European Interest

Italy’s new government makes economic promises

Wikimedia Commons/Presidenza della Repubblica
Di Maio at the Quirinal Palace in April 2018.

Ten weeks after March’s inconclusive election in Italy, the coalition government that is under formation between the anti-establishment 5-Star Movement and the far-right League is making a series of economic promises.

These include slashing taxes for companies and individuals, boosting welfare provision, cancelling a scheduled increase in sales tax and dismantling a 2011 pension reform which sharply raised the retirement age.

As reported by the Reuters news agency, the marriage being sealed between the two parties is seen as an unlikely and worrying prospect by most analysts before the March 4 election ended in a hung parliament.

The pre-election adversaries have spent the last few days trying to fuse their very different programs into a “contract” of mutually acceptable policy commitments. What they have in common is that they are extremely expensive.

“We will need to renegotiate EU agreements to stop Italy suffocating,” League leader Matteo Salvini said on Saturday after a day of talks with his 5-Star counterpart Luigi Di Maio.

5-Star’s flagship policy of a universal income for the poor will cost an estimated €17bn per year. The League’s hallmark scheme, a flat tax rate of 15% for companies and individuals, is estimated to reduce tax revenues by €80bn per year.

Scrapping the unpopular pension reform would cost €15bn, another €12.5bn is needed to head off the planned hike in sales tax, and the parties are also considering printing a new, special-purpose currency to pay off state debts to firms, reported Reuters.

In a separate report, Bloomberg noted that Italy’s President Sergio Mattarella has indicated that he does not intend to rubber stamp whatever they decide.

Many investors are looking to Mattarella to be a stabilising influence on a populist administration amid concern about funding spending pledges and demands to review European Union treaties. Mattarella’s office has said the head of state would work to ensure the government team is qualified for its task, doesn’t jeopardize state finances, and respects Italy’s international commitments.

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