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Meloni overcomes coalition talk and secures approval of Italy’s budget

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(Bloomberg) – Italy’s parliament has given final approval to Giorgia Meloni’s government’s budget for next year, giving the government a victory after a series of year-end coalition disputes over fiscal policy.

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The House passed budget legislation late Friday, approving the Elevated Balancing Act, which not only pays for some of the promises made to voters, but also promises to rein in the nation’s budget deficit.

The supermajority approval follows parliament’s decision not to ratify the European Union bailout fund reforms and the number within Meloni’s three-party majority over the extension of the controversial tax credit scheme for home renovations. This shows the coalition government’s unity after the tensions between Japan and Japan.

This budget lowers taxes on wages and reduces the number of income brackets they apply to. Contracts for state employees will also be renewed.

one year ahead

Meloni will avoid the threat of a downgrade to junk status and enter 2024 with the German and Italian bond yield spread, a key measure of risk in the eurozone, near its lowest level since he took office.

In the process, Italy eased its fiscal stance even though additional spending meant that its budget deficit as a share of gross domestic product would not fall below European Union limits until 2026, a year later than planned. It has avoided criticism from the European Commission. .

This approach reflected Mr. Meloni’s insistence on achieving his campaign promise despite economic growth being weaker than expected. In contrast, her 2022 budget benefited from a 9 billion euro ($9.9 billion) windfall from her strong performance under her predecessor Mario Draghi.

The risks she took this year were even greater amid intense scrutiny of Italy’s finances. The country was at risk of losing its investment-grade status until Moody’s Investors Service lifted its negative outlook. His rivals did not change his high opinion either.

The government now has some breathing room to press forward with some of its economic plans and allow Mr Meloni to consolidate his power in an unstable coalition.

Things may not be so easy in the future, as new EU fiscal rules agreed earlier this month come into force as the pandemic-era suspension of the Stability and Growth Pact ends in 2024. .

The new standard requires countries with debt exceeding 90% of output to reduce their debt by 1 percentage point of GDP during the adjustment period. Italy’s own ratio is around 140%, but a weak economy and rising debt servicing costs could make it difficult to reduce this ratio.

Still, Finance Minister Giancarlo Giorgetti said earlier this week that Italy would not need to change its budget plans for next year to meet the new rules.

–With assistance from Aline Oyamada, Antonio Vanuzzo, and Daniele Lepido.

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