© Reuters. FILE PHOTO: Italian Prime Minister Giorgia Meloni and Polish Prime Minister Mateusz Morawiecki hold a joint press conference in Warsaw, Poland, July 5, 2023, REUTERS/Kacper Pempel/File Photo
By Giuseppe Fonte and Gavin Jones
ROME (Reuters) -Italy’s deficit-hiking 2024 budget due to be approved by cabinet on Monday will cut taxes for workers and increase benefits for large families, officials said, amid growing market concerns over the country’s strained public finances.
Prime Minister Giorgia Meloni’s government gathered at around 0950 (0750 GMT) to discuss and approve the budget along with separate financial decrees. The budget bill will then go to parliament, which must pass it by the end of the year.
It will drive up next year’s budget deficit to 4.3% of gross domestic product from 3.6% under current trends, according to the Treasury, due to 15.7 billion euros ($16.5 billion) of extra borrowing mainly devoted to funding tax cuts.
Additional spending of 7-9 billion euros will go on pensions, the health service and public sector contracts, to be funded through alternative savings or tax hikes, two officials said, bringing the total budget package to 23-25 billion euros.
Meloni and her Economy Minister Giancarlo Giorgetti were due to hold a news conference around 0830 GMT to outline the budget’s main measures.
Investors have been demanding a higher premium to hold Italian government bonds since Rome last month raised its budget deficit targets for the 2023-2025 period, setting it up for a possible clash with the European Commission.
The challenging market environment may continue over coming weeks, when the budget faces scrutiny from credit ratings agencies, with S&P Global, DBRS, Fitch and Moody’s (NYSE:) all reviewing the euro zone’s third largest economy.
Giorgetti says Italy’s fiscal stance is justified by the need to support activity in the face of international headwinds stemming from the conflicts in Ukraine and, more recently, the Middle East.
The budget will extend to 2024 existing temporary cuts to social contributions, the officials said, in an effort to help middle and low-income workers cope with high consumer prices.
AGEING POPULATION
Next year people earning up to 28,000 euros per year will pay income tax (known as IRPEF) at 23%, according to the officials. This will temporarily replaces the current regime in which four IRPEF rates run from 23% on income up to 15,000 euros, to a top rate of 43% on income above 50,000 euros.
Meloni also aims to earmark at least 1 billion euros for measures, which have yet to be detailed, aimed at addressing Italy’s demographic crisis. Births last year saw a 14th consecutive annual drop and were the lowest since the country’s unification in 1861.
The rapidly ageing population means additional budget resources will also go on pensions.
The government is expected to extend to 2024 a stop-gap solution that currently offers a pension to people after 41 years of work provided they are 62 years old – ahead of yet another promised reform.
The Treasury projects that Italy’s state pension bill, already among the highest in the world, will reach 17% of GDP in 2042, from 15.3% in 2022.
A separate decree to be approved along with the budget is expected to implement from next year a 2021 international agreement to introduce a minimum global corporate tax rate of at least 15%. The scheme could increase tax revenues in Italy by between 2 and 3 billion euros, one official said.
Rome is also working on fiscal measures to persuade Italian firms to bring production back into the country from abroad.
($1 = 0.9492 euros)
