Taxes, growth, inflation and employment. What’s in the government-approved Def

Tuesday the Council of Ministers approved the Def – Economics and finance document -, the first of the Meloni government: the complete text was published yesterday on the website of the Ministry of Economy. In the introduction, it is emphasized that growth forecasts are “extremely conservative in nature”: consequently, it is reasonable to expect “an increase in the growth rate of GDP and employment that goes well beyond the forecasts in the Document”. In any case, the Parliamentary Budget Office reiterated that the general picture remains “unstable and uncertain”. In addition to the estimates for the country’s growth, the text contains the maneuvers that the executive is preparing to launch in terms of “stability, credibility and growth”, as Prime Minister Giorgia Meloni declared. Below are the main changes in detail.

Growth estimates

The GDP for 2023 is expected in trend increase of 0.9 per cent, slightly more than the 0.6 percent expected. The budget deficit as a percentage of GDP is also improving, dropping from 4.5 per cent of previous forecasts to 4.35 per cent on a trend basis.

The document also notes that the increase or decrease in “immigrants” has a “significant impact” on the debt: with a +33 percent increase in immigrants, a decrease in debt by 2070 of “over 30″ points” is estimated compared to the scenario “Given the demographic structure of immigrants entering Italy, the effect is significant on the resident population of working age and therefore on the job offer”, it continues.

In any case, for the next few years, the forecasts remain positive: the GDP trend for 2024 is 1.4 percent1.3 per cent in 2025 and 1.1 per cent in 2026. It is precisely this perspective, in particular the trend deficit on GDP for the current year, that allows the government “to introduce, with a measure soon to be implemented , a cut in social contributions paid by employees with medium-low incomes of over 3 billion for the current year”, as explained by the ministry.

Cutting the tax wedge and funding

A government measure will therefore arrive shortly which will allocate 3.4 billion euros to cut the wedge for income below 25 thousand euros. In this way, around 14 million workers will benefit. The other large economic allocation foreseen by the government will be valid for 2024, with a debt of 4.5 billion which will be used to start the tax reform. Other funding will be possible with cuts to ministries which will rise to 1.5 billion in 2024, 2 billion in 2025 and 2.2 billion in 2026: they will be used for the renewal of contracts.

Pnrr

The framework outlined by the government, explains the Parliamentary Budget Office, is based “on the full and timely implementation of the Pnrr projects”. The impact of the European Plan on GDP, according to estimates, will be1 percent for this year, up to a 3.4 percent boost in 2026, when it should be fully implemented. At the moment, however, the third installment of European funds is still awaited: “The government is working to obtain the third installment by the end of April and to review or remodulate some projects”, explains the Def. And, always so far, the Pnrr contributed only 0.1 per cent of GDP.

Inflation and employment

Core inflation, reads the Def, rose up to 6.4 percent in March. It is expected however a descent, “from an average of 7.4 percent in 2022, to 5.7 percent this year and then to 2.7 percent in 2024 and 2 percent in the two-year period 2025-2026”. In parallel, the ministry is waiting employment growth, which is expected to reach 23.9 million workers in 2026 (compared to the current 23.1 million). In this way, the unemployment rate would drop from an average of 8.1 per cent in 2022 to 7.7 per cent in the current year and then settle at 7.2 per cent at the end of the period, again in 2026.