Italy Will Keep Its Promise to Cut Its Debt Below the EU’s 3% Limit in 2026

According to sources familiar with the matter, Italy intends to reaffirm its dedication to reducing its deficit-to-GDP ratio below the European Union’s 3% limit by 2026. This commitment will be outlined in the Treasury’s medium-term structural budget plan, which is set to be unveiled by mid-September, as reported by Reuters.

Rome has been subjected to an Excessive Deficit Procedure by the EU this year. Additionally, its new budget framework must adhere to the latest reform of the bloc’s fiscal rules in order to reduce the fiscal gap as per EU guidelines.

While temporary factors and fluctuations in the business cycle are not taken into consideration, Italy is required to reduce its structural budget deficit by either 0.5 percent or 0.6 percent of GDP on an annual basis.

Deficit and Debt Will Be Reduced Gradually

From the year 2025 onward, the revised fiscal regulations mandate a method that is both gradual and consistent in its approach to reducing the deficit and debt, with the duration of this approach ranging from four to seven years.

Unnamed sources have reported that the Treasury Department is of the opinion that the deficit in Italy is in close agreement with the budget estimates that were presented in April and May. Because of the delicate nature of the situation, the sources of the information requested that they remain anonymous.

Previously, the government had pledged to bring the fiscal deficit down to 3.6% of GDP by the year 2025, which is a significant decrease from the 4.3% that was anticipated for this year. In addition to this, they intended to bring it down even further to 2.9% by the year 2026, despite the fact that the current trends indicate slightly higher levels.

The deficit for Italy in 2023 reached 7.4% of GDP, making it the highest among the countries that are members of the eurozone. There were a number of factors that contributed to this increase, the most important of which was the implementation of generous incentives, which are commonly referred to as the Super bonus, with the intention of encouraging energy-saving home improvements.

The structural budget plan for the 2025 budget must be submitted to the authorities of the European Union by the 20th of September. This plan will serve as the framework for the budget.

The Government’s Position on This Issue

The government, which Prime Minister Giorgia Meloni leads, has consistently expressed its intention to extend the temporary reductions in social contributions and tax cuts for individuals earning up to 28,000 euros ($31,125) annually until the year 2025. This is despite the fact that the government has stated that it is committed to reducing the deficit.

Both measures are currently in effect until December, and prolonging them until next year comes with a price tag of approximately 15 billion euros for the state’s finances.

In addition, a number of sources have indicated that the government is in the process of developing an additional set of tax reductions with the intention of assisting individuals whose incomes are up to 60,000 euros.

None of the sources offered any information regarding the proposed funding for the measures that the government would be implementing.

A meeting with Meloni and other influential members of her coalition is scheduled to take place on Friday in order to discuss Rome’s proposed budget.