Renzi to Aid Italy's Firms, Homeowners in Post-Slump Budget

  • Government measures show `no more austerity,' economist says
  • Tax breaks likely for companies in southern regions, start-ups

Matteo Renzi plans to give Italy’s businesses and households some much-awaited relief in his 2016 budget to be submitted to the European Union this week, signaling an end to years of austerity as the country emerges from a record-long recession.

The 40-year old prime minister will likely be able to afford cuts to levies on primary residences, tax breaks to companies in depressed southern regions and incentives to start-ups, based on earlier public statements. The budget is under discussion at a cabinet meeting on Monday and is scheduled for final approval on Thursday.

“The government is de facto saying ‘No more austerity,’" said Raffaella Tenconi, founder of London-based consultancy ADA. “The budget could be expansionary as the big boost for the gross domestic product projection comes from public consumption.”

The premier will also be able to avoid an automatic increase in the value-added tax which would have otherwise kicked in under safeguard clauses set in previous budgets. The top VAT rate in Italy is currently 22 percent.

2.2 Trillion Debt

In a draft budget plan last month, Renzi and his Finance Minister Pier Carlo Padoan raised next year’s estimated growth to 1.6 percent from a previous 1.4 percent, while saying they will cut the deficit less than earlier agreed to with the European Union. Still, the government expects Italy’s debt of about 2.2 trillion euros ($2.5 trillion) to fall next year.

“What I’m interested in is where and how much it will cut spending,” said Tenconi,  a former economist at Bank of America Merrill Lynch. “We don’t know, so we can’t say yet whether it’s good or not.”

Renzi has pledged 35 billion euros in tax cuts in 2016-18, focusing on property taxes the first year, followed by corporate levies the year after and then personal income tax. General elections are scheduled by early 2018.

In last month’s update to the draft budget law, the government said it plans to cut public spending to 43.2 percent of gross domestic product in 2019, down from 46.6 percent this year.

The government may also invoke the migration crisis to obtain a broader margin of maneuver on the deficit from the European Union next year. That would bring the deficit-GDP ratio to as much as 2.4 percent, down from 2.6 percent projected for this year.

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