–Little fiscal room for tax cuts
— Govt to raise yearly debt issuance to €350bln
By Silvia Marchetti
ROME (MaceNews) – For the first time since her appointment as Italian prime minister one year ago, support for Giorgia Meloni is dropping as voters fear she will not deliver promised tax cuts amid a deteriorated outlook which according to ruling coalition sources will push the government to increase debt issuance for this year to €350 billion.
Recent polls suggest 47 percent of citizens disapprove of Meloni’s policies, up from barely 25 percent six months ago. If support for Meloni and her Brothers of Italy group falls more, her party could lose the majority stake it has within the ruling coalition, paving way to a cabinet reshuffle and political uncertainty that could destabilize markets.
“Meloni’s ‘stardom moment’ has started to decline, her honeymoon with voters is already over. People are weighing what she has accomplished during this one-year rule and realize that there has been zero progress on the economic front, it was all rhetoric and those who voted for her now feel betrayed,” said a Democrat deputy.
Earlier this week, protesters took to the streets against Meloni’s policies, causing the police to intervene when a batch of eggs was thrown toward the bewildered premier.
Meloni’s approval rate is collapsing due to a deteriorating economic outlook which leaves little ‘wiggle-room’ to find resources for ambitious tax cuts for low earners, said a 5 Star Movement official, noting how the “beginning of her downfall paradoxically coincided with the first anniversary of her rightist cabinet.”
Her one-year rule has yet to yield the first budget plan for next year as available resources won’t meet commitments and the economy isn’t performing as expected.
The cabinet recently revised growth and deficit targets in its fiscal document, which is the pillar of the next budget plan.
Next year’s growth target has been cut to 1.2 percent from previous 1.5 percent predicted in April, while the deficit to GDP target was raised to 5.3% this year, and to 4.3% next year.
A Democrat official noted that the government had no targets to curb public debt over the next two years and was aiming to raise deficit spending which would just pile up more debt.
“In order to have a significant budget plan worth €30 billion to cut taxes for low earners, we need to raise at least half this sum, €16 billion, through extra deficit spending this year, and more next year if needed,” confirmed a ruling coalition source.
The government will likely raise its debt issuance target to €350 billion this year, up from €310 billion forecast at the start of 2023. So far, the Treasury has already covered nearly 80 percent of its funding program.
Meloni also cut expected growth for this year to 0.8 percent from a 1 percent forecast made in April when things seemed brighter.
“The outlook has worsened mainly due to two factors: the restrictive policies and the killer rate hikes of the European Central Bank, and the repercussions of the war in Ukraine,” said a government official, warning how rising interest rates have slowed the recovery and raised borrowing costs.
The average cost of funding is currently at 3.7 percent, up from 1.71 percent in 2022 and the highest level since 2008.
The deteriorating scenario makes it harder for premier Meloni to introduce tax cuts for ailing families promised in the 2024 budget, which must be approved by parliament by November and then sent to the European Commission for approval.
Another front which is causing Meloni’s popularity to drop is her handling of the migrant emergency at Italy’s southern borders, where hundreds of refugees land on a daily basis.
According to a survey, 39 percent of her electorate thinks she is not doing enough to raise pressure on the European Union for a greater burden-sharing approach in patrolling Mediterranean shores and hosting migrants in camps across Europe.