Italian Cabinet approves budget, deficit at 7%

The Italian cabinet on Monday approved a 2021 budget targeting a fiscal deficit of 7% of national output, compared with 10.8% this year, but two government sources said next year’s goal will soon be hiked to allow for more economic stimulus.

The government has already allocated around 100 billion euros ($118 billion) this year to try to cushion the impact of one of the world’s worst coronavirus outbreaks.

Rome is preparing a new spending package worth 15-20 billion euros likely to be presented this week which will push up the deficit in 2021, one of the sources said, asking not to be named.

Much of the extra spending this year was for temporary support measures such as grants to firms, loan guarantees and furlough schemes which were due to expire in coming months, paving the way for a reduction in borrowing in 2021.

However, with COVID-19 infections surging in recent weeks, Prime Minister Giuseppe Conte says supporting the economy is now paramount, undermining plans for modest fiscal consolidation.

Italy’s public debt, proportionally the highest in the euro zone after that of Greece, is currently targeted to fall next year to 155.6%.