(Bloomberg) -- Premier Giorgia Meloni’s government faces a last-minute rush to find new ways of raising revenue as it seeks to fund promised giveaways to Italian voters, according to people familiar with the matter.
With a deadline of Tuesday evening to deliver a 2025 budget in line with European Union rules, Finance Minister Giancarlo Giorgetti is looking at imposing a higher tax bracket on some company profits to make up for a shortfall of about €9 billion ($9.8 billion) in its plans, said the people, who declined to be identified because discussions on the matter are private.
The race to the finish for an annual fiscal plan that has been weeks in the making reflects the difficulty in notching up a total of €24 billion to meet the coalition’s generous pledges to voters, while also putting the public finances on a path toward improvement.
Italy is among countries that have been placed in a special monitoring regime by Brussels officials for running deficits far in excess of the bloc’s 3% of output limit. So far, in contrast to the investor alarm that has surrounded France in recent weeks, its southern neighbor has placated financial markets.
Earlier on Friday, the spread between Italy’s 10-year bonds and those of Germany — a key measure of risk in the region — touched 127 basis points, the lowest since July.
The key challenge faced by the coalition is delivering on its promise to stick to a wage tax cut worth €10 billion. Giorgetti confirmed earlier this week that the government will do that, along with reducing income tax brackets and channeling money toward families and health.
To pay for all that, officials are thinking of ways to increase revenue from the current digital services tax, and raise state estimates of house values which are used to calculate property levies, the people said. They added that the government also wants to continue selling small stakes in state companies and to try to cut costs.
What Bloomberg Economics Says...
“Delivering fiscal consolidation of 0.5% of GDP in each of the next seven years will be extremely challenging, especially in the context of the government’s costly campaign-trail pledges. Without an economic and fiscal revolution, debt is more likely to rise than fall in the medium term.”
—Simona Delle Chiaie, senior economist. For her ITALY INSIGHT, click here
A finance ministry spokesperson, questioned on the matter, referred Bloomberg to remarks delivered earlier on Friday by Giorgetti.
The budget “will include some tweaks on income for — quote — ‘those that deserve it,’ but you’ll see that individuals and companies have nothing to fear,” he told an event when asked whether there will be new taxes. He added that the government may realign levies on diesel.
There won’t be much room for error, since Giorgetti’s fiscal plan is already ambitious. He has set out a trajectory that would bring Italy’s deficit below 3% by 2026, earlier than many observers expected.
“On paper, it looks like they can deliver on their fiscal goals,” Ed Parker, global head of sovereign and supranational research at Fitch Ratings, said in an interview on Thursday. “But it actually needs to happen — Italy doesn’t have a great track record at bringing down debt.”
Such a rapid consolidation may however hamper growth and is likely to be harder given the government’s own admission this week that the economy will expand this year by less than its previously forecast 1% goal. The Bank of Italy projected a 0.8% outcome in predictions released on Friday.
Last week, Giorgetti told Bloomberg that the budget will “require sacrifices from everyone” and added that this means “taxing profits made and revenue earned and it is an effort that the whole country must undertake, which means individuals, but also small, medium and large companies.”
The comments caused tensions within the government, with Meloni saying earlier this week that there will be “no new taxes.” Giorgetti himself walked back from his remarks.
Some relief will come from the government’s privatization program with a plan to sell a further stake in lender Banca Monte dei Paschi di Siena SpA by the end of the year announced by Giorgetti last week. The government intends to sell about €20 billion in state-held assets by 2026 and has so far raised around €3 billion.
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