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By Giuseppe Fonte
ROME (Reuters) – Italy confirmed on Tuesday a previous commitment to bring its deficit below the European Union’s 3% of gross domestic product ceiling in 2026, the Treasury said, after the cabinet discussed a budget plan to be approved by the European Commission.
Italy was put under a so-called Excessive Deficit Procedure by the EU this year, as its 2023 fiscal deficit came in at 7.4% of GDP, the highest among the euro zone countries.
Under the plan, to be sent to Brussels by early October after parliament approval, Italy will have to cut the deficit in line with EU prescriptions and also comply with the latest reform of the bloc’s fiscal rules.
To this end, the Treasury said in a statement it planned to limit to almost 1.5% the average annual increase in Italy’s net primary expenditure, an indicator that measures spending components under the government’s direct control.
“Such a trajectory is consistent with the trend in key public finance figures already projected” last April, it said.
At that time, the government promised to cut the fiscal gap to 3.6% of GDP in 2025 from 4.3% expected this year, and to 2.9% in 2026, despite levels slightly higher under current trends.
EU authorities in June recommended that Italy ensure a prudent fiscal policy, by limiting the 2024 increase in net primary spending to no more than 1.3%.
Brussels’ reformed fiscal rules require a slow but steady pace of headline deficit and debt reduction from 2025 over four to seven years, depending on commitments regarding reforms and strategic investments.
Italy’s plan outlines the strategic reforms and investments to be implemented to secure the extension of the adjustment path to 7 years, the Treasury said without giving details.
The government did not provide the new growth estimates underlying the plan.
Giorgia Meloni’s government said in April Italy’s economy was expected to grow by 1% this year and 1.2% in 2025.
Sources previously said the Treasury could slightly lower next year’s GDP growth estimate to 1.1%, although the Treasury usually sets a more ambitious target to factor in the impact of measures being studied to boost economic activity.
(Reporting by Giuseppe Fonte, editing by Gavin Jones, Alexandra Hudson)