Renzi govt finds 1.6-bn-euro 'bonus' for welfare

Used EU flexibility rules to free up deficit-reduction cash

(ANSA) - Rome, April 10 - Experts at the economy ministry and the premier's office have freed up some 1.6 billion euros in extra funding for the measures in the executive's economic and financial document (DEF), government sources said Friday. Premier Matteo Renzi wants the extra funding - which his office is calling a "bonus" - to be allocated to welfare spending, reportedly via special decree.
    Economy Minister Pier Carlo Padoan and his team have liberated the extra funding through a kind of "reverse deficit adjustment", thanks to new European Union rules on budget flexibility.
    Under the new rules, which Italy pushed for during its six-month duty presidency last year, countries with struggling economies that are engaging in structural reform are accorded room to maneuver their way out of austerity and recession, even if the measures increase their deficits. Accordingly, Padoan decided to let this year's national deficit float up to 2.6% of GDP instead of the 2.5% forecast if the government did nothing.
    That percentile point freed up 1.6 billion euros.
    In 2016, the deficit is projected at 1.4% but the government will reportedly choose to increase it to 1.8% - meaning that next year's "bonus" will amount to 6.5 billion euros.
    Padoan foreshadowed his strategy in recent remarks to parliament, when he said "an expansive DEF" was on the way and that "the watchwords are fewer taxes and more jobs". "Social spending is off limits (from spending cuts) and must be increased," the minister said. The government is betting that its combination of welfare spending, labour reforms, and tax incentives for employers who take on new hires - in conjunction with the European Central Bank's quantitative easing (QE) bond-buying program, a weaker euro and falling oil prices - will jumpstart Italy's economy.
    On the other side of the fence, CGIL union federation leader Susanna Camusso said the DEF fails to tackle Italy's key problem, which is the lack of jobs. "Employment is what will generate wealth," Camusso said. "The DEF as far as we can tell right now, fails to address the country's central issue, which is how to create jobs, how to invest in job creation". The leader of what is the largest and most leftwing of Italy's "big three" trade union federations added that the government's labor policies "encourage unlawful behaviors more than positive ones". This was a reference to Renzi's signature Jobs Act labour reform, which scaled back job protections while giving potential employers tax breaks for new hires. Camusso also took a wait-and-see attitude to the government's promise of allocating 1.5 billion euros to welfare.
    "This is a case of let's see what the DEF actually says, and then we'll comment on the sudden bounty," she said.