Italy’s Conte Fights to Defuse First Coalition Clash on Budget

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(Bloomberg) -- Prime Minister Giuseppe Conte sought to stamp out the first tensions within his new cabinet, saying he’s secured the resources needed to avoid an automatic sales tax hike in the next budget.

Conte is due to present a framework for the 2020 budget to a cabinet meeting at 6:30 p.m. on Monday. Overnight, he presided over a fractious, four-hour gathering of coalition leaders who debated budget issues until the early hours.

The new Conte government, an alliance of the anti-establishment Five Star Movement and the center-left Democratic Party, is seeking to boost a stagnant economy while ensuring smooth negotiations with the European Commission.

“We have found the 23 billion,” Conte told reporters on Monday, in reference to the revenue needed to fulfill his promise to avert an automatic sales tax hike. Coalition lawmakers have clashed over a proposal to tweak the sales tax, with some warning that even tightly targeted increases would be politically dangerous.

‘Not a Mediator’

The administration is targeting a deficit-to-GDP ratio for next year of about 2.2% in its draft budget, according to a senior lawmaker who asked not to be named discussing confidential talks. It targets GDP growth of 0.6% GDP growth in 2020, the official said.

Conte is working to shed the image of being a mere mediator between quarrelsome coalition partners. The premier played that role for much of his first administration, trapped between Matteo Salvini of the rightist League and Five Star’s Luigi Di Maio.

Asked whether he will again be reduced to a mediator role, Conte shot back. “No, not a mediator, this is not about being the mediator, I am a reformer for all Italians.”

Conte’s previous administration twice risked a debt procedure over populist election promises, and he’s eager now to reassure investors and the commission about the finances of one of Europe’s most indebted countries.

Conte said his priorities for the budget include encouraging Italians to use debit and credit cards instead of cash, to counter tax evasion.

Italy’s Conte Fights to Defuse First Coalition Clash on Budget

Finance Minister Roberto Gualtieri said over the weekend that Italy will commit to a slightly expansionary budget and acknowledged the government is weighing options to change the structure of VAT. That caused immediate friction, with some Five Star lawmakers warning that even minimal changes would be unacceptable.

In an unexpected alliance between one-time enemies, Five Star aligned with former Premier Matteo Renzi’s new Italy Alive party in insisting the sales tax remains completely untouched. Both groups want to blunt criticism from the opposition -- particularly Salvini.

“We formed a government to send Salvini home and avoid raising VAT,” Renzi said on Facebook Monday. “Increasing VAT would be a slap in the face for consumers, particularly the poorest.”

Gualtieri said he’d “rather be in the middle right from the beginning” in terms of deficit-GDP ratio, hinting that the number for 2020 would be between this year’s original goal of 2.4% and the revised target of 2.04%.

©2019 Bloomberg L.P.

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