July 3, 2018 / 12:21 PM / 2 years ago

Italy says won't trim 2018 deficit but will keep budget in check

ROME (Reuters) - Italy will not adopt measures to narrow the budget deficit this year, as requested by the European Commission, and is also ready to increase next year’s deficit target, new Economy Minister Giovanni Tria said on Tuesday.

FILE PHOTO: Italian Economy Minister Giovanni Tria listens as Prime Minister Giuseppe Conte (unseen) speaks during his first session at the Lower House of the Parliament in Rome, Italy, June 6, 2018. REUTERS/Tony Gentile/File Photo

The Commission asked Italy to lower its structural deficit - adjusted for the business cycle and one-off items - by an additional 0.3 percentage points of economic output in 2018, and Tria had previously said he would be ready to do that if necessary.

But he told a parliamentary hearing: “The government doesn’t have the intention of adopting corrective measures for this year.”

A former economics professor, Tria is not affiliated to the anti-establishment 5-Star Movement or the right-wing League, the two parties that formed a government coalition last month promising to slash taxes, raise welfare spending and challenge EU budget rules.

He said the deficit so far was fully in line with the target of the previous centre-left government and he planned to ensure the structural balance did not worsen and that Italy’s huge public debt came down.

The debt, at around 132 percent of GDP, is the highest in the euro zone after Greece.

For 2019, he said the current goal to reduce the deficit to 0.8 percent of gross domestic product from 1.6 percent this year appeared “too drastic” - the first time he had indicated Italy would not meet its budget commitments for next year.

The current official forecast that the economy would grow 1.5 percent this year will probably have to be cut, Tria said, and confirmed the government would seek license from the EU to spend more to carry out its programme in 2019.

Weaker exports and slowing industrial output were already weighing on Italy’s economy, and the prospect of U.S. tariffs on European cars was “very worrying”, he said.

“Italy ...is exposed to the consequences of protectionism directly and indirectly,” he said.

Tria rejected criticism from lawmakers that his plans were too conservative. He said allowing the structural budget deficit to rise, as some in the government want, would “expose us to speculative attacks from the markets which we cannot afford.”

The government’s expensive programme of tax cuts will be adopted gradually over five years, and will focus initially on those on low and middle incomes, he said.

Despite his generally moderate tones, he said the current deficit targets for both 2019 and 2020 “will have to be raised a bit.”

Italy would take a tough line to try to change EU rules to allow more scope for public investment, and was ready to “impose a veto on other EU plans” to get its way, he said.

Reporting by Giuseppe Fonte, writing by Gavin Jones; Editing by Crispian Balmer and John Stonestreet

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