Italy’s seven-year budget plan approved amid criticism

The government's medium-term structural budget plan, which aims to manage debt and build fiscal credibility, was approved by lawmakers on Wednesday despite opposition criticism of over-optimistic growth forecasts and vague financing details.

On Wednesday, the Italian parliament and the country’s senate approved the new economic programming document, which sets out the financial targets and outlook for the next seven years.

The majority's unified proposal was adopted for the fiscal document required by the Stability Pact reform, while the five alternative proposals of the opposition parties were rejected.

"We approach every budget with the burden of debt and its related costs and interests, and I envy my European colleagues whose debt levels are half of ours," said Economy Minister Giancarlo Giorgetti in a speech to the Chamber of Deputies in response to the debate on the draft budget.

According to the Bank of Italy's latest September estimates, Italy's public debt stands at €2.946 trillion.

"When I constantly repeat the mantra of prudence, responsibility, and caution, some say 'he’s like a broken record.' No, it's not a broken record because I want to build credibility for this government and for this country, credibility that has allowed us to reduce the spread of Italy’s public debt by 100 basis points," Giorgetti added.

The government's growth target is around 1%, a figure described as overly optimistic in recent hearings.

The Bank of Italy expects GDP growth of 0.8% in 2024, and the parliamentary budget office also expressed scepticism, calling the 1% target highly uncertain.

"The plan outlined in the structural budget plan is not without risks," Italy's statistics office, Istat, said during a parliamentary hearing on 8 October.

First, the plan relies on increased revenues expected in 2024, “implicitly assuming they will be fully permanent,” and warns that making cuts to workers' contributions permanent could negatively impact pensions.

On the same day as the hearings, the parliament’s budget office raised concerns about the lack of detail on funding sources. Beyond the €9 billion deficit spending, the plan provides only "general" information on other coverage.

Giorgetti also sent a message to the European Central Bank (ECB) on interest rate cuts.

“I recall that when we took office, the ECB rate was 0.75%. We've governed for two years with rates at 4%, so the impact we achieved on the spread has been wiped out by conditions beyond our control. Now a path of rate reductions has begun, and I hope it proceeds as quickly as possible,” he wrote.

He expressed the hope that a rate reduction “will eliminate the most burdensome expense we face: the interest payments we are forced to make. Only then will there be resources to give a decisive and historic boost to the country's growth.”

The plan outlines several key measures that the upcoming budget law must include. First, it calls for the effects of the labour tax cut to be permanent and for income tax brackets to be consolidated. In addition, the plan stresses the need for initiatives to support families, especially larger ones, and to promote parenthood, including efforts to reconcile work and family life.

It also stresses the importance of allocating resources to continue renewing public sector contracts. In addition, the plan emphasises the need to fund health expenditures and ensure that public investment remains consistent with the levels recorded during the implementation of the National Recovery and Resilience Plan (NRRP).

The opposition was quick to criticise the plan and the government. Senator Francesco Boccia of the Democratic Party (PD) called for greater clarity on future sacrifices and questioned the government's economic growth forecasts as unrealistic.

Azione leader Carlo Calenda accused the government of hypocrisy, pointing to the majority's changing stance on relations with Europe. Matteo Renzi, meanwhile, spoke of "unfulfilled promises" and stressed the need for reforms to meet the country's future challenges.

(Alessia Peretti | Euractiv.it)