July 1, 2019 / 5:18 PM / 21 days ago

Italy cuts 2019 deficit target, says any EU crackdown unjustified

ROME (Reuters) - Italy cut its 2019 budget deficit target on Monday in an effort to avoid European Union disciplinary action over its public finances, saying the revised data meant the country was fully compliant with EU rules.

FILE PHOTO: Italy's Prime Minister Giuseppe Conte arrives at a European Union leaders summit in Brussels, Belgium, June 30, 2019. REUTERS/Francois Lenoir/Pool

The European Commission has threatened to move against Rome because it failed to reduce its large public debt in 2018 as promised, and has called on the Italian government to bolster state accounts.

Prime Minister Giuseppe Conte called a cabinet meeting on Monday to review public finances, issuing a statement afterwards saying both the structural and headline deficit would fall this year thanks to higher-than-expected revenues and lower spending.

“The government believes it is amply in compliance with the rules of the (EU) Stability and Growth Pact,” the Treasury said.

It did not give new deficit data in percentage terms but said the headline figure would come in some 7.6 billion euros (6.80 billion pounds) lower than previously forecast.

A government source said this would translate into a deficit of 2.04% of output against the 2.4% forecast in April. Another source said the cabinet was sticking by its 2020 deficit target of 2.1%. Brussels has predicted much higher numbers for both years and has urged action to rein in the overshoot.

The government has ruled out any belt-tightening, but has said it can cut this year’s deficit forecast thanks partly to the fact that two flagship budget measures - an early retirement option and a universal income for the poor - proved less popular, and therefore less costly, than expected.

In addition, recent measures against tax evasion have raised more money than initially budgeted.

DECISION DELAYED

At some 132% of GDP, Italy’s debt is proportionally the highest in the euro zone after Greece’s and according to the Commission it will rise further this year and next.

The leaders of Italy’s two coalition parties, Matteo Salvini of the right-wing League and Luigi Di Maio of the anti-system 5-Star Movement, have promised to implement tax cuts next year in an effort to boost the lacklustre economy.

They warn that any austerity will trigger a downturn and accuse the Commission of following an outdated economic playbook.

The EU executive had been expected to decide on Tuesday whether to recommend disciplinary action, but the meeting has been delayed because European leaders have not yet reached a deal over top appointments within the bloc, snarling the Commission schedule.

President Sergio Mattarella threw his weight behind the government on Monday, saying the economy was robust and that several of the country’s main economic indicators were positive.

“I see no reason to open a disciplinary procedure against Italy”, he said during a visit to Vienna.

Reporting by Giuseppe Fonte; writing by Angelo Amante; Editing by Crispian Balmer

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