In response to mounting market concerns about the country’s stressed public finances, authorities stated that Italy’s deficit-increasing 2024 budget, which the cabinet is expected to adopt on Monday, will reduce employee taxes and enhance benefits for big families.
Around 0950 (0750 GMT), the government of Prime Minister Giorgia Meloni assembled to examine and adopt the budget and several financial measures. The parliament will then be presented with the budget measure, which must be approved before the end of the year.
According to the Treasury, it will increase the budget deficit for the next year from 3.6% of GDP to 4.3% due to additional borrowing of 15.7 billion euros ($16.5 billion), which will mostly be used to finance tax cuts. According to two officials, an additional 7-9 billion euros would be spent on pensions, the health system, and public sector contracts, with the money coming from alternative savings or tax increases. This will raise the overall budget package’s spending to 23–25 billion euros.
Around 0830 GMT, Meloni and her Economy Minister Giancarlo Giorgetti were scheduled to conduct a press conference to discuss the budget’s key components.
Since Rome increased its budget deficit objectives for 2023–2025, setting it up for a potential conflict with the European Commission, investors have demanded a larger premium to hold Italian government bonds.
The market situation might remain difficult in the upcoming weeks as credit rating agencies S&P Global, DBRS, Fitch, and Moody’s all assess the third-largest economy in the eurozone as they evaluate the budget.
Giorgetti claims that the necessity to sustain activity in the face of international headwinds resulting from the wars in Ukraine and, more recently, the Middle East justifies Italy’s budgetary policy.
According to the authorities, the budget would extend temporary cutbacks to social contributions until 2024 to assist middle-class and low-income employees cope with rising consumer costs.
VULNERABLE POPULATION
According to the officials, the income tax rate (IRPEF) for individuals earning up to 28,000 euros per year would be 23% in 2019. The existing system, which has four IRPEF rates ranging from 23% on income up to 15,000 euros to a high rate of 43% on income beyond 50,000 euros, will be temporarily replaced by this.
In addition, Meloni wants to set aside at least 1 billion euros for yet-to-be-described steps to solve Italy’s demographic issue. The number of births in 2017 decreased for the fourteenth year in a row, reaching its lowest level since the nation’s union in 1861.
An increase in budgetary resources will be needed to pay for pensions due to the growing aging population. A stopgap measure that now provides a pension to people after 41 years of service as long as they are 62 years old is anticipated to be extended by the government until 2024 in advance of yet another planned change.
According to Treasury estimates, Italy’s public pension costs, which are currently among the highest in the world, will increase from 15.3% of GDP in 2022 to 17% in 2042. An international agreement to enact a minimum worldwide corporation tax rate of at least 15% in 2021 is anticipated to be implemented next year through a separate decree that must be passed alongside the budget. According to one official, the plan might result in a 2 to 3 billion euro rise in tax receipts in Italy.
Rome is also developing economic policies to entice Italian businesses to move their output domestically.
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