The Budget deficit in Italy over the past three years will be higher than initially stated when new public finance figures are published next week.

The reason for the higher deficit stems from a ruling earlier this month from Eurostat – the EU’s statistics agency – over how tax credits are classed in state accounts, Reuters reports. This will have a major impact on schemes offering incentives for energy-saving home improvements.

The ruling follows a decision made last week to curb the programmes so as not to weaken state finances this year, despite boosting the construction sector and the wider economy.

“Growth is set to be impacted negatively in 2023-24 as the fiscal stimulus is removed,” said a Citi Research report.

“Higher cash needs over the coming years plus slowing real GDP growth will make it more challenging for the government to set the debt-GDP ratio on a clear downtrend.”

The budget deficits from 2020 and 2022 will be increased by between €35 billion and €42 billion, a source told Reuters. A second source forecasts a deficit of around €40 billion.

The strongest impact will be in 2021 and 2022, the sources added. The 2021 deficit is now estimated to be near 8% following a prior 7.2% forecast.

Back in November last year, the government forecast the 2022 deficit would decline to 5.6%, yet this figure could exceed 7% when the country’s statistics bureau, ISTAT, publishes the data at the beginning of March.

In the middle of this month, following a year of talks with central banks, finance ministers and statistics bureaus, Eurostat unveiled the new criteria for collecting public finance data in the EU.

The impact of the move is especially strong in Italy due to initiatives introduced in 2020, allowing people to renovate their homes to make them greener using a tradeable tax credits system.

Such initiatives were more popular than forecast, including the ‘super bonus’ where the government pledged to pay 110% of renovation costs. An estimated €110 billion of work was generated, compared to forecasts of €72 billion.

Prime Minister Giorgia Meloni banned the sale of further tax credits last week, leaving thousands of households and construction firms in financial turmoil, stuck with credits they can’t cash in.

“If we had left the super bonus as it is, we would have had no money left in the budget for anything else,” Meloni stated.


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