(Bloomberg) -- Premier Giorgia Meloni’s government plans to get Italy’s deficit down to 2.8% within two years, according to a new fiscal plan which also pencils in a potential pre-election spending boost.
With the country now in a special European Union monitoring regime to ensure its debt becomes more sustainable, numbers released by the finance ministry show the budget shortfall comfortably under the bloc’s 3% limit in 2026.
Net expenditure growth — a gauge watched closely by Brussels that measures annual increases in spending minus interest costs — is still seen rising continuously. It will peak at 1.9% in 2027, when Meloni would complete her five-year term and hold an election, assuming her coalition can last that long.
The cabinet signed off on the public-finance plan earlier on Friday, paving the way for its submission to the European Commission. The numbers show the outline that Finance Minister Giancarlo Giorgetti will use in the 2025 budget due next month.
Officials need about €25 billion ($28 billion) to cover various promises to voters including a costly €10 billion wage tax cut.
The government has been looking at various sources of extra income including asset sales, intensified cost cuts, delayed retirement measures and some form of contribution from companies that benefited from high interest rates.
One boost for Meloni and her colleagues came from an accounting revision announced earlier this week, which resulted in a bigger measurement of nominal output in the euro zone’s third-biggest economy.
That noticeably lowered its debt as a percentage of gross domestic product by almost 3 percentage points for 2023. The new plan shows that it remains on a rising trajectory and will peak in 2027, later than previously anticipated.
This year’s deficit will be 3.8%, down from a prior estimate of 4.3%. For 2025, officials envisage it narrowing further to 3.3%, before then falling thereafter below the EU ceiling.
While Italy has the largest debt pile in Europe after Greece, financial markets have not been overly concerned about its finances.
That’s all the more noticeable at present, given intensified scrutiny on France, where investors this week began demanding a higher risk premium on its bonds than neighboring Spain.
The extra yield on Italian 10-year bonds over equivalent German paper — a closely-watched gauge of Italian risk — has been relatively stable this year. It has rallied to 130 basis points, close to its tightest levels over recent months.
Meloni has prioritized the duration of her government, often stating her ambition to last a full term, in contrast to the political instability that has long plagued the country. The plan for spending growth suggests she reckons that’s achievable, even against the backdrop of a fractious coalition.
The alliance last month stressed its unity and its determination to carry on “for the duration of the legisature” after a meeting that touched upon the public finances.
©2024 Bloomberg L.P.
