Italy: Giorgia Meloni presents a cautious first budget

Posted Nov 21, 2022, 5:05 PMUpdated Nov. 21, 2022, 5:14 p.m.

“Italy will respect European rules” , assured Giorgia Meloni during her general policy speech at the end of October. Like her predecessor, Mario Draghi, who gave her advice, she presented Monday a first amending finance law of around thirty billion euros, taking up some of her symbolic measures. But without loading the boat with expenses.

The President of the Council has submitted to the traditional balancing act of any head of government who must guarantee that he will curb the deficits while trying to honor his costly electoral promises. A mission entrusted to his Minister of Economy, the pragmatic and moderate Giancarlo Giorgetti .

A calm before the storm

“We have little money and time is running out,” Giorgia Meloni had declared to the social partners. It is benefiting from a slight economic lull as the clouds of recession loom on the horizon. Italy indeed posted growth above expectations in the third quarter (+0.5%), higher than that of the euro zone (+0.2%). The growth forecast for this year has thus been revised upwards to 3.7%, instead of 3.3%. But if the government expects a slight increase next year (+0.6%), the IMF anticipates a recession, with a decline in GDP of 0.2%.

Limiting soaring energy prices is an absolute priority

The new executive benefits in the meantime from an increase in tax revenue. Which he intends to consolidate with the taxation of the “excess profits” of the energy giants introduced last March, which will increase from 25% to 33%, but based on profits and no longer on turnover (which gave rise to legal challenges).

However, this turns out to be insufficient. “Each of our measures must obtain financial coverage and the situation is very complicated,” admitted the Undersecretary to the Presidency of the Council, Giovanbattista Fazzolari. The target of 3.4% public deficit in 2023, established by Mario Draghi, has therefore been corrected to 4.5% of GDP. An increase in the deficit linked to measures (about 20 billion) aimed at mitigating the effects of soaring energy prices elevated to the rank of “absolute priority of the Meloni government”.

Reduction of tax pressure

The other priority of the new executive is to reduce the tax burden on businesses and households: 5 billion euros will thus be devoted to reducing it by 2% for salaries up to 35,000 euros per year, as under Mario Draghi, and 3% for incomes below 20,000 euros.

Among the flagship measures of the program of the right-wing coalition was the extension of the flat tax. In its existing form, it already makes it possible to cap taxes at 15% for entrepreneurs whose business income does not exceed 65,000 euros per year. The electoral promise to extend it to all those earning up to 100,000 euros had to be trimmed, with a ceiling raised to 85,000 euros, for a budgetary cost of 600 million euros.

A divisive social aspect

These are the social measures that will prove to be the most delicate for Giorgia Meloni. That concerning pensions, at a cost of 800 million euros, can only displease Brussels. The legal age to stop working will initially be 62, provided you have contributed for 41 years. A transitional measure to correct the effects of the reform adopted by the Monti government which provided for a sudden increase in the retirement age from 64 to 67 in 2023.

Citizenship income, which benefits 2.5 million disadvantaged people, will be reduced to eventually exclude those deemed able to work. If it will generate nearly 2 billion euros in savings, it will displease a significant part of the electorate, mainly in the poor Mezzogiorno. ” Prudence and responsibility are the watchwords of our budget “, justifies the Minister of the Economy. The European Commission will judge before the end of the month.

Italy: Giorgia Meloni presents a cautious first budget