Italy Maintains Commitment to Reduce Deficit Below EU’s 3% Ceiling by 2026, According to Reuters

By Giuseppe Fonte

ROME (Reuters) – Italy is set to reaffirm its commitment to reduce its deficit-to-GDP ratio below the European Union’s 3% threshold by 2026, according to sources familiar with the situation. This announcement will be part of the Treasury’s medium-term structural budget plan, which is expected to be presented by mid-September.

Earlier this year, the EU placed Rome under an Excessive Deficit Procedure. This necessitates the new budget framework to address the fiscal gap in accordance with EU regulations, while also adhering to the latest revisions of the bloc’s fiscal rules.

As part of the infringement procedure, Italy is required to decrease its structural budget deficit—adjusted for one-off factors and cyclical variations—by between 0.5% and 0.6% of GDP each year. The updated fiscal guidelines mandate a gradual but consistent approach to reducing both the deficit and debt from 2025 over a period of four to seven years.

Sources, who spoke on the condition of anonymity due to the sensitive nature of the discussions, indicated that the Treasury anticipates Italy’s deficit to align with the budget projections made in April and May. At that time, the government pledged to reduce the fiscal gap to 3.6% of GDP in 2025 from an anticipated 4.3% this year, with a target of 2.9% by 2026, even though current trends suggest slightly higher levels.

Italy’s deficit for 2023 has reached 7.4% of GDP, marking the highest in the eurozone, largely attributed to generous incentives for energy-efficient home renovations, known as the Superbonus.

The structural budget plan, which outlines the framework for the 2025 budget, must be submitted to EU authorities by September 20.

Despite its commitment to reducing the deficit, Prime Minister Giorgia Meloni’s government has expressed intentions to extend temporary reductions in social contributions and tax cuts for individuals earning up to 28,000 euros per year into 2025. Currently, these measures are set to expire in December, with an estimated cost to the state of around 15 billion euros for their extension.

Additionally, there are reports that the government is developing another package of tax cuts aimed at individuals earning up to 60,000 euros.

The sources did not clarify how the government plans to finance these initiatives. Meloni is scheduled to meet with key coalition members on Friday to discuss the budget strategies moving forward.