Prime Minister Paolo Gentiloni’s coalition will likely face bigger battles in the autumn
The measures were only agreed by Prime Minister Paolo Gentiloni’s centre-left cabinet following heated debates, which offered a taste of the bigger challenges yet to be faced in the autumn with a new budget.
The upcoming budget is expected to have very little room for growth-boosting policies and will set the tone for the 2018 general election.
Following a two-hour cabinet meeting to approve the measures, Mr Gentiloni said: “We are delivering a message of strong reassurance that our accounts are in order, and not because of higher taxes.
“We are continuing to follow the path of reforms and growth.”
Government figures released on Tuesday showed the country’s budget deficit target for 2017 was lowered to 2.1 percent of GDP from a previous 2.3 per cent target.
This is projected to fall to 1.2 per cent next year.
Italy’s economy minister Pier Carlo Padoan said the lower deficit would be funded through measures aimed at fighting tax evasion and improved efficiency to collect taxes, as well as limited spending cuts.
He added that Italy would move forward with other reforms, including new competition laws and a planned overhaul of the civil justice system.
Jean-Claude Juncker has ruled out Italy's exit from the EU
The lower deficit requested by Brussels had been a tough nut to crack for Mr Gentiloni, who took over as premier last December after his predecessor Matteo Renzi was defeated in a referendum on proposed constitutional reforms.
The European Commission had threatened to open excessive deficit procedure against the country if it did not move swiftly to bring its deficit targets closer to EU requirements.
The Commission can impose fines of up to 0.2 per cent of GDP on Eurozone countries that repeatedly ignore recommendations to fix their budget problems.
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Italy is burdened by the highest public debt in the Eurozone after Greece, and has often clashed with EC officials over its expansive budget policies.
The country’s economy is projected to expand by 1.1 per cent this year, slowing to just one per cent growth in 2018 and 2019.
Mr Padoan said the limited growth rate predictions were due to “stringent fiscal policies,” and are part of the government’s EU commitments.
However, he hinted that there could still be some room for negotiations with Italy’s European partners in an effort to find new ways of balancing fiscal rigor with investment-boosting policies.
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EU commission President Jean-Claude Juncker (R) chats with German EU Commissioner for budget and human resources Guenther Oettinger (L)
In an interview with Italian daily La Republica, European Commission President Jean-Claude Juncker said: “Certainly the commitment of the Italian government is going in the right direction.”
He added that Italy must “decisively” overhaul its public finances and cut debt in the medium to long term, but ruled out Rome’s exit from the eurozone.