Italy Government Split on Spending as Budget Hits Crunch Time

(Bloomberg) -- As Italy enters a crucial week for next year’s budget approval process, the patchwork coalition running the country remains divided over crucial details.

The Five Star Movement-Democrat government must present a draft of its 2020 budget to the European Commission by Oct. 15, before final approval by year end. But with around 24 hours to go, the two parties, long-time rivals before they joined forces last month, continue to clash over spending commitments in the 29 billion-euro ($32 billion) plan, newspapers including la Repubblica reported.

A budget meeting that ran until the early hours of Monday morning failed to resolve differences between the parties, Il Sole 24 Ore reported, with funding for pension reforms introduced under the previous government continuing to be a sticking point.

Other points of contention: income support for families with children, changes to the pension system and the possible introduction of a minimum wage.

The government will try and reach a compromise position on those points before a Cabinet meeting to approve the draft budget, Ansa news agency reported, citing Prime Minister Giuseppe Conte as saying work over the coming days will be “feverish.”

Finance Minister Roberto Gualtieri is attempting to hammer out a deal on a budget that will contain Italy’s deficit at a level acceptable to the Commission while avoiding an automatic sales-tax hike that could put the economy at risk of stagnation.

Foregoing the tax increase would absorb 23 billion euros, leaving limited scope for measures to boost growth and investment.

Conte reiterated Saturday that the government will set aside sufficient resources to avoid the tax hike.

Rome set a 2020 deficit target at 2.2% of gross domestic product in its initial draft outlook, which would worsen the structural deficit by 0.1 percentage point next year.

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The parliamentary approval process will begin on Oct. 20 after the budget is submitted to the Commission, which is expected to issue an initial assessment by Nov. 30.

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