Balancing Intervention with Sustainability: Italy’s Next Budget Law Amid Economic and Fiscal Challenges

Italy’s Next Budget Law: Challenges and Opportunities

The next budget law, with unchanged policies, is expected to cost at least 20 billion. To cover the planned interventions, starting with the extension of the tax wedge cut, which alone is worth almost 11 billion, adequate resources must be found. The 2024 GDP is forecasted to stand at 0.8%, then rise to 1.1% in 2025 and slow down again to 0.8% in 2026. Full implementation of the Pnrr could lead to GDP growth of 3 percentage points, slightly lower than what was foreseen by the Mef, but prompt implementation of the planned interventions is crucial.

However, external factors such as ongoing conflicts from Ukraine to the Middle East have led to an inflationary spiral with subsequent growth in interest rates, influencing financial balances. Internal factors such as Italy’s weight of public debt and measures for post-pandemic restart also play a role in financial balances. These challenges have led Italy’s President of Upb Lilia Cavallari emphasizing that Italian budget policy aims to reduce high public debt while redirecting resources towards productive and socially useful uses. She notes that this current path limits the possibility of deficit interventions.

Despite these challenges, Italian government forecasts on macroeconomic framework are considered adequate but imply a strong recovery in global trade. Expectations on international variables are consistent with those of main international institutions and market prices. However, downside risks such as geopolitical tensions and ongoing conflicts could slow down international trade and expose raw materials markets to strong volatility. The EU Commission has opened a deficit inflation procedure for seven states including Italy and France by September 20th member states will have to submit medium-term plans (4-7 years) reducing debt recommendations will be provided on draft maneuvers for 2025 indicating corrections for deficit.

Italian Budget Policy: Balancing Need for Intervention with Sustainability and Fiscal Responsibility

In conclusion, Italy faces challenges in balancing its need for intervention with sustainability and fiscal responsibility while meeting requirements set by the EU Commission and maintaining a stable economic trajectory. The government must continue its commitment towards responsible public finance while navigating these complex factors impacting economic recovery, public debt management, and deficit management