The new Italian government is planning a budget deficit of 2.2% for 2020. This is more than the targeted 2.04% this year. The expansionary budget is expected to bring the growth rate of economic output to 0.6% in the coming year, after a planned 0.1% this year.
The 2020 draft budget contains a number of expansionary measures. The government is planning relief for the lower income brackets and an investment programme for environmental protection. Moreover, the VAT increase originally planned and agreed for the beginning of 2020 will not be implemented. To cover the additional expenditure, savings are to be made in various areas, proceeds from privatisation and proceeds from the fight against tax evasion. Ultimately, however, this is not enough to reduce the deficit. Another problem remains, as the debt ratio is expected to rise to over 135% of GDP this year and to decline slowly in the coming years. By 2022 it is expected to fall to 131.4%. This, along with the missing correction of the deficit, is likely to displease the Commission, but ultimately the budget should be approved.
In addition to the economic problems caused by the global slowdown, Italy still has a number of structural weaknesses. However, structural reforms have long been in short supply. But without radical structural changes in the judiciary, the administration and the labour market, the country will hardly get off the ground economically. The expenditure planned in the 2020 budget is unlikely to change this.