Italy: What’s up in the first draft of 2019 DEF

The first draft of the updated fiscal plan document has been published and approved by the current Italian government. The main points are: significant downward revisions to GDP growth and the path of debt (% GDP) and deficit (%GDP) but few indications on how to offset the rising deficit. The current ruling Italian coalition (5 Star Movement and Lega) remained confident that measures as the Reddito di Cittadinanza (Universal Income), Flat Tax reform, Quota 100 (Pension reform), “ Decreto Crescita ” and “ Decreto Sblocca Cantieri ” will play a crucial role in boosting the economic activity of the country. The fiscal costs of these measures, however, are significant and will add up to at least €53bn in 2020-2021, which, without other offsetting measures, would lead to an increase in VAT from 22% to 25.2% in 2020 and to 26.5% in 2021. This would imply a significant adverse shock to the economy. But the current draft document did not mention this. Overall, the document publish ed follows the political line of the current government since its inception: adjusted growth promises and rollover in the future of details about their implementation.