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Italy Cuts Deficit Target, Hedges on Growth Forecast

Voice of America
14 Dec 2018, 21:05 GMT+10

MILAN - The Italian government is happy it could lower its deficit target for next year, Deputy Prime Minister Luigi Di Maio said Friday, although he also said economic growth may be smaller than forecast.

The government wanted to avoid disciplinary action by the European Union over its expansionary 2019 budget, without betraying pledges made to Italian voters, Di Maio told the Italian newspaper Il Fatto Quotidiano.

The European Commission had rejected the original budget, arguing that it broke commitments to reduce borrowing and would not bring down Italy's large public debt.

Prime Minister Giuseppe Conte told the European Commission on Wednesday he was lowering next year's deficit target to 2.04 percent of gross domestic product from 2.4 percent, triggering a sharp decline in Italy's bond yields.

"We are happy to be able to lower the deficit," said Di Maio, who leads the anti-establishment 5-Star Movement, which has governed since June in a coalition with the right-wing League.

European Economic Affairs Commissioner Pierre Moscovici signaled Thursday that the new target could be the basis of a deal to head off the Commission's excessive deficit procedure.

Economic growth

Asked about the economic growth target of 1.5 percent set for 2019, Di Maio said, "the only reason to come down from 1.5 percent could be linked to the slowdown in the last part of (this) year, caused mainly by exports."

After GDP fell 0.1 percent in the third quarter, most economists now expect 2019 expansion of less than 1 percent.

About 7 billion euros ($7.94 billion) of savings will need to be found to achieve the lower deficit goal, and Di Maio detailed where some of these will come from.

He said 5-Star's flagship income-support scheme, the so-called "citizens' income," will cost about 1.3 billion euros less than budgeted because it will begin in March instead of January.

More than 2 billion will be saved because a plan to allow earlier retirement will also prevent people from taking more than one pension or taking a pension while working, Di Maio said. Sales of state-owned real estate and cuts to the highest state pensions will also provide savings.

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