Italy to Tell EU the Cost of Welfare Tools Will Fall: Ansa

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Italy will tell the European Commission that the cost of the government's flagship welfare measures will decline, in an attempt to avoid an infringement procedure for failing to reduce the public debt load, news wire Ansa reported.

The government sees expenses declining for the new income-support tool known as the citizens' income as well as for a measure to allow for earlier retirement, Finance Minister Giovanni Tria reportedly said in the text of a letter cited by the news agency. The letter will be sent to the EU's Brussels-based executive later on Friday.

The Treasury said in a note that the reported content of the letter is inaccurate and doesn't reflect the text of the reply that will be sent to the EU.

“We believe that it will be possible to reduce spending projections for the new welfare policies,” Tria said in the reply, Ansa reported. “We are convinced that once the budget program is finalized in agreement with the European Commission, yields on Italian government bonds will decrease and interest expenditure projections will be revised downwards.”

Italian bonds reversed declines as equities trimmed losses after reports that the nation will tell the EU that it will reduce the cost of key welfare measures. The yield on the 10-year government bond was at 2.67%.

Deficit Challenge

Tria also cited the fall in public deficit and an increase in the primary surplus, or net of borrowing costs in 2018, although “macroeconomic conditions didn't allow Italy to meet the challenging requirements of the debt reduction rule,” Ansa said.

Tria reportedly conditioned any future tax cut plans to the government's deficit reduction targets, while saying that the government wants to avoid an increase in the value added tax that would kick in under current legislation in 2020.

Deputy Premier Luigi Di Maio, whose Five Star Movement sponsored the citizen's income, said his party “knows nothing” about Tria's letter. “We certainly won't cut welfare spending, neither on the income” nor on the lower retirement age, Di Maio said in a statement sent by Five Star.

Debt Spiral

Italy's debt ratio rose to 132.2% in 2018 and under the government's current plan should equal to 132.6% of GDP this year and 131.3% in 2020.

Earlier on Friday, Bank of Italy Governor Ignazio Visco said that the nation's debt load will likely rise to above the government target this year as the latter relies on an ambitious goal of 18 billion euros ($20 billion) or approximately 1% of GDP in revenue from privatizations.

--With assistance from John Follain and Chiara Albanese.

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jerrold Colten, Chiara Albanese

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