Rome wants to borrow more in order to boost welfare, lower the retirement age, allow for a partial amnesty on unpaid taxes, and grow the Italian economy. The budget puts Rome on a collision course with Brussels.
Image: picture-alliance/AP Photo/G. Lami
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Italy's cabinet gave the green light to the country's 2019 budget plans on Monday evening, sending off its financial framework to Brussels after the Senate approved the new budget law last week.
The fiscal plan has already triggered a dispute with EU officials and the International Monetary Fund (IMF). The EU Commission is now set to review it, and possibly demand a rewrite from the Italian government.
In comments to the Italian press on Tuesday, EC President Jean-Claude Juncker said "Without Italy, Europe would not be the same. Europe needs Italy and Italy needs Europe."
Work longer, retire earlier
Rome wants to add €37 billion ($42.9 billion) of new spending. In order to achieve that goal, the government would increase the deficit from the last government's projection of 0.8 percent in 2019 to 2.4 of GDP. It would also increase tax burdens, including some taxes on the banks.
EU and Italy line up for budget standoff
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The budget would provide a basic monthly income of up to €780 for pensioners and the poorest among unemployed citizens, cut taxes for the self-employed and enable schemes that would allow people to settle certain amounts of tax debt.
It would also lower the retirement age to have citizens retire when the sum of their age and years of work add up to 100. Under the new scheme, an employee who had worked for 40 years would be able to retire at 60.
Many of the financial pledges hark back to campaign promises made by the governing Five Star Movement (M5S) and the anti-immigrant League party. The parties argue that public spending would result in new investments and grow the Italian economy.
"This budget keeps the government's promises while keeping public accounts in order," Prime Minister Giuseppe Conte told reporters on Monday evening.
Italy's populist government: Key players
After months of negotiations, Italy finally has a government with Giuseppe Conte at the helm. Conte's swearing in ended weeks of turmoil that rocked financial markets, but concerns among Italy's EU partners remain.
Image: picture-alliance/ROPI
Conte: Novice at the helm
Giuseppe Conte, a little-known law professor with no political experience, was picked by the League and 5-Star Movement (M5S) as their candidate for prime minister. He was forced to temporarily give up his leadership bid after the parties' cabinet selection was initially blocked. However, after the two parties struck a deal with President Sergio Mattarella, Conte was eventually sworn in on June 1.
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Mattarella: President with the final say
President Sergio Mattarella faced calls for his impeachment after he prevented the populist alliance from taking office. He singled out its choice for finance minister, Paolo Savona, warning that an openly euroskeptic minister in that position went against the parties' joint promise to simply "change Europe for the better." After the parties agreed to replace Savona, Mattarella gave the go-ahead.
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Di Maio: Anti-austerity advocate
M5S chief Luigi Di Maio secured his party 32 percent of the vote in the March election. With the populist M5S-League coalition in power, Di Maio assumed the role of joint deputy prime minister and took over the economic development portfolio. The M5S leader has come under fire for his anti-immigration rhetoric, including calling rescue missions to save migrants from drowning a "sea-taxi service."
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Salvini: 'The Captain'
Matteo Salvini is the leader of the anti-immigrant, euroskeptic League, which won 17 percent of the vote in the March election. A former MEP, he and his party have no experience in governing. Salvini has taken on the position of interior minister within Conte's Cabinet. Known for his hostile rhetoric toward immigrants and the EU, Salvini once described the euro a "crime against humanity."
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Savona: Anti-euro radical
Paola Savona, initially tipped to lead the Finance Ministry, has called the euro a "German cage" and said that Italy needs a plan to leave the single currency. The 81-year-old's stance won him the backing of most Italian lawmakers but that wasn't enough to stop his appointment being vetoed. In his place steps Giovanni Tria, an economics professor without any previous government experience.
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Cottarelli: Temporary caretaker
Carlo Cottarelli was set to become Italy's caretaker prime minster after the M5S-League alliance failed to have its controversial cabinet picks approved. The former IMF economist's time in the spotlight was short-lived, however. Political uncertainty in Italy rocked Europe's financial markets and prompted Mattarella to swiftly renegotiate and approve Salvini and Di Maio's governing coalition.
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Berlusconi: Vanquished enabler
Silvio Berlusconi (right) and his Forza Italia entered a four-party electoral alliance including League in the March election that secured the bloc 37 percent. Berlusconi is now upset at his right-wing ally Salvini after the League leader moved to work with M5S. Berlusconi has said he would act as a "reasonable and scrutinizing opposition."
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Heading for a showdown
The EU and the IMF are worried about increases in Italy's debt, which is already at 132 percent of Gross Domestic Product (GDP) — only Greece at 182 percent and Japan at 236 percent are higher among comparable economies. Brussels has sought to bring down the deficit for Italy, Greece, and other highly indebted countries through austerity. The EU Commission believes that Rome needs to meet a series of terms before it could risk boosting its debt level.
After receiving the fiscal plan, the EU Commission has two weeks to raise its objections if the document violates the EU rules. Since 2013, the EU body has had the power to dismiss a budget proposal and ask member states to draw up a new one. That power has not yet been used.
The League and the M5S have already pledged not to move from their fiscal goals.
