Renzi rules out rising taxes, cutting pensions

Italian presidency

Italian Prime Minister Matteo Renzi in Brussels, March 2014. [Palazzo Chigi/Flickr]

Italian Prime Minister Matteo Renzi denied yesterday (21 August) that his government planned to raise taxes, cut pensions or adopt corrective measures to rein in the budget deficit this year.

There have been repeated media reports this summer that the government will need to pass a mini-budget to hold the deficit inside European Union limits after the economy unexpectedly slipped back into recession.

“Anyone talking about pension cuts or mini-budgets is talking about things that are not on the agenda,” Renzi said in an interview with the private television station Canale 5.

Labour Minister Giuliano Poletti said last week that under certain conditions, he was in favour of reducing particularly high pensions, or pensions that were disproportionate to the contributions that pensioners had paid into the system.

Italy’s public spending on pensions is the highest in the European Union as a proportion of economic output.

“Will there be new taxes when people return from their holidays? No, on the contrary we will try to continue to cut taxes,” Renzi said. He added that to do this it would also be necessary to “give a trim to public spending,” without offering further details.

The eurozone’s third-largest economy shrank by 0.2% in the second quarter, the 11th contraction in the last 12 quarters, tipping it into recession.

Most economists now expect Italy to post little or no growth this year compared with an official government forecast for a 0.8% expansion, and the weaker economic activity is seen taking a toll on public finances.

Renzi has said he will not let the fiscal gap exceed the EU’s 3 percent of gross domestic product limit even though the current 2.6% target for this year is likely to be missed. 

Social Democrat leaders across Europe have campaigned against austerity in last May's EU elections.

A mini-summit organised on 21 June in Paris saw eight socialist heads of states call for loosening the EU's Stability and Growth Pact, which limits public deficits in the euro zone to 3% of GDP.

The concerted push came just days after Sigmar Gabriel, German vice-Chancellor and a member of the Social Democrat SPD party, advocated giving crisis-ridden countries more time to get their budgets in order.

>> Read: Socialist leaders in concerted push to relax EU budgetary constraints

Italian Prime Minister Matteo Renzi, buoyed by success in the EU elections, has led calls for the EU to take a new direction, saying battered southern economies can take no more of the medicine that has crushed growth and sent unemployment soaring.

He has avoided asking for a change to the bloc's budget rules which limit government deficits and debt, saying all Italy asks is to use the margins for flexibility they already contain.

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