Navigating Uncertain Waters: Analyzing Italy’s Economic and Financial Document in the Face of Global Challenges and Geopolitical Tensions

The government has recently approved the Economic and Financial Document, which predicts GDP growth of +1% in 2024, slightly lower than the previously forecasted 1.2%. The international geopolitical context, including conflicts in Ukraine and Gaza, tension in the Red Sea, inflation, and high interest rates, has influenced the government’s “prudential” approach to public finances. Additionally, the unloading of building bonuses designed for economic restart after the Covid pandemic has had an impact on domestic public finances.

This is the final Def that outlines the programmatic framework of public finance for the next three years under current methods. New European rules coming into force by September 30th have led to the document focusing solely on evaluating the current framework rather than the programmatic one. This decision has been criticized by opposition parties who argue that important decisions regarding fiscal policy and economic planning should be made before the European elections.

The focus between parliament and government officials has been on how building bonuses and Superbonus measures will impact public finances in terms of constraining public spending for future years. The debate continues between those who see this constraint as necessary to ensure responsible financial management and those who argue it hinders economic growth. Eurostat is expected to provide guidance on how to divide these measures’ weight on state budgets by June.

The high debt/GDP ratio is seen as a significant hurdle to achieving sustainable economic growth, with projected public administration debt reaching over 3 trillion euros by 2025. The tax burden is expected to decrease slightly to 42.1% of GDP in 2024 before averaging at 42.3% in subsequent years due to recent legislation extending tax wedge cuts for lower-income earners up to €35,000 euros until 2024 as a countermeasure against inflation.

There are concerns about uncertainty surrounding future public finances given discussions about avoiding tax increases while ensuring that existing measures such as tax wedge cuts continue beyond their expiration dates in order to maintain stable economic conditions during election season adds complexity to decision-making processes