The time for the electoral campaign, for the Government, is over. After the European elections were successfully archived on one side (Lega) and with many questions on the other (M5s), the time has come to think about the public finance commitments who threaten to become absolute protagonists of the Italian government summer.
The irons on the fire, moreover, are abundant: from the EU infringement procedure to the increase in VAT deriving from the safeguard clauses, passing through the launch of a new flat tax and the possible use of minibots, pushed by the League, but rejected even in the last few hours ("Useless and illegal") by the Minister of Economy Giovanni Tria.
In this context, there are two appointments to mark in red on the calendar: the publication of the Update Note of the Def, scheduled for the end of September, and the definition of the contents of the manoeuvre, which should start soon after.
These are the topics at the center of the new "Congiuntura" published by Ref Ricerche entitled "The hot summer of public finance".
"The maneuver for 2020 is an integral part of a policy scheme that is based on the measures already implemented in 2019, characterized by significant financial commitments, with respect to which it is necessary to find adequate and structural hedges", reads the study which places the Center of the attention the coexistence of two heavy unknowns: on the one hand the need, repeatedly expressed by the Government, to sterilize 23 billion of escape clauses to avoid the VAT increase in 2020 (plus another 29 in 2021), on the other hand the need to keep public finances in balance already under the EU's lens and at risk of infringement proceedings.
The government, as mentioned, has no intention of raising VAT rates, but what is the alternative? “A maneuver based solely on the reduction of expenses is unfeasible – explains Ref – considering the extent of the measures that would be necessary to achieve the objectives on the balances indicated in the Def. Even more so if we wanted to keep the further promises to redesign the Irpef rates".
Recall that the Def indicates a deficit of 2,4% of GDP for this year, 2,1% in 2020 and 1,8% in 2021. The problem is that these numbers, according to the EU commission, could rise upwards, especially if the 23 billion needed are also taken into account to avoid the VAT increase.
“The uncertainty about the public finance framework is linked precisely to theproposed cancellation of VAT – reads the report – In fact, precisely because the intervention on VAT is of considerable size, it is believed that this, if adopted, could have effects on the political balance, causing a loss of popularity and a fall in support in favor of the Government ”.
“On the other hand – continues the study – a rise in the deficit would be frowned upon by the European markets and authorities. The latter have already started to raise the bar, after the letter sent to the Government and the start of the procedure for excessive debt towards Italy”. Ecofin's decision will arrive on July 9. In the event that the EU finance ministers decide to approve the procedure, the consequences would be significant from both a political and economic point of view.
This is the current picture. The Government will therefore have to choose which path to take: focus on an intermediate solution, trying to find a new meeting point with the EU, or collide head-on with the European Commission, playing all out for the purpose of obtain wider exemptions.
“The Italian budgetary policy game between now and the end of the year will be particularly hard-fought, as clearly emerged from the first exchanges, and from the very uncertain final outcome. The stakes are high.”
