Maneuver 2024, the EU opinion: “Italy not entirely in line with recommendations”

“Limited progress” has been made in the opinion of the European Commission, which calls for acceleration. EU sources: “Deficit procedures will restart in 2024, Italy is at risk with 8 countries. Superbonus effect weighs”

Italy’s budget plan for 2024, the economic measure “is not fully in line with the Council’s recommendations”. This is the opinion of the European Commission, released today in Strasbourg. Our country is in good company: it is part of the largest group, nine euro area countries, whose maneuvers are considered not entirely in line with the recommendations: the other eight are Austria, Germany, Luxembourg, Latvia, Malta, Holland, Portugal and Slovakia.

The economic measures of only 7 countries passed with flying colours, i.e. in line with the recommendations: Cyprus, Estonia, Greece, Spain, Ireland, Slovenia and Lithuania. Another 4 countries come close to failing: for the Commission, the actions of France, Belgium, Finland and Croatia “risk not being in line with the Council’s recommendations”.

There The European Commission has recommended that countries respect, for 2024, a maximum growth rate of net primary expenditure. In particular, Belgium, Finland, France and Croatia risk not being in line with this recommendation and must take the necessary measures to bring economic policy for 2024 in line with the Council’s indications, while Italy, Luxembourg, Latvia, the Netherlands and Slovakia “are not fully in line” with the recommendation (Rome, Riga and The Hague are invited to remedy this). For the Commission, no programmatic budget document is at serious risk of non-compliance with the stability pact, as Conte Uno’s first maneuver waswhich forecast a deficit of 2.4%, then corrected to 2.04% after a long tug-of-war with the Commission.

“Limited progress on structural elements, accelerate”

More specifically, the European Commission “considers that Italy has made limited progress regarding the structural elements of the budgetary recommendations made by the Council on 14 July 2023 and therefore invites the Italian authorities to accelerate progress”.

The EU executive predicts that Italy’s nominal deficit “will be at 4.4% of GDP in 2024, above the treaty reference value of 3% of GDP, and the public debt/GDP ratio at 140, 6% of GDP in 2024, above the treaty reference value of 60% of GDP, but 6.5 percentage points below the end-2021 ratio.”

Furthermore, the fiscal measures envisaged by Italy’s economic budget “do not address” the problem of the erosion of the tax base. In October 2023, the EU executive recalls, the government “adopted a legislative decree which provides for a first implementation step in reducing income taxation for medium-low incomes, combining the first and second tax brackets with a lower tax rate and reviewing tax deductions on income above 50 thousand euros, which is currently legislated only for the year 2024. These interventions, including the review of tax deductions, are rather limited in scope and do not address the erosion of the base taxable income, which was further reduced last year with the extension of the flat-rate tax regime for self-employed workers”.

On the expenditure side, the maneuver “provides additional funds for the renewal of public contracts 2022-2024 (also for the health sector), the extension to 2024 of some early retirement schemes (with some modifications), measures aimed at supporting the birth rate and additional funds for the health sector, local authorities and flood-affected areas in May 2023. These measures are partly offset by spending savings, together with a limited review of government spending, as well as some limited increase measures of revenue. The Commission estimates that the aggregate cost of these measures will be 0.7% of GDP in 2024: most of them are expected to have a permanent effect.”

The EU Council “recommended that Italy align the cadastral estimates with current market values”, recalls the European Commission.

“Deficit procedures will restart in 2024, Italy risks with 8 countries”

In 2024 the European Commission will “proceed with excessive deficit procedures based on actual data from 2023”. A senior EU official explains this on the day of the opinion on the economic maneuvers of the euro area countries. In the Eurozone there are “nine countries” that have a projected deficit/GDP above 3% in 2024, he notes, and Italy is among them. In this case, Rome would still be in good company: the others are Belgium, Spain, France, Latvia, Malta, Slovenia, Slovakia and Finland.

The Council had recommended that Italy use the resources saved by withdrawing the support measures launched with the energy crisis caused by the war in Ukraine to “reduce the deficit”, but instead they were used to increase net primary spending. This is one of the reasons, explains the senior EU official, why our country is not considered fully in line with the recommendations. According to the source “it would have been appropriate to use those savings for fiscal consolidation”. Italy “will have to bring the nominal and structural deficit back into line”, going through a “period of fiscal consolidation”, he explains.

Italy, according to the European Commission, in fact in the economic maneuver for 2024 did not respect the Council’s recommendation to limit the increase in net primary expenditure to +1.3% from 2023 to 2024, due to the effect that both the use of the Superbonus and the accounting classification of the related costs had an impact on the public accounts for 2023, the senior EU official further explained. The increase in net primary spending from 2023 to 2024 foreseen by the budget is 0.9%, “therefore below the 1.3%” recommended by the Council. However, net primary spending in 2023 increased as a result of the Superbonus, and current estimates indicate that it will be higher than forecast, by an estimated 0.8% of GDP. If net primary spending in 2023 had remained unchanged, without the Superbonus effect, the spending growth rate forecast for 2024 by the budget would be higher than the recommended 1.3%. For this reason, the Commission believes that the measure, in this respect, is not fully in line with the Council’s recommendations.