(Bloomberg) -- Prime Minister Giorgia Meloni’s coalition pledged to get Italy’s budget deficit back under the European Union’s limit by 2026, in a move probably boosted by a revision to pandemic-era data.
Following a cabinet meeting in Rome, the government vowed that the shortfall will be below 3% within two years, with the full details to be unveiled next week after the publication of revisions to 2021 economic output. It’s likely that shift will create a windfall of as much as €3 billion ($3.3 billion).
“The government continues to move ahead with a fiscally prudent and responsible policy,” the finance ministry said in a statement on Tuesday. “After 2026, the path proposed will guarantee the stability of Italy’s debt and let the public finances face future challenges more effectively.”
The announcement didn’t refer to any trade-offs agreed upon within the alliance on how to fund the budget next year while sticking with expensive promises to voters, raising the prospect that Meloni and her partners remain at odds on how to do that.
With League leader Matteo Salvini insisting on the fulfillment of a tax cut that costs €10 billion, ministers had been looking at asset sales, intensified cost cuts and delayed retirement measures as options to balance the books, according to people familiar with the matter.
One lucky break for Meloni has been the likely boost from 2021. Statistics officials say the revision, reflecting a bigger-than-expected rebound from the pandemic, will increase the measurement of output for that year by between 0.9% and 1.2%.
According to Bloomberg calculations, the difference could bring a €3 billion gain to the government’s coffers.
A bigger size of the economy back in 2021, when juxtaposed against unchanged borrowing numbers, may cascade through subsequent annual data to show smaller deficits. Not only will that offer extra funding to the government, but it also augurs an easier task in getting its shortfall down under the EU ceiling.
This would be the second time that Meloni’s government has benefited from such a revision to 2021 data. Last year, the government gained about a few billion euros in fiscal room from a similar boost that mirrored upward revisions in the UK and Spain as statistics institutes reassessed output during a period of exceptional economic volatility.
While the new numbers are likely to help Meloni, the windfall still isn’t enough to solve her budget problems, with Finance Minister Giancarlo Giorgetti working on a fiscal package for 2025 worth about 25 billion euros.
--With assistance from Jorge Valero.
©2024 Bloomberg L.P.
