Italy approves new stimulus package, shunting up 2021 deficit

ROME: The Italian government has approved a new stimulus package worth 32 billion euros ($38.8 billion) to prop up the battered economy, pushing this year's budget deficit significantly higher than previously planned.

The money will be used to help the hard-pressed national health service, fund grants to businesses forced to close due to coronavirus lockdowns, finance company furlough schemes and provide cover for a postponement of tax payment deadlines.

A cabinet statement laying out the new measures did not specify what the impact would be on the deficit, but a government source told Reuters the package would push up the deficit to 8.8% of gross domestic product (GDP) from the current goal of 7%.

This will mean the fiscal gap falls only slightly this year from the 10.8% pencilled in by the Economy Ministry for 2020.

This year's target may be revised even higher in April, when the Treasury reviews all its public finance targets to take into account the weakening prospects for economic growth.

The new package means the government has approved almost 200 billion euros in various stimulus measures since the COVID pandemic hit the country last February.

The latest wave of stimulus spending, formalised at a late night cabinet on Thursday, comes in the midst of a government crisis following the decision of former premier Matteo Renzi to his small, centrist Italia Viva party from the ruling coalition.

Despite walking out on the government, Renzi has said his party will help approve the stimulus plan in parliament.

Rome plans to use some 5 billion euros of the extra-spending to extend financing for temporary layoff schemes, while a ban on sackings due to expire in March is likely to be extended until June, a second government source said.

The hike in the deficit will push up Rome's huge public debt, the second highest in the euro zone after that of Greece.

Rome's debt pile was previously targeted to decline marginally this year to 155.6% of GDP from 158% expected in 2020. The government sources did not indicate what the new target would be.