Italy Commits to Reducing Deficit Below EU's 3% by 2026

29 Aug, 2024

Italy Commits to Reducing Deficit Below EU's 3% by 2026

Italy plans to reaffirm its commitment to reducing the deficit-to-GDP ratio below the European Union's 3% ceiling by 2026. The Treasury's medium-term structural budget plan, set for presentation by mid-September, aims to comply with the EU's Excessive Deficit Procedure. This procedure requires Italy to cut its structural budget deficit, which excludes one-off factors and business cycle fluctuations, by 0.5% to 0.6% of GDP annually. The new fiscal rules mandate gradual deficit and debt reduction starting in 2025, spanning four to seven years.

The Treasury projects the deficit to align with the government's April-May estimates, aiming for a reduction to 3.6% of GDP in 2025 and 2.9% in 2026. Italy's 2023 deficit, the highest in the euro zone, stood at 7.4% of GDP, largely due to incentives for energy-saving home improvements. The structural budget plan, which will set the stage for the 2025 budget, must be submitted to EU authorities by September 20.

Despite the deficit-cutting goals, Prime Minister Giorgia Meloni's government intends to extend temporary social and tax cuts through 2025, costing approximately 15 billion euros. The government is also considering additional tax cuts for those earning up to 60,000 euros, though financing details remain unclear.