Maneuver 2024, the EU asks for changes from the government: what can happen

Maneuver 2024, the EU asks for changes from the government: what can happen


BRUSSELS. The real obstacle is the expense. Italy is unable to satisfy the request to keep the tap of public expenditure closed, considered excessive. The maneuver that the government presented to the European Commission is not convincing. There is no real rejection, but not even full approval. The budget law signed by Giorgia Meloni is “not fully in line” with what was expected. The common rules on public finance are suspended, pending the end of the negotiations for the reform of the stability pact. Precisely for this reason, last July, Italy was recommended to guarantee a prudent budget policy, in particular by limiting the nominal increase in net primary expenditure financed at national level in 2024 to no more than 1.3%. This is not the case, however. «In Italy spending is expected to be significantly higher than expected», and for this reason Italy becomes under special surveillance.

Brussels issues the warning to the Prime Minister and her allies. The country is “invited to be ready to take the necessary measures”. Which means reduction in spending, or increase in revenue capable of compensating for the additional expenditure foreseen by the budget law. Or simply don’t spend. One of the observations made concerns the tax savings resulting from the stop to support measures for the high cost of bills, calculated at around 1% of GDP. Instead of being a canceled expense item, the government’s desire to use these savings to spend elsewhere is contested, and this increases primary spending.

However, corrective measures are being requested regarding spending, which Italy will now have to negotiate with Brussels to avoid running into a clash with unpredictable consequences. Whether an agreement is reached on the new stability pact or, if not, a return to the old pact, fines are also foreseen. It being understood that Italy, with a debt second only to that of Greece and expected to increase in 2024 (from 139.8% in 2023 to 140.6%) has a macroeconomic imbalance which will make it automatic and mandatory for the community executive to draw up a new country report to monitor the situation. We therefore remain under special surveillance, and the pressure is destined to increase. Because, confides an official, “Italy needs to start a period of consolidation of public accounts”.

Doubts about state government, pensions and taxes
But other elements of the “Meloni recipe” also appear to be unconvincing. On the spending side, the renewal of public contracts 2022-2024 (also for the healthcare sector), the extension to 2024 of some early retirement schemes, measures aimed at supporting the birth rate and additional funds for the healthcare sector, local authorities and the areas hit by floods in May 2023. All measures whose aggregate cost Brussels estimates at 0.7% of GDP in 2024, and “it is expected that most of them will have a permanent”, therefore structural, effect on Italian accounts .

On the tax front, among the measures adopted, studied and announced, the interventions desired by the government so far “including the review of tax deductions, have a rather limited scope”. Furthermore, in the Commission’s opinion “they do not address the erosion of the tax base, which was further reduced last year with the extension of flat-rate tax schemes for self-employed workers”. But more broadly, overall, “frequent changes in tax policy increase uncertainty in the economy, making the tax system more complex and increasing the burden on compliant businesses and families.” Translated: those who already pay will continue to pay, more and more, and those who escape the revenue agency risk continuing to do so.

Call for reforms
In this context, the Commissioner for the Economy, Paolo Gentiloni, returns to call for reforms. “It is essential that governments pursue the reforms and investments necessary to improve our competitiveness and achieve sustained and sustainable growth.” An indication valid for everyone, in the most distinctly tricolor case it clarifies that the Pnrr must be implemented. «From this perspective, the determined implementation of the national recovery plans remains of fundamental importance».



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