Italy Populists Slap Down Tria Over Comments on VAT Rise

(Bloomberg) -- Finance Minister Giovanni Tria earned a swift rebuke from the populist parties that run Italy’s government after he told Parliament that value added tax could rise if the coalition doesn’t find an alternative source of revenue.

Tria has clashed repeatedly with the anti-establishment Five Star Movement and the rightist League, as he resists their spending plans. Both parties are under pressure to reassure voters about the economy and budget ahead of next month’s European Parliament elections.

The gloomy outlook for Italy’s economy was confirmed last week, with new forecasts predicting almost no growth this year. The government is now targeting a budget deficit at 2.4 percent of GDP this year, compared with the 2.04 percent agreed on with the European Union at the end of 2018.

An automatic hike in VAT, already on the books as law in Italy, will be “confirmed pending the drawing up, in coming months, of alternative measures,” Tria told a joint session of the finance committees of the lower house and the Senate in Rome on Wednesday.

Political Will

Deputy Premier Luigi Di Maio, Five Star’s leader, was quick to push back. “There will be no VAT increase with this government, that has to be clear,” he said in a statement. “The aim is to reduce the fiscal burden on families and businesses. This requires political will. We have it, I hope others have it too.”

Other Five Star figures were more blunt. “If Tria wants to increase VAT, he can go to the PD,” Ansa news agency reported, citing an unnamed Five Star official and using the abbreviation for the opposition Democratic party.

A government move to eliminate the current automatic VAT hike could cause the deficit to widen to 3.4 percent in 2020, Eugenio Gaiotti, chief economist at the Bank of Italy, told lawmakers Tuesday. That would be in breach of an EU limit, likely leading to a new battle with Brussels.

“VAT won’t increase, period. That’s the League’s commitment,” Deputy Premier Matteo Salvini, who heads the League, said in a statement. “We’re in government to cut taxes, not to increase them like other governments have done.”

Italian bonds extended declines following the politicians’ comments on VAT. The 10-year yield climbed 4 basis points to 2.63 percent, a six-week high, while the spread to German debt widened 2 basis points to 255 points.

Tria has warned that ambitious budget measures can’t be financed without raising taxes on consumption, while Di Maio, as well as Prime Minister Giuseppe Conte and Salvini have ruled out any increase or so-called corrective measures for the 2019 budget.

To contact the reporter on this story: John Follain in Rome at jfollain2@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Jerrold Colten, Ross Larsen

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