Italy plans bigger budget deficit that may provoke Brussels

ROME — The Italian government plans to raise its budget deficit projection in defiance of last years accord with the European Commission.

According to a budget plan reported by POLITICO before it was made public Tuesday, the government expects a budget shortfall amounting to 2.4 percent of economic output this year. That outstrips the 2 percent target agreed with the EU executive in December, after a tug-of-war over Romes original proposal of 2.4 percent.

The deficit would then drop to 2.1 percent of gross domestic product in 2020, under the spring budget document, known as the Documento di Economia e Finanza (DEF). The paper was compiled by the Italian finance ministry and approved at a Cabinet meeting late on Tuesday.

The growing budget gap stems from the DEFs slashing of the economic growth forecast, to 0.1 percent for this year, from a previous projection of 1 percent.

“The Italian economy lost momentum last year and because of this the GDP growth forecast drops compared to our latest official document,” the paper says.

The document also says that the governments flagship growth measures — a citizens income and a partial pensions overhaul — are expected to have only a marginally positive effect on the economy.

One of the tables in the 133-page DEF shows the citizens income — a €780 monthly allowance for jobseekers living in poverty — should help GDP grow between 0.2 percent and 0.5 percent over the next three years.

The pensions initiative — which allows certain workers to retire earlier than expected — will have no effect on GDP for this year and 2020, rising up to 0.2 percent for 2021 and 2022, according to the document.

The ministrys data runs counter to arguments from the governing coalition, the far-right League and the populist 5Stars, that those measures would reboot the economy. Paolo Savona, the former European affairs minister whos now heading the markets regulator Consob, said in September that the economy could grow as muchRead More – Source