EU gives Italy a passing grade: “The budget respects rules and commitments”

Brussels – Good news for Italy and its government: the draft budgetary plan “complies” with the maximum growth in net expenditure indicated in the Council’s recommendations with a view to ending the excessive deficit situation. This is the judgment of the European Commission, in its opinions on the budget laws contained in the European semester package, the cycle of coordination of economic and spending policies for which monitoring and guidance documents are produced. 

The opinion on the Italian budget law recognises that the Meloni government has implemented a careful and prudent policy. First of all, it is emphasised that the so-called “fiscal stance”, the budgetary policy, is expected to be “neutral by 2026,” and thus public spending is not increased. This is after an expected 0.6 per cent reduction at the end of this year. This helps reduce the deficit/GDP ratio, which supports Italy in a procedure intended to be closed. The EU executive points out that both the forecasts of the government in Rome and Brussels economic forecast agree in the expected thresholds: 3 per cent this year, and 2.8 per cent next. Numbers that put Italy in a safer accounting situation.

Tax cuts, flat tax, and bank levies: EU approves Italy on taxes

The government has also received implicit approval from the European Commission for the initiatives introduced in the tax reform area. Flat tax, household relief, and reductions in rates for productivity bonuses are measures financed by increasing levies on banks and insurance companies. According to the Commission’s estimates, “the overall additional impact of discretionary revenue measures will increase net expenditure (and the general government deficit) by less than 0.1 per cent of GDP in 2026.” 

The assessment of expenditure is also positive, as it is considered favourable because it is tailored to families and it does not affect budgets. Measures supporting families (reinforcement of family allowances and child support), the partial freezing of the increase in the retirement age, additional funds for the health sector, a new system of tax deductions for investments (with higher rates for green technologies) and the renewal of tax credits for the South (Special Economic Zones), are all interventions “funded by reprogramming of expenditure of the National Recovery Plan (NRRP) together with further savings on both current and capital expenditure.”

Homework does not change: reforms and fiscal accounts in order

This verdict on the budget law does not imply that everything is fine. The excessive deficit procedure remains open, and the positive opinion only means that “no further action will be taken at this stage,” clarifies Economy Commissioner Valdis Dombrovskis. This means that we remain under observation. Then there remain the knots of growth, productivity, and an ageing population, all of which pose challenges for the future. This is why the recommendation addressed to Italy and its partners is to “act individually and collectively within the Eurogroup to increase productivity and strengthen economic security, while maintaining the sustainability of public finances.”