Italy suffers from fiscal deficits from ‘Super Bonus’ scheme

There are voices of concern within Italy, which has the highest fiscal deficit to gross domestic product (GDP) ratio among European Union (EU) member countries. These voices alert the risks of new types of government subsidies that may aggravate the deficit situation. This reflects concerns that the fiscal deficit would not be easily reduced due to persisting subsidies such as the ‘Super Bonus,’ a type of tax deduction.

The EU statistical organization Eurostat announced on Monday that the average fiscal deficit to GDP ratio of 27 EU member countries increased from 3.4% to 3.5%. Italy was 7.4%, more than twice the average.

Hungary (6.7%) and Romania (6.6%) also had high fiscal deficit ratios. Eleven member countries, including Italy, France (5.5%), and Spain (3.6%), all exceeded the ‘3% of GDP’ limit set by the EU for fiscal management.

The Italian Ministry of Finance set the fiscal deficit target for 2023 at 4.5% of GDP in April last year, further adjusting to 5.3% in September, but ultimately failed to achieve the target. The ‘super bonus’ policy introduced by the previous government is cited as the main obstacle for Italy in failing to move away from a serious deficit. Under the program, the government supports up to 110% of expenses to improve the energy efficiency of homes and buildings over a five-year term. First introduced in 2020 during the pandemic, the program helped promote the economy but is now viewed as a government budget burden.

The Italian government announced that more than 160 billion euros (about 234 trillion won) had been spent on the super bonus-related budget as of April 4. The Italian central bank also disclosed that it spent about 4% of GDP on super bonuses last year alone, five times higher than the government estimate.

The Bank of Italy warned lawmakers to avoid the same mistakes as the recent actions (The Superbonus), stressing the importance of careful decision-making considering the policy impact on fiscal deficits. The central bank also expressed concerns that the current government's plan to extend the tax cut policy for low-income and middle-class people to next year could further increase uncertainties in fiscal management.

According to Euronews, the Bank of America also raised concerns about excessive deficits in countries such as Italy and France earlier this month. “Fiscal deficits can potentially impact national economic growth,” said Euronews, stressing the risk of fiscal deficits that plagued Europe in the past, which has re-emerged, negatively impacting Italy and France.


Eun-A Cho achim@donga.com