September 29, 2019 / 1:09 PM / 5 months ago

Italy's economy minister hints at 2.2% deficit target in 2020 budget

MILAN (Reuters) - Italy’s economy minister suggested on Sunday that the country’s budget deficit would be set at around 2.2% of domestic output next year, stressing the need for flexibility as Rome tries to rekindle stalled growth without reigniting friction with the EU.

FILE PHOTO - Italian Finance and Economy Minister Roberto Gualtieri talks to media before the informal meeting of ministers for economic and financial affairs (ECOFIN) and Eurogroup in Helsinki, Finland, 13 September 2019. Lehtikuva/Martti Kainulainen via REUTERS

Roberto Gualtieri said in an interview with RAI state TV that the 2020 deficit would be “a wise midway between 2.04% and 2.4%” of gross domestic product.

He made reference to last year, when the previous government originally set a 2019 deficit target of 2.4%, only to reduce it to 2.04% after an increase in yields on Italian bonds and a tussle with the European Commission.

“We need to use all the flexibility available,” he said.

This year’s deficit is seen at around 2.0% of GDP, Deputy Economy Minister Antonio Misiani said last week.

The cabinet is due to sign off on the new targets in the Treasury’s Economic and Financial Document at a meeting on Monday.

On Saturday, a political source said Rome would target its budget deficit at around 2.2% of GDP next year, falling to 1.8% in 2021 and 1.4% in 2022.

But the source said the targets were still subject to possible marginal revisions ahead of Monday’s meeting. In particular the 2020 deficit goal could be lowered to 2.1% depending on ongoing talks with the Commission.

Italy’s economic growth is seen around 0.6% next year, rising to 1.0% in each of the following two years, according to a draft of the targets seen by the source.

Gualtieri said the government was also weighing options for possible adjustments to value-added tax rates.

Rome has promised Brussels that it will increase VAT to raise some 23 billion euros ($25.2 billion) from January as a backstop in order to comply with EU fiscal rules if it could not find alternative resources.

So far Italy has said it wanted to avoid the planned VAT increase in full, but last week Prime Minister Giuseppe Conte did not rule out a decision on limited tweaks to the VAT regime.

Gualtieri said one of the options was to marginally increase one of the VAT rates but to hand money back to people who do not pay in cash for their purchases.

“The net effect of such adjustments of VAT rates will be that people will pay less, not more,” Gualtieri said.

He said that encouraging the use of credit cards would both “modernize” Italy’s economy and make it easier to reduce tax evasion.

In addition, the government would find some 7 billion euros for new measures to stimulate the economy, Gualtieri said.

He said the government planned to introduce a fund for ecological investments which he hoped would not be counted in EU calculations of the deficit. But he said this would not be ready in time for the 2020 budget, which must be presented to parliament by mid-October.

Writing by Giulio Piovaccari; Editing by Gareth Jones and Jane Merriman

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