Maneuver in the EU’s sights: critical points on primary spending, deficit and employment

«The Commission is of the opinion that Italy’s updated budgetary plan is not fully in line with the Council recommendation of 14 July 2023». This is what we read in the recommendations published by the European executive. A higher net primary expenditure in 2023 than forecast (despite the Italian estimates for 2024 being below the required threshold); the failure to use savings from the elimination of energy support (1% of GDP) to reduce the deficit and the limited scope of the effects from the cut in taxation on labor: these are the elements that led the European Commission to judge Italy’s budget plan as “not fully in line with the Council recommendation of 14 July 2023”. The European executive therefore invites Italy to «stand ready to adopt the necessary measures within the national budget process to ensure that fiscal policy in 2024 is in line with the recommendation».
Italy is part of the group of nine eurozone countries postponed, along with Austria, Germany, Luxembourg, Latvia, Malta, the Netherlands, Portugal and Slovakia. They risk not being online instead Belgium, Finland, France and Croatia. Seven were promoted: Cyprus, Estonia, Greece, Spain, Ireland, Slovenia and Lithuania.
The weak point of the Italian budget concerns the high primary expenditure calculated for 2023. The Commission – in its autumn package – writes that the growth of net primary expenditure financed at national level should respect the maximum growth rate recommended in 2024. However , if net spending in 2023 was the same as expected at the time of the recommendation, the resulting growth rate of net spending in 2024 would be higher than recommended.

Maneuver in the sights of the EU

In detail, on 14 July the Council recommended that Italy 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%. According to the Commission’s 2023 autumn forecast, Italy’s net primary expenditure is expected to increase by 0.9% in 2024, a rate lower than the recommended maximum. However – explain the Brussels technicians – the current estimates of net primary expenditure financed at national level in 2023 are higher than what was expected at the time of the recommendation (by 0.8% of GDP). This is mainly due to two factors regarding the Superbonus tax credits: the Commission’s 2023 autumn forecast revised upwards their impact on the 2023 deficit following a higher-than-expected uptake and reflecting information contained in the Budget planning document; and to legislative interventions that change the nature of the tax credits, which implies that they have no expected impact on 2024 spending. In essence, the debt burden has been offloaded onto 2023, relieving the 2024 accounts, also thanks to the interpretation provided by Eurostat on payable credits.

THEFurthermore, the Commission projects that Italy’s nominal budget deficit will be at 4.4% of GDP in 2024, above the treaty reference value of 3% of GDP, and the public debt-to-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. This makes Italy one of the countries at risk of infringement proceedings for excessive deficit. Finally, the Commission considers that Italy has made limited progress regarding the structural elements of the budgetary recommendations issued by the Council on 14 July 2023 and therefore calls on the Italian authorities to accelerate progress.

Gentiloni: no rejection

There is “no rejection” of Italy’s economic maneuver on the part of the European Commission. The European Commissioner for Economy confirms this Paolo Gentiloni, at a press conference in Strasbourg. The Commission, he says, «has constructive relations by definition with the Italian government, as with the governments of the Union in general. In the case of the budget bill, our opinion is that it is not fully in line with European recommendations. Translated: this is not a rejection, it is an invitation to budgetary prudence and an invitation to make the best use of common European resources. It is not a rejection, but an invitation in those two directions.”