Italy posts highest 2023 budget deficit in EU by far in latest revision

New buildings under construction are seen in Milan

By Giuseppe Fonte

ROME (Reuters) - Italy last year posted by far the highest budget deficit-to-GDP ratio in the European Union, the bloc's statistics arm Eurostat reported on Monday, after Rome's 2023 fiscal gap widened to 7.4% of gross domestic product from a 7.2% estimate issued in March.

The latest figure is more than twice the 3.5% average of the 27 EU countries and underscores the Treasury's difficulties in getting the country's public finances under control.

In all, 11 countries reported deficits above the EU's 3% of GDP ceiling, including France at 5.5%.

The European Commission is expected to invoke its deficit infringement procedure for all these states, Italian Economy Minister Giancarlo Giorgetti said this month.


The only other countries with deficits above 5% last year were Hungary (6.7%), Romania (6.6%) and Poland (5.1%), all of which are outside the 20-nation euro zone.

Italy's latest upward revision highlights the government's miscalculations of the impact of costly fiscal incentives for energy-saving home improvements.

In April last year the Treasury targeted a 2023 deficit of 4.5%. In September it revised that up to 5.3%. On March 1, official data from national statistics bureau ISTAT reported it at 7.2%, before Monday's fresh upward revision to 7.4%.

The revision factored in updated figures on the take-up of the incentives, especially the contested "Superbonus" scheme which offered to pay homeowners 110% of the cost of the energy-saving renovations.

Introduced in 2020 and due to be gradually phased out by the end of next year, the Superbonus forked out more than 160 billion euros ($170 billion) as of April 4, the government said this month, far above any previous government estimate.

Addressing parliament on the Treasury's multi-year budget framework, Italy's central bank said on Monday the Superbonus cost almost 4% of GDP in 2023 alone, more than five times what Rome had estimated last April.

"In introducing new incentives, it will be necessary to avoid repeating the mistakes that have characterized these recent measures," the Bank of Italy told lawmakers.

The bank also warned that Rome's goal of extending to 2025 temporary tax cuts for low- and middle-income earners would increase "uncertainty" over the public finance trend.

Italy's public debt, the second largest in the euro zone as a proportion of output and under close scrutiny by rating agencies and markets, will follow a rising trend towards 140% of GDP through 2026, according to the latest Treasury forecasts.

($1 = 0.9403 euros)

(Reporting by Giuseppe Fonte; Editing by Gavin Jones and Hugh Lawson)