September 19, 2019
Italy's 2020 budget will be a moment of truth
The exit of Matteo Salvini from the government has taken some of the hot air out of the 2020 budget. But even without his demands of large tax cuts, the budget process will be extraordinarily difficult.
Federico Fubini observes that the way ahead for the government is not a narrow path, as Pier Carlo Padoan once put it, but a maze. The only measure everybody agrees on is to avoid an otherwise obligatory VAT increase. That alone will eat up most of the fiscal room for manoeuvre. The various reforms supported by Five Star, the continuation and extension of the citizens' income, the partial undoing of the pension reforms will be hard to do.
Giuseppe Conte yesterday called the leaders of Italy's three largest trade unions into his office to hear their demands. Corriere della Sera noted this hasn't happened for many years. It is a reminder that this is now a government firmly rooted on the left.
We expect the EU to grant some extra fiscal leeway, but not much. And Italy needs a lot of investment - including in public infrastructure and education.
What will be the influence of Matteo Renzi on this process? Not destructive, but likely to be very disruptive. Lucia Annunziata is no fan of him either, but she argues his exit from the party is important because it reveals that the PD has not managed its passage from opposition to government well. Renzi does not so much pose a danger to the government majority. His game plan is a different one:
"...the real danger Renzi constitutes for the Government is not that he might abandon it, but that he overshadows it. And it has already happened."