Rome

ECB says Italy's deficit target for 2013 at risk

Debt repayments, rolling back IMU property tax named as factors

ECB says Italy's deficit target for 2013 at risk

Rome, September 12 - The European Central Bank said Thursday that there was a risk Italy will not achieve its deficit target for this year. The ECB said in its monthly bulletin that moves to pay public-sector debts to private companies and the rolling back of the IMU property tax could affect Rome's ability to bring down the deficit-GDP ratio to 2.9%. The central bank also mentioned the decision to postpone a planned 1% rise in the top band of value-added tax (VAT), a hike Premier Enrico Letta's government is hoping to avoid completely. The European Commission closed an excessive-deficit procedure against Italy in May after its deficit came in at 3% last year and the government said it would be 2.9% this year. The EU does not allow member States to have a deficit of over 3%. Last week the Italian government said in a report that it had revised its deficit-to-GDP ratio forecast for this year up from 2.9% to 3% following the decision to scrap IMU. "In Italy, preliminary state budget execution in cash terms up to July 2013 points to a cumulative borrowing requirement of 51 billion euros (3.3% of GDP), up from almost 28 billion euros (1.8% of GDP) in the same period of 2012," the ECB's bulletin said. "The deterioration, mainly owing to the provision of financial sector support and repayment of arrears, highlights the increasing risks surrounding the achievement of the 2013 general government deficit target (2.9% of GDP). "In August the government announced the abolition of the first instalment of the tax on owner-occupied dwellings for 2013. "The revenue loss (of about €2.4 billion, i.e. 0.1% of GDP) will be compensated for via lower spending and higher revenues. "The parliament also decided in August to postpone the 1 percentage point increase in the standard VAT rate by three months to 1 October. "The revenue loss from this postponement will be offset by higher excise taxes on selected products and temporarily higher direct taxes". Premier Enrico Letta pledged Monday that Italy would respect its commitment "to keep its deficit-to-GDP ratio under 3%" and avoid further debt following a meeting with European Council President Herman Van Rompuy.

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