Five Star Challenges Italian Premier on Timing for Program

(Bloomberg) -- Luigi Di Maio, leader of the anti-establishment Five Star Movement, pushed Prime Minister Giuseppe Conte to move faster with new benefit spending to help struggling Italians.

Di Maio, one of two political heavyweights in the governing coalition, said the administration’s plan to cut taxes and introduce a so-called citizen’s income should be brought in “immediately” in the 2019 budget. He spoke in a television interview moments after Conte told reporters he wants to see the measures introduced “progressively.”

Five Star Challenges Italian Premier on Timing for Program

“We must do two measures immediately, and they are the citizen’s income and the flat tax,” Di Maio said on La7 television.

The tensions within the populist coalition signal the administration -- and investors -- may be in for a bumpy ride when it comes to thrashing out spending plans for 2019 during the fall. While both Di Maio and Conte insisted Italy should respect European Union budget restrictions, Di Maio also said that those constraints should be “improved.”

Italy’s 10-year bond rose on Conte’s initial comments. It pared the gains after Di Maio’s response with the yield up 1 basis point at 2.88 percent as of 4:36 p.m. Rome time.

‘Realistic’ Budget

Speaking to reporters at his official residence in the heart of Rome, Conte, a law professor with no political base of his own, said that he will insist on a “realistic” budget for next year. He said the flat tax and citizens’ income -- the signature policies respectively for the anti-migrant League and Five Star -- will be introduced gradually, and will be complemented by sweeping measures aimed at cutting red tape and favoring economic growth.

The results will be a budget that Italy can present to the EU “with its head held high,” Conte said ahead of his government’s summer break.

“Our package will be a complete package,” Conte said.

“Obviously this doesn’t mean, because we must be realistic, that we will accomplish all of these reforms in September. Still, we will have these reform projects, some to be carried out immediately, others progressively.”

Di Maio and his fellow deputy prime minister, Matteo Salvini of the League, have both made recent statements suggesting their program should take priority over limits to Italy’s budget deficit set by the EU. Finance Minister Giovanni Tria, an academic with no political background, has also insisted that Italy stick to the EU guidelines.

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The government is due to set new public-finance targets in late September, and to submit a draft budget to the European Union for review by October 15. The budget law will have to be finally approved by the Rome-based parliament by year-end.

©2018 Bloomberg L.P.