ROME: Italian Prime Minister Matteo Renzi will finance 35 billion euros ($39 billion) of tax cuts through lower government spending and an appeal to Brussels for more flexibility on budget targets, according to his economic adviser.
“We plan to finance this tax reduction through spending cuts on the one hand, and a little more margin relative to European parameters we currently have,” Renzi adviser Yoram Gutgeld said in an interview in Rome. The deficit-to-gross domestic product ratio will stay at a projected 2.6 percent this year, and “we will ask for a higher number” than the 1.8 percent projected for next year.
Renzi’s hand is strengthened by a recovering economy. Data from Italian statistics agency Istat showed the country grew in the first half more than previously estimated and unemployment unexpectedly fell in July. Gutgeld attributes most of the increase to government reforms which include a so-called Jobs Act that makes hiring and firing easier. The improved prospects will likely impact Renzi’s draft budget plan which is due to be unveiled by September 20.
Beating Projections
“For the first time in many years, we are going to not only meet our growth projections but we will also probably beat them,” Gutgeld said. Europe’s fourth-largest economy “has really changed gear” as its emergence from a record-long recession picks up speed, he said.
Economic growth of 0.9 percent this year is “within the realm of possibility,” Gutgeld said. That’s higher than the government’s last projection of 0.7 percent. Next year, GDP growth will likely also be higher than the last projection of 1.4 percent, he said.
