Italy sees 2023 deficit above target due to home incentives, sources say

FILE PHOTO: FILE PHOTO: Italy's PM Meloni holds her end-of-year news conference in Rome

By Giuseppe Fonte

ROME (Reuters) - Italy is preparing to raise its 2023 budget deficit above the target of 4.5% of gross domestic product (GDP) set in April due to the impact of costly fiscal incentives for home improvements, two sources close to the matter told Reuters on Monday.

Early this year, a ruling by the European Union's statistics agency Eurostat over the ways tax credits should be classified in state accounts forced Italy to revise up its deficits from 2020 and 2022.

The government already acted to curtail the incentives in order not to undermine this year's state finances, despite the contribution they had provided to the construction sector and the economy in general during the COVID-pandemic.

However, the take-up of schemes is still hitting Italy as billions of euros in outstanding credits are expected to meet Eurostat's criteria to be added to this year's budget deficit, the sources said, asking not to be named due to the sensitivity of the matter.

The impact on 2024 budget is still to be assessed and the government could take action again to prevent further deviations from targets, the sources added.

One of the programmes, the so-called Superbonus offering generous incentives for energy saving home improvements, is approaching 100 billion euros ($108 billion) since it was originally introduced in 2020.

"Thinking about the Superbonus makes me sick to my stomach as it has a negative effect on public accounts, engulfs economic policy and leaves no room for other interventions," Economy Minister Giancarlo Giorgetti said on Sunday.

He described the Superbonus as a banquet where everyone had a meal and the state was left with the bill.

Italy had already hinted in July that it was studying changes to these tax incentives as part of talks with European Union authorities to revamp the country's post-COVID national recovery Plan.

The government will update a raft of economic projections by Sept. 27 through the Treasury's Document of economy and finance (DEF).

With Italy preparing a difficult 2024 budget amid a darkening economic outlook, Giorgetti reiterated the commitment to keeping the deficit and debt on a downward trend, leaving little leeway for stimulus. ($1 = 0.9273 euros)

(Editing by Lincoln Feast.)