The front-runner, right-wing Georgia Meloni, wants lower taxes and more corporate interventionism
Italy’s likely next government has big spending plans. It looks like a coalition of right-wing parties will win the general election in September, making Giorgia Meloni of the nationalist Brothers of Italy party prime minister. The high public debt and the vigilance of the European Union will puncture the most runaway trial balloons of the group.
The abrupt fall of Mario Draghi’s executive last month paves the way for another Italian government. An alliance that includes Brothers of Italy, the League (of anti-immigration Matteo Salvini) and former Prime Minister Silvio Berlusconi’s Forza Italia would win 49% of the vote, according to polls, far ahead of his divided political rivals. Meloni’s party, which has roots in post-war neo-fascism, opposes Draghi’s agenda and has a Eurosceptic past, could capture 24% of the vote.
One of the alliance’s priorities is to cut taxes to boost consumer demand. Although the group has not yet published an official manifesto, its plans include the extension of a single tax rate of 15% to self-employed workers who earn up to 100,000 euros per year, compared to the current 65,000 euros. That is workable. However, a bolder plan to extend the treatment to all workers and pensioners could cut government tax revenue by around €40bn a year, according to economics professor Massimo Baldini, or more than 2% of annual output. from Italy. This would make it difficult to reduce public debt, which this year stands at 147% of GDP.
Meloni’s coalition also wants to readjust the 200 billion euro pandemic recovery plan agreed with the European Commission. It is true that the war in Ukraine suggests that more funds could be spent on energy infrastructure. However, any change will need the backing of Brussels, putting at risk the disbursement of crucial money to boost Italy’s growth.
Finally, Meloni is also in favor of a greater presence of the State in Italia SA This could jeopardize agreed privatizations, such as that of Alitalia’s successor, ITA, and that of the Monte dei Paschi di Siena bank.
However, Italy needs the support of investors to refinance its debt. Nervous markets forced a former anti-establishment executive to halt costly fiscal projects in 2018 and 2019. In addition, the European Central Bank signaled in July that it will step in to support countries facing speculative attacks only if they comply with fiscal rules. and do not blow up their public finances. And the increase in the yields of the State debt, with a differential on the bunds 10-year German bonds, which has doubled to 200 basis points in a year, suggests Italy cannot take bond markets for granted. These external constraints will temper any radical fiscal measures.
