Italy Targets 2020 Deficit as Low as 2% Amid Economic Slowdown

(Bloomberg) -- Italy’s new government is targeting economic growth of up to 0.5% next year, with a deficit at around 2% to 2.1% of output, according to a senior official.

Finance Minister Roberto Gualtieri, who’s drawing up the framework for the 2020 budget, is basing his plans on a conservative economic outlook that doesn’t take planned expansionary measures into account, said the official, who asked not to be named discussing confidential matters.

Italy’s economy is forecast to stagnate this year, the worst performance in the Group of Seven. Without the expansionary measures, growth would only reach 0.2% in 2020, the official said. That would be lower than the 0.4% forecast by the OECD earlier this month.

Prime Minister Giuseppe Conte, who leads a recently installed coalition of the anti-establishment Five Star Movement and the Democratic Party, will need to find some 23 billion euros ($25.3 billion) in savings or extra revenue to meet a pledge to avoid an automatic sales tax hike.

Conte, who’s seeking closer ties with Brussels than his last administration had, wants to avert a new clash with the European Commission over spending. His previous government twice risked debt procedures over its budget plans.

Labor, Preschool

Conte has also promised to cut taxes on labor and to scrap preschool fees for low-income families. Labor tax reductions will cost between 4 billion and 5 billion euros; the preschool measure would cost about 300 million euros a year, the official said.

The government is confident that the budget, which has to be approved by parliament by year end, will boost GDP growth to between 0.4% and 0.5%, the official said.

Achieving its growth target would allow the government to bring Italy’s deficit-GDP ratio to between 2% and 2.1%, enough to fulfill commitments to European partners, the official said.

A spokesman for the finance ministry declined to comment.

To finance spending, Conte will draw on higher-than-planned revenue, interest savings on the national debt, and lower spending on the previous coalition’s landmark measures -- earlier retirement and a so-called “citizen’s income” for the poor.

Gualtieri is due to give parliament an update on the government’s economic and financial plans this week, the first step toward producing the formal 2020 budget, which must go to the Commission by mid-October.

--With assistance from Iain Rogers.

To contact the reporters on this story: John Follain in Rome at jfollain2@bloomberg.net;Alessandro Speciale in Rome at aspeciale@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Jerrold Colten, Fergal O'Brien

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