Italy’s Renzi Pushes Tax Cut, Investments as Referendum Looms

  • Ministers pass measures for 2017 in effort to support growth
  • Corporate tax Ires cut to 24 percent from 27.5 percent

Italian Prime Minister Matteo Renzi’s cabinet passed a budget law that includes a corporate tax cut and measures to boost investments in an effort to revive political support and economic prospects ahead of a key constitutional referendum in early December.

“Italy isn’t going well yet, but after two and a half years it’s going a bit better than before,” Renzi told reporters in Rome Saturday, after the cabinet approved the 2017 law that must pass the Italian parliament by year-end. The tax cuts “are very important for small companies” and the money “isn’t going to bankers, it’s going to small and medium businesses and artisans.”

As he faces a Dec. 4 referendum that could mark the end of his government, Renzi needs to maintain the budget discipline requested by the European Commission while pushing through measures to restart economic growth. To do so, he set a deficit target of 2.3 percent of gross domestic product, lower than this year’s 2.4 percent, though higher than previous estimates. 

It’s a compromise to appease the European Commission which will review the budget and wants Italy to control its deficit. Renzi said the extra flexibility on deficit will cover spending related to migrant flows and a recent earthquake in central Italy.

The budget law includes, among other measures, a reduction of corporate tax Ires to 24 percent from 27.5 percent, a boost to public investment, increases to lower pensions, and extra money for towns willing to host migrants. The government targets 1 percent economic growth next year.

Growth Target

On Thursday, the country’s central bank called on the government to pass budget-law measures aimed at ensuring that its growth targets for 2017 are viable. Earlier this month its Deputy Director General Federico Signorini told lawmakers that the Treasury’s economic goal for next year is "very optimistic."

“The effects of the government’s intended measures will depend on what interventions are taken and how they are implemented," the Bank of Italy said in its quarterly economic bulletin. The Rome-based bank also urged the government to contain public expenditure in order to finance public investments.

Italy’s debt, the second-biggest in the euro region as a percentage of GDP, fell to 2.22 trillion euros ($2.46 trillion) in August, after reaching a record high of 2.25 trillion euros the previous month.

Earlier this year, Renzi said he would step down if he loses the referendum, although he has refused to be drawn on the matter in recent interviews.

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