Italian Prime Minister Matteo Renzi cut the government’s forecast for economic growth and renewed his promise to slash benefits for top civil servants, saying the working poor are shouldering too much of the pain.
Gross domestic product will expand 0.8 percent this year, Renzi said late yesterday in a news conference in Rome after his cabinet approved his multi-year budget plan. That compares with the 1 percent growth projected in September by Renzi’s predecessor, Enrico Letta. Italy’s GDP contracted 1.9 percent last year, the second decline in a row.
Renzi, 39, has focused on the lifestyle gap between blue-collar workers in the private sector and the chauffeured civil servants running agencies and state-owned companies. With resources limited by European Union deficit limits, Renzi is counting on public spending cuts to help finance the centerpiece of his stimulus plan: tax cuts for lower-income workers.
“We have to tell the people that politicians are making sacrifices,” Renzi said. “It’s time for politicians, directors and public managers to feel the urgency.”
In Milan, the FTSE MIB index rose 0.7 percent to 21,810.58 at 12:19 p.m. local time. The yield on Italian 10-year bonds fell 2 basis points to 3.20 percent.
Renzi reiterated the government’s target of a budget deficit to gross domestic product ratio of 2.6 percent this year and said Italians should expect 4.5 billion euros ($6.2 billion) in spending cuts. The reduction in the GDP forecast puts pressure on the government’s campaign to reign in its debt.
The ratio of public debt to GDP will climb this year to a postwar record 134.9 percent, up from the previous record of 132.6 percent set last year, the government said in a statement after the news conference. Italy’s debt, which stood at 2.09 trillion euros in January, has hampered efforts by the last three governments to stimulate the economy.
A decline in the debt-to-GDP ratio “will start soon, and in my opinion accelerate as growth strengthens,” Finance Minister Pier Carlo Padoan said at the news conference. “Supporting growth is naturally a way, and maybe the best way, to decrease the debt.”
GDP will rise 1.3 percent next year and 1.6 percent in 2016, according to forecasts in the government statement. The debt-to-GDP ratio is projected at 133.3 percent in 2015 and 129.8 percent in 2016, Renzi’s government said.
Stefano Fassina, who served as deputy finance minister under Letta, said the government can’t expect economic growth while targeting an increased primary budget surplus. A primary surplus is the difference between revenue and spending net of debt-financing costs.
“By year-end we will have less growth, more people out of work and more debt and the need for a new fiscal adjustment,” Fassina, a member of Renzi’s Democratic Party, said in an interview on SKYTG24.“We keep repeating the same mistake.”
The government has been cautious in its forecasts, Renzi said today at a televised press conference in Verona, when asked to comment on Fassina’s remarks. He also said that no fiscal adjustment will be needed this year.