Italy announces €24 billion budget amid market concerns

Italy’s government announced its budget for 2024 on Monday, setting out a new raft of fiscal measures worth around €24 billion in tax cuts and increased spending.

To the concern of some experts, already worried about Italy’s strained public finances, this will require €15.7 billion of extra borrowing.

The new budget is a departure from the sober programme proposed by Giorgia Meloni last year, when the prime minister followed in the cautious footsteps of her predecessor Mario Draghi.

At the end of last month, Meloni raised the public deficit forecast for 2024 to 4.3% of GDP, up from 3.7%.

This has allowed her to loosen up resources for her budget, but investors have since been demanding a higher premium to hold Italian government bonds.

One of Meloni’s financial priorities is to support large families, a move that aligns with her self-proclaimed Christian values, yet also seeks to alleviate concerns surrounding Italy’s ageing population.

The budget plans to exempt mothers from social security contributions if they have two or more children, and free nursery care has been promised from the second child onwards.

“A woman that gives birth to at least two children . . . has already made an important social contribution,” Meloni said. “This measure helps counter the narrative that favouring childbirth discourages women from working. The two things can go together.”

Fiscally responsible, or is it just popular?

The Italian government also plans to make average earners wealthier by merging tax brackets and decreasing payroll contributions.

At the moment, those who earn €28,000 a year pay a 25% income tax, whilst those who earn €15,000 are charged a 23% tax.

Next year, employees on €28,000 will however benefit from a reduced rate of 23%.

On top of this, workers’ mandatory payroll contributions will be reduced, which Meloni says will put €100 more a month into the pockets of 14 million Italians.

These policies may be popular with those on modest wages, but the prime minister’s critics accuse her of pandering to voters.

Italy’s leader nonetheless claimed: “It is a budget that I consider very serious, very realistic, a budget that . . . concentrates resources on some big priorities.”

Another of these priorities is bolstering Italy’s public services, as the budget has earmarked €7 billion for public sector salary increases.

€2.5 billion will go to health sector workers and wage increases are also planned for police personnel and security service workers.

Faced with these added cost burdens, Italy’s debt is predicted to fall only marginally over the next few years.

A reduction is expected from 140.2% of GDP in 2023 to 139.6% in 2026.

Following the announcement of Meloni’s budget, the bill will now go to the Italian parliament to be passed before the end of the year.

Markets will continue to react over the coming weeks, as credit ratings agencies release their analysis of the plans.

Many will equally be waiting for a reaction from the European Commission, who must also approve Italy’s budget.