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Italy Fiscal October 2021

Italy: Draft 2022 budget sees slight increase in spending to boost economy

On 19 October, the prime minister’s cabinet approved a draft of the 2022 budget, which will now be sent to the European Commission. Although full details of the plan are yet to be announced, reports suggest it includes an income tax break, spending directed at minimizing the impact of higher energy prices, and additional unemployment benefits. The budget is expected to continue the current fiscal consolidation strategy: The debt-to-GDP ratio will be lowered through economic growth fueled by investment, aided by both public capital spending and incoming European funds.

The preliminary draft budget sees spending rising by EUR 23.6 billion, with EUR 6 billion dedicated to an income tax cut and a reported EUR 1–2 billion aimed at capping household energy bills. Meanwhile, a further EUR 800 million will be allocated to unemployment benefits. The government projects the budget deficit will reach 9.4% of GDP in 2021, before falling to 5.6% in 2022.

On the topic, Loredana Maria Federico, chief Italy economist at UniCredit, commented:

“The government principally stated that the greater resources available for next year will used for interventions aimed at: 1. renewing some economic measures to support the response to the pandemic, including those relating to health (e.g. vaccines) and government-guaranteed credit (the SME Guarantee Fund will be refinanced), as well as to the extension of the bonus used to finance building renovations; 2. supporting interventions in the labor market, for example to strengthen the social safety net, and the reform of family policy; and 3. implementing the initial steps of a tax reform to gradually lower Italy’s high tax burden, within the framework set out in the delegating law on the revision of the tax system . We assume that most of these interventions will be structural in nature, thereby affecting the budget balance for the coming years.”

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