Italy May Face Major Issue in 2020 Budget, EU's Dombrovskis Says

(Bloomberg) -- Italy risks a rerun of tensions with the European Commission over its 2020 budget unless next year’s deficit is partially offset by a rise in the value-added tax or other measures, said European Commission Vice President Valdis Dombrovskis.

The stalemate with Brussels, which roiled bond markets last year, was eased after Italy’s populist government pushed through a budget on Dec. 30 that reined in the deficit from the original target and delayed some spending pledges to next year.

“The strategy they presented for 2020 relies heavily on using VAT safeguard measures,” Dombrovskis told reporters in Riga on Tuesday. Previous Italian governments had also promised but not implemented value-added tax increases, he said.

Italy’s government agreed to cut the 2019 deficit target to 2.04 percent from an initial 2.4 percent, reduced the cost of a lower retirement age and welfare benefits, and trimmed its outlook for economic growth to appease Brussels and avoid fines for breaching EU rules. Next year’s budget strategy relies on using the value-added tax to help ensure targets are met.

“We must see how it will work out in 2020 because if it is not implemented, then indeed there may be a major issue with the budget,” Dombrovskis said.

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