Def, green light from the CDM: tax wedge cut for over 3 billion

The note from the ministry: “Objective of new interventions for families and businesses. At work for the third installment Pnrr”

Green light from the Council of Ministers to Def 2023, with the cut of the tax wedge “by more than 3 billion for the current year” and for the benefit of “employees with medium-low incomes”. “The prudence of this document is a responsible ambition. We have great challenges ahead of us, from climate change to the demographic decline of the Italian population, but also considerable opportunities to open a new phase of development for our country”, affirms the Minister of Economy, Giancarlo Giorgetticommenting on the Economics and Finance Document.

“The reforms launched intend to rekindle confidence in the future – continues Giorgetti – by protecting the birth rate and families also through the tax reform which will favor large households. It will also recognize the entrepreneurial spirit as an engine of economic development, promoting work as an essential expression of be a person”.

“It is realistic to aim for an increase in the growth rate of GDP and employment over the next few years, along a path of innovation and investment under the banner of the ecological and digital transition”, concludes the minister.

“With this trend figure, of a growth of 1% better than what was forecast by some international observers, there would remain approximately 3 billion more which will be allocated to businesses and to support families, above all to cut the contribution wedge to always encourage more companies to hire and to actually increase the salary that remains for the employee, especially for the shorter ones, with which to increase the capacity of families and relaunch consumption”. Thus the Minister of Enterprises, Adolfo Ursoduring his speech at Porta a Porta.

THE DOCUMENT – ”In the face of an estimated deficit trend for the current year of 4.35% of GDP, maintaining the existing deficit target (4.5%) will make it possible to introduce, with a measure soon to be implemented , a cut in the social security contributions payable by employees with medium-low incomes of over 3 billion for the current year”, announces the Mef in the note illustrating the Def. According to the ministry, the reduction in the contribution burden ”will support the purchasing power of families and contribute to the moderation of wage growth. Together with similar measures contained in the budget law, this decision demonstrates the Government’s attention to protecting workers’ purchasing power and, at the same time, to wage moderation to prevent a dangerous wage-price spiral”.

“The priority objectives that inspire and outline the government’s economic policy can be summarized in supporting the growth and well-being of citizens, with new interventions in favor of families (in particular for large families, measures are also envisaged in the tax reform) and businesses as well as measures aimed at relaunching investments and strengthening the country’s competitiveness; the sustainability of public finances with a gradual reduction of deficits and debt”, explains the note.

“The Government – it is therefore underlined – is working to obtain the third installment of the Pnrr. Interlocutions are underway with the European institutions for the revision and remodulation of some of the interventions envisaged by the Pnrr and the related milestones and targets. It is also the chapter of the program relating to REPowerEU is being developed, which will also include new investments among others”.

“To make our country more dynamic, innovative and inclusive, the Pnrr alone is not enough. In fact, it is necessary – he adds – to invest also to strengthen national production capacity and work over a longer time horizon than that of the Plan and which allows create suitable conditions to avoid new inflationary flare-ups. This is a theme that must be addressed not only in Italy, but also in Europe”.

In 2022 the debt-to-GDP ratio was 144.4%, 1.3 percentage points lower than last November’s Dpb forecast. A decrease which, in line with the objectives indicated in the programmatic scenario, will continue to gradually drop to 142.1% in 2023, to 141.4% in 2024, until it reaches 140.4% in 2026, notes a note from the MEF. “However, the effects of reducing the debt/GDP ratio that could have been recorded if the super bonus had not reduced the impacts on public finance balances that have been recorded so far cannot be ignored”, it adds.

Gross domestic product will grow by 1% on a programmatic basis this year and by 1.5% in 2024, the document reads. The Ministry of the Economy explains that in the trend scenario, i.e. with current legislation, GDP is expected to grow by 0.9% in 2023 and by 1.4% in 2024. In 2025, growth of 1.3% is expected (plan and trend) and in 2026 by 1.1% (plan and trend). ”The estimate for 2024 is therefore revised downwards, from 1.9%, compared to last November. The projection for 2025 – according to the ministry – is in line with the Dpb, while the expected deceleration for 2026 is due to methodological practices agreed at European Union level”.

“The GDP growth forecasts contained in the document follow the path already traced by the November Draft Budgetary Plan (Dpb) and by the budget law, confirming the prudent and realistic approach, aimed at showing seriousness and reliability both to the markets and to the European Union, and which aims to achieve more ambitious results, we read.

The Def takes into account an economic-financial framework which, despite the recent easing of the negative effects deriving from the pandemic and high energy prices, remains uncertain and risky due to the war in Ukraine, high geopolitical tensions, the rise in interest rates of interest but also due to the emergence of localized crises in the international banking and financial system.

In this context, “the Italian economy continues to show a considerable amount of resilience and vitality. 2022 closed with GDP up by 3.7% and, despite the economic slowdown in the second half of the year, the most recent indicators, including the household and business confidence indexes, show that in the first months of 2023 the country’s economy has started to grow again”, he adds.

The Def therefore aims to gradually reduce, but to a significant and sustained extent over time, the deficit and debt of the public administration in relation to GDP. Consistent with this objective, the government confirms the net debt targets set out in last November’s document: 4.5% in 2023, 3.7 in 2024, 3 in 2025, up to 2.5 in 2026.

The Def also forecasts a downward trend in the tax burden which should go from 43.3% in 2023 to 42.7% by 2026.