Nadef, Giorgetti: “The economic picture has changed, it is inevitable to update estimates”

In 2022 the tax burden will rise to 43.8%, -0.1 point on the September estimate

“The economic situation has changed compared to the end of September” and “it has been inevitable to update not only the programmatic macroeconomic and public finance framework for 2022-2025, but also the trend forecast on which it is based”. This was stated by the Minister of Economy, Giancarlo Giorgetti in the introduction to the Nadef which yesterday was approved by the Council of Ministers on the proposal of Prime Minister Giorgia Meloni and Minister Giorgetti and which allocates about 21 billion euros for 2023 to contrast to the increase in energy costs, which also gives rise to the surge in inflation. To these resources are added approximately 9 billion deriving from the so-called extra revenue of 2022.

“Recent economic trends – underlines the minister – have been more positive than expected, since in the third quarter the GDP increased by 0.5% on the previous period, contradicting the expectations of forecasters and bringing the growth acquired for this year. (on the average of quarterly data) to 3.9%. Furthermore, while consumer price inflation has unfortunately increased, the wholesale price of natural gas has recently fallen both at the European level and, to a greater extent, on the Italian market. , so as to imply a temporary relief to the economy in the immediate future. On the other hand, the expectations of businesses and households, and the estimates of domestic and international forecasters on the future trend of the economy, have worsened considerably. The decline in the cycle is increased by the substantial increases in key interest rates by the main central banks in response to inflation data, which impact on the balance sheets of households and businesses “.

On the basis of these premises, Giorgetti points out, “it was inevitable to update not only the programmatic macroeconomic and public finance framework for 2022-2025, but also the trend forecast on which it is based”.

In Nadef, the GDP growth forecast in the trend scenario with current legislation has been revised upwards for 2022, from 3.3% to 3.7%, while that for 2023 has been defined at 0.6%. For 2024 and 2025 the forecasts remained unchanged, at 1.8% and 1.5%. The document, on the other hand, indicates a programmatic growth of 0.6% for 2023. With regard to the estimates of the trend deficit, those of September are confirmed: in 2022 and 2023 net debt is expected to be 5.1% and 3.4% of GDP, respectively. On the other hand, the deficit forecasts for 2024, from 3.5 to 3.6% of GDP, and for 2025, from 3.2 to 3.3%, have been revised slightly upwards. A steady decline in debt is also expected in the coming years, up to 141.2% in 2025, while a strong commitment will also be dedicated to the implementation of the National Recovery and Resilience Plan (Pnrr), on which investments depend to relaunch sustainable growth of the Italian economy.

In view of the preparation of the next budget law, the government has also approved the Report to Parliament to request the authorization for the budget deviation, where the deficit targets are set at 4.5% in 2023, 3.7% in 2024 and 3% in 2025 and which takes into account the extra revenue of 9.1 billion for 2022.

In 2022, the tax burden under current legislation will rise to 43.8% of GDP, a level 0.1 percentage points lower than the September forecast. From 2023 to 2025, an average decline of around 0.4 points of GDP per year is expected, reaching 42.5% of GDP at the end of the period. In 2023, according to the Nadef, indirect taxes are expected to grow at a higher rate by more than one percentage point compared to the September forecasts (+ 10.4% compared to + 9.2% in September), while in the following two years an average growth of +2.7 per cent is confirmed. For direct taxes, greater dynamism is expected in the two-year period 2024-2025, in which this type of revenue is expected to grow on average at a rate of + 3.1% (+ 2.7% in September). The update of the forecasts considers, among other things, the new growth forecast of pension amounts, updated to take into account the revaluation linked to inflation expected with the new macroeconomic framework. The trend of social security contributions remains substantially in line with the provisions of the Nadef legislation in force in September.

In the years 2023-2025, the primary balance will be “slightly better than in September. In particular, a primary surplus of 0.7 per cent of GDP is expected in 2023 (0.5% in September), 0.2% in 2024 and 0.8% in 2025 (0.7% expected in September). The improvement in the forecasts of the primary balance compared to those of September compensates, entirely in 2023 and partially in 2025, the worsening of interest expenditure, thus limiting the upward revision of the deficit forecasts “. This is what we read in the Nadef which was published today.

On the side of primary expenditure, the forecast of pension expenditure increased by about 0.6 billion in 2023 and by about 7.1 billion in 2024 compared to the scenario under current legislation of the Nadef in September. These higher charges, the document reads, are substantially related to the various hypotheses of indexation of pensions following the revision of the forecast profile of the inflation rate. The increases in nominal pension expenditure compared to the September forecasts are equal to approximately 5.6 billion in structural terms in 2025. The increase in 2025 is equal to approximately 6 billion for the total expenditure for social benefits in cash.

The combined effect of these increases and the expected new level of nominal GDP determines a slightly higher profile of pension expenditure in relation to GDP than in September. After reaching a level of 16.6 per cent of GDP in 2024, the ratio of pensions to GDP will stand at 16.5% in 2025, compared with the 16.4 per cent forecast for both years. September.