Italian Finance Minister Pier Carlo Padoan said only a “minor change,” if any, will be made to the country’s deficit-to-gross domestic product target for next year.
“If there is going to be any change in the deficit, it will be minor,” Padoan said in an interview on the sidelines of the Ambrosetti Forum in Cernobbio, Italy. “It will be consistent with the framework of the rules of the Fiscal Compact which of course implies we respect above all the debt rule.”
The Italian government has set a 1.8 percent deficit-to-GDP target for 2016. Tax cuts pledged by Prime Minister Matteo Renzi, including the abolition of a much-hated levy on primary residences, have prompted concerns that the government will have to raise its target to pay for them.
“Given that Italy is a high debt country, we will first of all look at ways to accelerate the decline of debt so the deficit will also take that into account,” Padoan said. Asked whether the deficit-to-GDP target could be revised up to between 2.5 percent and 2.8 percent in 2016, he replied: “I think those numbers are way out of reality.”
This week, the Rome-based statistics agency Istat said that GDP rose 0.4 percent in the first quarter and 0.3 percent in the second, up from a previous estimate of 0.3 percent and 0.2 percent respectively.
Padoan said he expected GDP growth to be higher in 2015 than the current government forecast of 0.7 percent.
“This higher growth is driven by domestic demand and especially private consumption, which means that confidence is returning in the country,” Padoan said. “More importantly, there is more growth in jobs than we expected given growth in GDP, which means there is a structural change taking place” in the labor market.
He said the government’s tax cuts strategy, including cuts on main residences, will continue “until 2018” when new elections will be due at the end of Renzi’s mandate.
Government measures include “spending cuts, higher growth bonuses and lower interest requirements” in line with “a steady decline of headline deficit and in compliance with the fact that the debt will begin to decline starting next year. This is a turning point in Italian public finance,” he said.
Renzi has overhauled the labor market to make hiring and firing easier. Employers save money on social contributions, and workers’ protection increases with seniority.
Padoan said he expected the jobs situation to continue to improve.