The second Giuseppe Conte government in Italy retains ambitious spending plans that may be in conflict with Brussel’s demands to reign over the public deficit.
Ahead of submitting the 2020 budget, Conte’s administration intends to slash payroll tax – whilst instituting a minimum wage – maintain a minimum guaranteed income for every citizen, and avoid an automatic VAT hike. That means increasing spending whilst achieving overall budget savings to the tune of €23bn in order to remain within the deficit limits set by the EU.
Conte’s emphasis is on cutting “wasteful state spending” and focus on growth, although fiscal consolidation of this kind can be challenging.
In a statement to Reuters, Eurogroup President Mario Centeno warned Rome on Monday that its 2020 budget should not violate the fiscal compact.
Italy must “continue in the difficult task of promoting growth with a fiscal policy that faces the restrictions that we all face,” Centeno said on the sidelines of the Ambrosetti forum near Lake Como.
Last Saturday, President Sergio Matarella echoed the Italian political consensus, calling for a less iron-clad implementation of the EU’s fiscal compact. Overall, the rhetoric of direct confrontation with Brussels is gone.
Since Matteo Salvini’s Lega withdrew its confidence in the first Conte government, there is no more talk of a parallel currency or a deficit-financed program of tax cuts.
Conte’s government wants an EU-wide minimum corporate tax, that is, a demand put forward by Emmanuel Macron and has time and again been resisted by the Netherlands, Ireland, Estonia, Luxembourg and other member-states.
Friction between Rome and Brussels is likely to remain.
For the moment, the Conte government faces it first confidence vote on Tuesday. His government cannot hope for the support of his former deputy prime minister, Salvini, who continues to demand elections whilst Lega members demonstrate outside the parliament.