Autumn manoeuvre, the first hypotheses: cutting tax benefits and spending review

The premise is that we are still in the early stages of a manoeuvre that promises to be very challenging for the government. The calculations will be made as soon as the updated data from the tax assessment are available, then by 20 September the multi-year spending plan to be sent to Brussels will have to be finalised, which will then be approved in the autumn package of the European semester, together with the deficit recommendations. The final amount of the manoeuvre will be decided close to the preparation of the manoeuvre, but as of now it can be assumed that it will be no less than 24-25 billion. And like every year, it will be a hunt for resources.

The chapter on tax expenditures has long been in the crosshairs, but so far there has been no effective rationalisation within the current 626 tax deductions, which despite attempts to reduce them over the years continue to grow, causing a loss of revenue in excess of 105 billion. The government's intention is to undertake an initial review, without intervening on the most relevant tax deductions that have a direct impact in order to attenuate the progressivity of the levy, such as deductions for children, medical expenses, and housing. According to initial indications, a cut of about one billion is assumed, but the reconnaissance work is just beginning. The spending review chapter will have to guarantee a not secondary contribution to the final balances of the manoeuvre.

Up to now it has been assumed that in 2025 the spending review for the ministries should not be less than 2.5 billion. An attempt should be made to raise the bar, taking into account that the impact of the measures financed for 2024 alone, which are waiting to be confirmed next year, is around 18.2 billion. First of all, it is a matter of financing 10.7 billion for the contribution discount for incomes up to 35,000 euro, to which must be added 615 million for the residual account to be honoured to confirm the first module of the Irpef reform (this is the part exceeding the quota already covered by the Fund for the implementation of the tax delegation). Then the other charges that are usually included under the heading 'unchanged policies' will have to be quantified, including the resources to be allocated for the next three-year contractual period for public employees (2025-27) and the refinancing of some funds, including some earmarked for investments. On the agenda (but everything will depend on the amount of resources available) is the intention to extend the tax relief to the middle classes with incomes up to 50,000 euro, which is the goal of Deputy Finance Minister Maurizio Leo. According to the first anticipations, at the moment the available resources would not exceed 6.3 billion. The involvement of banks is also being discussed. This was confirmed by Economy Minister Giancarlo Giorgetti: 'Banks, like other entities that make profits and are doing well, will be called upon, like all Italian citizens, to contribute to public finance. I think there is nothing strange about this. There will be no tax on extra-profits, on profits however yes, for them as for everyone else'. One hypothesis would be to raise interest rates on current accounts, benefiting customers and at the same time the public accounts.

The good revenue performance will open up room for improvement in the 2024 accounts, allowing for an improvement in the deficit trend as well, which the April Defence Report places at 4.3 per cent, with the 2025 target set at 3.7 per cent. With the multi-year spending plan, an update of the macroeconomic and public finance variables is also expected, which at this point will also have to record the estimate at the programme level (and no longer just the trend), thus including the impact of the manoeuvre and the measures it contains. With the ongoing infringement procedure, and in light of the commitment prescribed by the new budget rules, there will be no room for new deficits. It will be necessary to prepare an average correction over the seven years of the plan of around 12 billion (0.6 per cent of GDP), as indicated in the 'technical trajectory' sent by Brussels on 21 June. Negotiations will start in September and will also focus on the size of the discount to be put in place over the next three years as a result of the higher interest expenditure incurred as a result of the increase in interest rates, and there will also be a discussion - as Giorgetti requests - on the possible separation of defence spending from the deficit calculation.