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Italy plans bigger budget deficit that may provoke Brussels

The Italian government plans to raise its budget deficit projection in defiance of last year's accord with the European Commission.

According to a draft document obtained by POLITICO, the government expects a budget shortfall amounting to 2.4 percent of economic output this year. That outstrips the 2 percent target agreed with the EU executive in December, after a tug-of-war over Rome's original proposal of 2.4 percent.

The deficit would then drop to 2.1 percent of gross domestic product in 2020, under the draft spring budget document, known as the Documento di Economia e Finanza (DEF). The paper was compiled by the Italian finance ministry and is scheduled for approval at a Cabinet meeting on Tuesday afternoon.

The growing budget gap stems from the draft DEF's slashing of the economic growth forecast, to 0.1 percent for this year, from a previous projection of 1 percent.

"The Italian economy lost momentum last year and because of this the GDP growth forecast drops compared to our latest official document," the draft says.

The document also says that the government's flagship growth measures — a citizen's income and a partial pensions overhaul — are expected to have only a marginally positive effect on the economy.

One of the tables included in the 133-page document shows the citizens' income — a €780 monthly allowance for jobseekers living in poverty — should help GDP grow between 0.2 percent and 0.5 percent over the next three years.

The pensions initiative — which allows certain workers to retire earlier than expected — will have no effect on GDP for this year and 2020, rising up to 0.2 percent for 2021 and 2022, according to the document.

The government plans to go ahead with a flat tax, the document says. The plan envisages slashing the current 40 percent income tax to 15 percent or 20 percent for small businesses and owners earning up to €65,000 or €100,000, respectively.

European Commission officials may not react to the document at once, despite the doubt it introduces over the December deal. The EU body's own spring forecast is coming up in one month, just two weeks ahead of the European election, likely pushing any assessment of Italian measures until then.

Source: www.politico.eu


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