While the background noise of the entire political class focuses on the myriad of measures that both would like to include in budget law, something else occupies Giancarlo Giorgetti’s thoughts. Not so much the details of the maneuver, nor necessarily the level of the deficit expected for this year or the next, but above all the public debt in its various aspects: its dynamics – descending or ascending – and even more so its financing, in particularly next year and partly also the following one.
The contents of the maneuver
Because the individual measures of the maneuver represent the detailed contents, but the Minister of Economy in this phase is mainly focused on something else: the maintenance of the large framework within which they should enter. As for this, the upward revision of the 2022 gross product of 37.3 billion euros helps the d. The additional step in gross domestic product (GDP) will presumably also be transferred to 2023 and will make the basis of the economy against which public debt is measured wider by almost 2%. In essence, in 2023 the latter should be around one percentage point lower than it would otherwise have been (in proportion to GDP).
The great challenge for Italy at this stage remains public debt
Everything helps us, but it’s not enough. For some time it has been clear to Giorgetti that the great challenge for Italy in this phase remains the public debt in 2024, because many factors are pushing in a direction that is not very favorable a priori. Firstly there is the effect of tax credits from real estate bonuses, especially the part that has not already been taken into account in the debt trajectories expressed in the Economic and Financial Document (Def) of last April. Between the 110% Superbonus and the 90% facade bonus, in the spring the government was considering starting projects for around thirty billion less this year than what will probably actually happen by December. And however they are accounted for in the annual deficit – whether all together in 2023 or spread over future years – those sums will always have an impact as missing revenue in the future. Therefore, they will transform into greater financing needs for the Treasury to be covered by issuing government bonds. The additional housing bonuses compared to last April’s estimates will probably represent a further point and a half of additional debt, in proportion to the gross product. If until last year they imagined missing revenues of around twenty billion a year due to real estate tax credits, it is now clear that the shortfall will be closer to thirty billion a year in the next period.
Inflation slowing and the economy grinding to a halt
Added to this is the fact that inflation is slowing and the economy has come to a standstill, while the government last April was still taking into account growth of 1.5% for 2024. The basis against which the debt is measured public will be less extensive than expected. Therefore the debt, proportionately, is higher. It follows that the great threat next year, the first of the reactivation of European budget rules, is that public debt will rise again instead of falling. The April Economic and Financial Document already announced a minimal decline, from 142.1% to 141.4% of GDP. But the adverse factors appear to threaten a reversal of the trend, which the Treasury would like to avoid.
Find investors who buy government bonds
Because it’s not just a question of symbols enclosed in a number. The real challenge, regarding the debt, is its financing: finding investors who buy Treasury bonds at yields that are sustainable for the State. In particular, it is essential to have it for the increase in the free float, i.e. the share of new securities to be financed on the market in a year. In 2024 this increase in the free float will be record-breaking, at least 130 billion, a mass of bonds to be sold to private investors of a size never seen in Italy since the euro came into existence. It is not difficult to understand why: just to cover the 2024 operating deficit, a little more than eighty billion euros will presumably be needed (around 4% of GDP); furthermore, at present, new issues of public bonds worth around thirty billion euros could be needed to cover the lower revenue from real estate tax credits; finally, it will be necessary to find buyers on the market for the securities that are currently in the hands of the European Central Bank, but which will expire and the ECB itself will not renew. All these elements are today at the center of the Treasury’s reflections. The measures of the measure, in comparison, seem like minor headaches.
2023-09-23 05:19:41
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