Rome, 11 April 2023 – At the proposal of the Italian Minister of Economy and Finance Giancarlo Giorgetti, the Italian Council of Ministers approved the Economic and Financial Document (Documento di Economia e Finanza, DEF) for the 2024-2026 three-year period, which was subsequently transmitted to Parliament.
The DEF takes into account an economic-financial framework that, despite the easing in recent times of the negative effects of the pandemic and the high price of energy, remains uncertain and risky due to the war in Ukraine, high geopolitical tension, rising interest rates, but also the emergence of localised crises in the international banking and financial system.
In this context, the Italian economy continues to show a remarkable amount of resilience. The year 2022 ended with GDP rising by 3.7 per cent; despite the economic slowdown in the second half of the year, the most recent indicators, including household and business confidence indexes, indicate that the country's economy has resumed growth in the first months of 2023.
The priority objectives that inspire and outline the Italian government's economic policy can be summarised as support for growth and the welfare of citizens, with new measures in favour of families (with measures being also envisaged in the tax reform, especially when it comes to large families) and businesses, measures to boost investments and strengthen the country's competitiveness, as well as the sustainability of public accounts with a gradual reduction in deficit and debt.
The GDP growth forecasts contained in the document are in line with those contained in November's Draft Budgetary Plan (Documento programmatico di Bilancio, DPB) and the budget law, confirming a prudent, realistic approach aimed at showing reliability both to the markets and the European Union, as well as achieving more ambitious results.
“The crux of this document is responsible ambition. We have great challenges ahead of us, from climate change to the demographic decline of the Italian population, but also significant opportunities to open a new phase of development for our country,” said Minister Giorgetti following the Italian Council of Ministers’ approval of the Document.
“The reforms undertaken are intended to rekindle confidence in the future,” continued Giorgetti, “by supporting the birth rate and families also through the tax reform that will privilege large households. It will also recognise the entrepreneurial spirit as an engine of economic development, promoting work as an essential expression of being a person.”
He then added, “It is realistic to aim for an increase in the GDP growth rate and employment in the coming years, as part of a path of innovation and investment under the banner of ecological and digital transition.”
Debt
In 2022, the debt-to-GDP ratio was 144 per cent, 1.3 percentage points lower than the DPB forecast of last November. Consistently with the targets in the policy scenario, such a decrease will progressively continue to fall, reaching 142.1 per cent in 2023, 141.4 per cent in 2024, 140.9 per cent in 2025, and 140.4 per cent in 2026. However, the debt ratio reduction effects that could have been recorded if the super bonus had not had the impacts on public finance balances that have been recorded so far cannot be ignored.
Deficit
The DEF aims at gradually but significantly reducing the PA's deficit and debt in relation to GDP over time. Consistent with this objective, the Italian government confirms the net borrowing targets set in last November's document – 4.5 per cent in 2023, 3.7 per cent in 2024, 3.0 in 2025, and up to 2.5 per cent in 2026, according to the policy scenario. Regarding the trend deficit, the DEF forecasts 4.35 per cent in 2023, 3.5 per cent in 2024, 3.0 per cent in 2025 and 2.5 per cent in 2026.
GDP
In the existing legislation scenario, GDP is expected to grow by 0.9 per cent in 2023 (planned at 1 per cent) – an upward revision compared to the November DPB, in which growth in 2023 was set at 0.6 per cent – 1.4 per cent in 2024 (planned at 1.5 per cent), 1.3 per cent in 2025 and 1.1 per cent in 2026 (same percentages as in the programme).
The estimate for 2024 is therefore revised downwards (from 1.9 per cent) compared to last November. The projection for 2025 is in line with the DPB, while the projected deceleration for 2026 is due to agreed methodological practices at the EU level.
Additional resources in 2023 for cutting the tax wedge
With an estimated trend deficit for the current year of 4.35 per cent of GDP, maintaining the existing deficit target (4.5 per cent) will make it possible to introduce a cut in social security contributions for employees with low and medium incomes of more than EUR 3 billion for the current year through a measure to be implemented soon. This will support the purchasing power of households and contribute to the moderation of wage growth. Together with similar measures in the budget law, this decision testifies to the Italian government's focus on protecting workers' purchasing power and, at the same time, on wage moderation to prevent a dangerous wage-price spiral.
Reducing the tax burden
The DEF also predicts a downward trend in the tax burden from 43.3 per cent in 2023 to 42.7 per cent by 2026.
NRRP
The Italian government is working to obtain the third instalment of the NRRP. Discussions are underway with European institutions for the revision and reshaping of some of the interventions included in the NRRP and the related milestones and targets. The REPowerEU chapter of the programme is also being prepared, which will also include new investments.
To make our country more dynamic, innovative and inclusive, it is not enough to have a NRRP. In fact, it is also necessary to invest in strengthening the country's productive capacity and to work over a longer time horizon than that of the Plan, in order to create adequate conditions to avoid new inflationary flare-ups. This is an issue that must be addressed not only in Italy, but also in Europe.