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Italy to cut deficit by 0.3% of GDP in 2015

Staff writer ▼ | October 28, 2014
Italy will reduce its structural budget deficit by 0.3 percent of gross domestic product (GDP) in 2015, Economy Minister Pier Carlo Padoan wrote in response to Europe's request for clarifications on the country's draft budget.
Pier Carlo Padoan
The answer   Economy Minister Pier Carlo Padoan:
"The Italian government is committed to adopting additional measures for 2015 in order to strengthen the fiscal effort already envisaged in Italy's draft budgetary plan," Padoan wrote in a letter to European Economic Affairs Commissioner, Jyrki Katainen.

Padoan said in the letter that more adjustment was not possible as the Italian GDP had fallen over 9 percent from its 2008 level. "The economy is in its third year of recession and there is a serious risk of stagnation and deflation. A fourth year of recession must be avoided in every way," he highlighted.

The Italian government had initially planned to reduce the structural deficit by only 0.1 percent in 2015 after passing a 36-billion-euro budget for next year. However, the EU had asked for a bigger effort of about 0.5 percent of GDP.

The adjustments included tax cuts and delaying the target date for achieving a structurally balanced budget by a year, to 2017 from 2016, in order to boost economic growth.

But in a letter sent from Brussels last week, the Mediterranean country was asked to clarify why its financial plan for 2015 did not comply with the EU goals of debt reduction.

Katainen, who is in charge of budget evaluations, wrote that Italy was planning a "significant deviation" from its previous plans towards a balanced budget in structural terms.

Italian Prime Minister Matteo Renzi over the past months has pushed for more expansionary measures and less austerity within the EU in order to revive European economies, especially those still struggling after several years of stagnation.

According to Padoan, the additional adopted measures would cost the Italian state some 4.5 billion euros (about 5.70 billion U.S. dollars), of which 3.3 billion euros would be taken from "an allocation to deficit reduction of the fund originally set for lowering the tax burden."

Another half a billion euros would come from "a reduction of the share of domestic resources allocated to the co-financing of European Union (EU) cohesion funds" and 0.73 billion from "an extension of the reverse-charge regime to the retail sector supported by a surcharge on excise taxes as a safeguard clause."