Italy’s budget deficits for the past three years were revised drastically higher after a reassessment of tax breaks including the so-called “superbonus” showed a bigger immediate hit to the public finances.
(Bloomberg) — Italy’s budget deficits for the past three years were revised drastically higher after a reassessment of tax breaks including the so-called “superbonus” showed a bigger immediate hit to the public finances.
A month after new guidance by European Union statistics officials at Eurostat first alerted Giorgia Meloni’s coalition to the move, national agency Istat revealed the larger shortfalls on Wednesday to incorporate the impact of the giveaways.
For 2020, the deficit was revised up slightly to 9.7%. It was 9% in 2021 — notably higher than previously estimated — and for 2022 the gap was 8%, an even bigger shift of more than two percentage points above the prior official forecast.
The revisions ensure that transferable tax credits that former Prime Minister Giuseppe Conte’s populist government unveiled during the pandemic to jumpstart economic growth get accounted for up front in the national data rather than being trickled through over several years.
Most prominent among the measures was the superbonus, a giveaway intended to stimulate green building renovations worth 110% of the amount spent. While a construction boom resulted, the cost to Italy’s Treasury could potentially have exceeded €110 billion ($117 billion) since its inception.
Meloni’s government suddenly halted the policy last month, with Finance Minister Giancarlo Giorgetti labeling it “reckless.”
The revisions are an embarrassing inconvenience for a country whose huge debt load has long drawn investor scrutiny, most notably when a spike in bond yields at the onset of the pandemic prompted the need for massive support from the European Central Bank.
The challenge for Meloni and her coalition will be to frame the revision as an exercise in fiscal probity with minimal impact, avoiding any parallels with the recalculation of Greece’s public finances that triggered the euro region’s sovereign debt crisis of the past decade.
Assisting her in making that case, Luca Ascoli, Eurostat’s director of government finance statistics, said in a hearing at the Italian parliament on Feb. 14 that the cumulative impact on Italy’s deficit will be “exactly the same” regardless of what is decided.
What Bloomberg Economics Says…
“The long-term impact of the tax credits on the public finances will be the same whether the hit is recognized up front or spread out over a number of years. The program was expensive and poorly targeted, and prime minister’s decision to end it is more important than the accounting treatment of the policy.”
—David Powell, senior economist
Even so, the reclassification throws an uncomfortable light on the complexity and obscurity of the Italian fiscal system. A Bank of Italy tally of incentives including so-called “bonuses” or the “superbonus” put the total of such measures at 626 in 2022, up from 468 in 2016.
“The proliferation of incentives and regulatory instability reduce transparency and comprehensibility of the system, as well as the credibility of tax claims of tax authorities,” Giacomo Ricotti, head of the central bank’s tax directorate, wrote in testimony last week.
Further complicating things was the decision by Conte’s government to make the credits fully and indefinitely tradable between banks, companies and financial institutions. Concerns over possible illicit use led Meloni’s predecessor, Mario Draghi, to try to limit the superbonus.
While the need to revise public-finance data are an unwelcome distraction for the government, one bright spot on the horizon is improving prospects for economic growth. Officials are now targeting expansion of 1% this year, more than previously anticipated, according to people familiar with the matter.
–With assistance from Alessandra Migliaccio.
(Updates with Bloomberg Economics comment after ninth paragraph)
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