The disclosure of some figures from the update note of the economic and financial document (NADEF), which establishes the macro framework for the next Italian budget, did not offer major surprises with respect to what had been leaked last week, nor to what that we expected. According to available figures, the government has taken stock of a deteriorating economic environment, cutting growth forecasts and making explicit the impact of the so-called “super bonus” tax credit on the current deficit and future debt.
According to the press release, the fiscal impulse that will be financed with deficit – represented by the difference between the trend deficit and the planned deficit – will amount to 0.7% of GDP in 2024, a relevant amount but not huge by historical standards.
Debt stabilization appears to be the main concern, and rightly so, given that we do not yet know what fiscal rule will be implemented from January 2024. However, the very limited room for maneuver that the projected debt dynamics leaves the government represents a potential source of political risks. Firstly, within the ruling alliance, since scarce resources will not allow ambitious electoral promises to be fulfilled in this budget round; secondly, between the Italian government and the EU Commission, in case complaints about excessive EU controls provoke procyclical reactions from the EU.
At the end of October, the Italian government must present the draft budget to Brussels. Progress in negotiations on the reform of the stability pact can help reduce underlying uncertainty and make this budget season orderly.