Italy's Salvini says budget deficit must not fall in 2020

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ROME (Reuters) – Deputy Prime Minister Matteo Salvini said on Tuesday that Italy must not reduce its budget deficit next year as a proportion of gross domestic product, in order to allow space to cut taxes and stimulate the economy.

Italy’s Interior Minister and Deputy Prime Minister Matteo Salvini looks on as Italy’s government is set to face Senate confidence vote on security and immigration decree in Rome, Italy, August 5, 2019 REUTERS/ Remo Casilli

“It’s clear that if we want to put real money into the pockets of the Italians we can’t go below 2%,” the leader of the right-wing League party told reporters in Rome.

That would effectively mean no deficit cut from this year’s targeted level, which was set at 2.04% in July after a drawn-out tussle with the European Commission.

The government of the League and the anti-establishment 5-Star Movement is starting preliminary work on the 2020 budget which will be presented in the autumn, amid constant bickering between the coalition partners.

Salvini said it would be clear by September “or even earlier” whether the government can carry on or not.

Salvini and the League are insisting on large-scale tax cuts next year, despite assurances from Economy Minister Giovanni Tria, an unaffiliated technocrat, that the deficit will remain contained.

Salvini, whose party is by far the most popular in Italy, according to opinion polls, said “a big shakeup” was needed in the form of tax cuts in order to boost the stagnant economy.

He said he would launch yet another round of negotiations with Brussels to get license to hike the deficit next year and threatened to bring down the government if his ambitions were blocked.

When Italy cut its 2019 deficit goal to 2.04% from 2.4% in July to avert a disciplinary procedure by the European Commission, it gave no new target for 2020, which was set in April at 2.1%.

Earlier on Tuesday, Massimo Garavaglia, the League’s deputy economy minister, told Reuters the party wanted 15 billion euros ($16.79 billion) of tax cuts next year, of which 12 billion would be reductions in personal income tax and 1 billion of lower property tax.

In addition, an 80-euro-per month income supplement for low-earners introduced by the previous center-left government would be converted into a reduction in social contributions, he said.

The government also needs to find some 23 billion euros to keep a promise to scrap a rise in sales tax scheduled to kick in from January.

It remains to be seen how this can be squared with a budget deficit anywhere near 2% of GDP or with the ideas of Tria and the 5-Star Movement.

($1 = 0.8933 euros)

Writing by Gavin Jones, editing by Ed Osmond