The government acknowledged that the margin for maneuver in this area is very narrow after tax revenues recorded a decline in light of a slowing economy, which makes it likely that an additional increase in the fiscal deficit will be expected..
While the government was preparing the budget to send to Brussels in mid-October, Meloni repeatedly said, “We must reduce waste and spend the few resources we have in the best possible way,” according to an Agence France-Presse report..
Meloni, leader of the “Brothers of Italy” party, took office at the head of a far-right coalition in October, promising to cut taxes and help families and companies suffering from high inflation..
To boost public treasury revenues, the government abolished “citizenship income,” an aid that benefited millions of poor people, and replaced it with limited social aid. It imposed an unexpected tax on bank profits and opened the door to new privatization processes..
But the sudden decline in GDP by 0.4 percent in the second quarter, and the economic slowdown that Germany, Italy’s main trading partner, is facing, in addition to the European Union’s delay in delivering funds allocated to revive the economies of member states after the Covid-19 pandemic, all had an impact. Significantly on the Italian public treasury.
The government has already postponed indefinitely its election promise to adopt a 15 percent “flat tax” on employees, although businessmen are currently benefiting from it..
It also ignored other promises, including abandoning the 2011 law that sets the retirement age at 67 years.
In this regard, a temporary system allows Italians to stop working at the age of 62 if they have contributed 41 years to their pensions..
However, the government is keen to revamp the tax cut for low-income people at a cost of around €10 billion ($10.7 billion) – a priority for Meloni..
“Old rules”
Despite their differences, Meloni and her main coalition partner, the far-right League party led by Matteo Salvini, have so far worked together and are determined not to fall prey to the political instability that has resulted in the country’s nearly 70 governments since World War II..
“The Meloni government seems very stable so far,” said Valerio De Moli, head of the European House-Ambrosetti think tank. “In the absence of a united opposition, the government could continue until the end of its legislative term” in 2027..
Meloni’s government is facing financial pressures similar to those experienced by previous governments, especially in light of bearing the burden of the highest level of debt in the euro zone – with the exception of Greece – where the debt ratio recorded 144 percent of GDP..
Meloni aims to reduce the budget deficit to 4.5 percent of GDP in 2023, compared to 8 percent last year, which does not seem easy to achieve. This also makes it more difficult to achieve the target deficit next year (3.7 percent of GDP)..
The Meloni government is also burdened by the tax incentive it pledged to promote measures to make homes more energy efficient..
Meloni said this week that this stimulus was introduced in 2020 by Giuseppe Conte’s government as a way to support the economy after the Covid pandemic, but its costs exceeded 100 billion euros..
Rome had hoped to extend the suspension of the European Union’s budget rules after the pandemic until next year, but the Continental Commission’s Economic Affairs Commissioner, Paolo Gentiloni, ruled that out..
In return, Brussels hopes to reach an agreement this year on reforming the European Union’s Stability and Growth Pact, which limits countries’ budget deficits to 3 percent of GDP and reduces debt levels to 60 percent..
In this regard, Meloni warned this week that “a return to the old rules will be dramatic.”“.
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