26 PM
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Italy’s fiscal deficit will increase to a higher than previously forecast 5.3 per cent of gross domestic product this year, Prime Minister Giorgia Meloni’s government predicted on Wednesday, as ballooning costs from a controversial tax break weigh on the country’s public finances.

The “Superbonus” scheme — which offered Italians a 110 per cent tax credit for house renovations to enhance energy efficiency and upgrade building exteriors — triggered a frenzied home improvement boom, helping to drive Italy’s rapid economic recovery from the Covid pandemic. 

But the scheme has come at a soaring cost to the public exchequer, with Meloni estimating the total bill at about €140bn. A fierce critic of the Superbonus, she has moved to restrict the scheme since taking office last year. 

“The numbers speak for themselves,” Meloni told state television last week. “A €140bn hole — money taken away from the health system, education and pensions — to renovate second homes and even castles.”

Italy’s fiscal deficit target for this year had been 4.5 per cent of GDP, but was increased to 5.3 per cent in a financial framework approved by Meloni’s cabinet on Wednesday.

While acknowledging that this year’s fiscal hole will be far larger, the government also raised the 2024 deficit target to 4.3 per cent of GDP, up from 3.7 per cent previously.

The government also pared its economic growth forecasts for this year and next, reflecting wider woes of other eurozone nations and the higher cost of borrowing following interest rate rises by the European Central Bank.

It now estimates that Italy’s GDP growth will be 0.8 per cent this year, compared to 1 per cent previously.

The government cut its 2024 GDP growth forecast to 1.2 per cent, from 1.5 per cent earlier.

The revisions to GDP growth and deficit forecasts are part of an update of the financial framework that the government had laid out in April, and will form the backdrop for next year’s budget. Details are due to be unveiled next month.

In trying to draft the budget, Meloni’s three-party, rightwing coalition faces a tough balancing act, seeking to reassure global markets that it is maintaining fiscal discipline while starting to fulfil its electoral promises to cut taxes.  

Italy’s finance minister Giancarlo Giorgetti has lamented that the ECB’s recent rate rises will cost Italy — which has a public debt-to-GDP ratio of more than 142 per cent — an additional €15bn in interest costs.

But Giorgetti has said that it is the spiralling expense of the Superbonus scheme — started by a previous coalition led by the populist Five Star Movement — that is complicating matters for the current government, leaving it little fiscal space for other undertakings. 

“When I think of the Superbonus, I get a stomach ache,” the minister told a business audience this month. “It paralyses economic space and leaves little room for other measures.”  

Investors are wary as they wait to see how the government will cope with the various pressures that it faces.

This week, the difference between German and Italian bond yields — a key measure of market sentiment towards Europe’s most indebted major economy — rose above 190 basis points for the first time since May.

Additional reporting by Giuliana Ricozzi in Rome

Read the full article here

News Room September 27, 2023 September 27, 2023
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