September 17, 2018 / 8:28 AM / 3 months ago

Italy holds budget meeting; 2019 deficit goal in focus

MILAN (Reuters) - Italy’s top ministers met on Monday to discuss the 2019 budget, with friction building inside the coalition over the package and financial markets on edge about the big-spending plans of the government.

FILE PHOTO: Italian Economy Minister Giovanni Tria attends as Prime Minister Giuseppe Conte (unseen) speaks during his first session at the Lower House of the Parliament in Rome, Italy, June 6, 2018. REUTERS/Tony Gentile/File Photo

No final decisions were taken and talks will continue in the coming days, a government source said, with deputy prime ministers Luigi Di Maio and Matteo Salvini pushing for a larger deficit than Economy Minister Giovanni Tria wanted to accept.

“The choices in the budget law have to be courageous and have to be made in the interests of the citizens,” Di Maio, who is head of the anti-establishment 5-Star Movement, said after the meeting in the office of Prime Minister Giuseppe Conte.

Daily Corriere della Sera reported on Monday that Tria, an academic with no party affiliation, was set on preventing the 2019 budget deficit from rising above 1.6 percent of gross domestic product (GDP).

That would be double the current 0.8 percent target but lower than what was expected until recently by markets, which fear the deficit will rise steeply to fund welfare spending and tax cuts promised by the ruling parties.

The government source said both Di Maio and Salvini wanted a deficit of between 2.0 and 2.5 percent to help pay for some of their main electoral promises, including the introduction of a “universal wage” for the unemployed and pension reform.

CUTTING “DEAD WOOD”

Italy’s public debt of around 132 percent of GDP is the highest in the euro zone after Greece’s and markets are concerned it may rise further if government borrowing increases. Tria is seen as the bastion of market discipline against the demands of the right-wing League and 5-Star.

Di Maio said the coalition, which took office in June, would look to eliminate waste from the budget “and cut away all the dead wood” to free up resources for the new set of priorities.

The coalition must set its deficit and debt targets for next year by Sept. 27, and present the budget to parliament by Oct. 20. Governments normally work right up to these deadlines before presenting their plans.

5-Star’s flagship policy is a basic income of up to 780 euros per month for the poor, while the League, led by Salvini, is particularly anxious to cut corporate and income tax.

Both parties have said these measures will be phased in gradually starting from 2019. They have also both promised to water down a previous, unpopular pension reform.

“Experts from the two groups are working constantly to rake back waste and above all to guarantee the introduction of needed and courageous reforms,” Salvini said in a statement late on Monday.

Italian media reported on Monday there was growing friction within the coalition over a raft of nominations across the public sector - including who should head market watchdog Consob - and suggested this was weighing on the internal budget debate.

Additional reporting by Giuseppe Fonte and Francesca Piscioneri in Rome; Writing by Gavin Jones and Crispian Balmer; Editing by William Maclean and Andrew Roche

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