The Italian cabinet on Monday signed off on an expansionary 2019 budget, boosting welfare spending, cutting the retirement age and hiking the deficit to set up a showdown with authorities in Brussels over compliance with EU rules.
The government of the right-wing League and the anti-establishment 5-Star Movement had already issued the financial framework for the budget, raising the target for next year's deficit to 2.4 per cent of gross domestic product. That is comfortably below the EU's 3 per cent ceiling, but up sharply from a targeted 1.8 per cent this year, unnerving financial markets and contravening EU regulations that call on Italy and similarly highly indebted countries to narrow the deficit steadily towards zero.
So far, the reaction from Brussels has been irate, with EU commissioners threatening to reject the package before formally receiving it, and triggering a war of words with Rome. The Commission will now assess the fiscal framework - a separate document from the budget law - over two weeks, and could dismiss it and ask Rome to draw up a new one.
The EU executive has never taken this step since it was given beefed-up powers in 2013. The League and 5-Star say they will not backtrack, arguing that their big-spending budget is needed to boost growth and tackle rising poverty in the euro zone’s third largest but most sluggish economy.
"This budget keeps the government's promises while keeping public accounts in order," prime minister Giuseppe Conte told reporters after the cabinet meeting, flanked by his top ministers. Its key measures include a basic income for the poor, a partial amnesty for citizens who settle tax disputes with the authorities, and tax cuts for the self-employed.
The Commission says the budget will push up Italy’s public debt which stood at 131 per cent of GDP last year, the highest in the euro zone after Greece’s. It rejects Rome’s argument that the package can lower debt by expanding the economy.
