Italy to present budget targets after government tussle

By Gavin Jones

ROME (Reuters) – Italy’s new government plans to present its first budget targets on Thursday, ending a drawn-out tussle which has pitted the coalition parties against Economy Minister Giovanni Tria.

The anti-establishment 5-Star Movement and the right-wing League have been pushing Tria, an academic not affiliated to either party, to ramp up the fiscal deficit to finance their promises of tax cuts and higher welfare spending.

The cabinet meets at 6 p.m. (1600 GMT) to sign off on the new targets for economic growth, the deficit and public debt for 2018-2021, with most attention focused on the 2019 deficit goal.

Tria has softened an initial insistence the deficit should not exceed 1.6 percent of gross domestic product and is now willing to accept a ratio of around 1.9 percent, government sources have said.

That would compare with a current target of 1.6 percent for this year, and would be sharply up from a 0.8 percent goal penciled in for 2019 by the previous centre-left administration.

However, the League and 5-Star, which formed a government in June, have both been pushing for a deficit between 2 percent and 2.5 percent to fund their election promises.

Late on Wednesday a source from the ruling majority said the parties wanted the goal set at 2.4 percent, as meetings continued to try to break the impasse.

The targets form the framework for the 2019 budget, which must be approved by the cabinet by Oct. 20.

MARKET NERVES

Tria said on Wednesday the budget would include the parties’ flagship policies, including a basic income for the poor and a lower retirement age, though it remains unclear how wide-ranging such measures will initially be and how they will be financed.

The League and 5-Star, rivals ahead of an inconclusive election in March, say they will govern together for a full five-year term and phase in most of their policies gradually.

Financial markets have been nervous since the government took office due to fears its spending plans will boost Italy’s debt, which is already the highest in the euro zone after Greece’s as a proportion of GDP – around 131 percent.

Italy’s government bonds have rallied this week on the expectation Tria can water down the coalition’s more radical proposals and keep a lid on public finances.

In a speech on Wednesday Tria tried to strike a balance between promising a growth-friendly, expansionary budget and maintaining the trust of markets as well as avoiding a head-on clash with the European Commission.

“We are working on a mix of policies that show everyone they should have confidence in Italy, not only in our public finances but in our economic growth,” he said.

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