Italy's new coalition government slightly raised the country's budget deficit target for 2020 in an effort to kickstart its economy while testing the EU's flexibility on its member states' fiscal measures, Reuters reported, citing a document by the treasury ministry.
The government expects the budget deficit to come in at 2.2% of GDP in 2020, up slightly from the last forecast of 2.1% in April. The structural deficit, which strips out one-offs, is forecast to rise 0.2 percentage point to 1.4% of GDP in 2020, compared with Italy's previous commitment with the EU of a 0.6-percentage-point decline.
The 2020 budget deficit will mostly go toward offsetting an increase in value added sales taxes, which would kick in from January 2020 to raise €23 billion and ensure that Italy stays within the EU's fiscal limits, unless it finds other sources of funding.
The previous coalition government, which included the eurosceptic League party, fought with Brussels to raise the 2019 deficit to 2.4% of GDP in order to boost welfare spending. The target was eventually cut to 2.04% of GDP.
Italian Economy Minister Roberto Gualtieri said he hoped for a "constructive dialog" with the EU over his country's budget deficit target, according to the report.
Italy is now expected to grow 0.1% in 2019, down from a previous forecast of 0.2%, while economic output is expected to grow 0.6% in 2020, down from a previous forecast of 0.8%, according to the report. The country's debt is forecast to reach a new record high of 135.7% of GDP in 2019, before declining to 135.2% in 2020.
The coalition, which comprises the 5-Star Movement and the Democratic Party, will come out with its first budget next month, based on forecasts agreed upon by the cabinet.
