Italy: internal battle over fiscal policy

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By Louise Miner  & Salvatore Falco
Italy: internal battle over fiscal policy

Italy's new government struggled to contain a fierce internal battle over fiscal policy on Thursday, hours before it was due to unveil its 2019 budget targets, sparking a sell-off of state bonds.

The Treasury department forecasts a 2019 deficit above 1.9 percent would put at risk the containment of Italy's debt, the highest in Europe after Greece.

However, the League and 5-Star, which formed a government in June, want the goal set around 2.4 percent.

In a speech on Wednesday (26 September 2018), Economy Minister Giovanni Tria tried to avoid a head-on clash with the European Union saying, "We're working on a mix of policies that show everyone they should have confidence in Italy, not only in our public finances but in our economic growth".

The budget will include the party's flagship policies, including a basic income for the poor which the 5 Stars Movement leader, Luigi Di Maio, is threatening to pull the plug on.

This reform is mostly directed to the south of the country, where unemployment rate is very high and where the 5 Star Movement received an extraordinary success in the last general election.

Lega, instead, asks for a Fiscal reform introducing the so called "Flat Tax", a single tax of 15% on Families with an income less than 80.000 euro, up to 20% with an income higher than 80.000.

The targets form the framework for the 2019 budget, which must be approved by the cabinet by Oct. 20.