Salvini threatens to quit over budget battle with EU

Italy‘s Deputy Prime Minister Matteo Salvini raised the stakes in a budget tussle with Brussels on Friday by threatening to resign and bring down the government unless he can push through at least 10 billion euros ($11bn) of tax cuts.

In separate remarks that may further complicate talks with the European Commission over Italy’s growing debt, Prime Minister Giuseppe Conte, a technocrat who is seen as a moderate voice in Rome’s eurosceptic executive, sided with Salvini after a summit with European Union leaders in Brussels.

Italy is negotiating a budget revision with Brussels to try to prevent an EU disciplinary procedure. The European Commission wants Italy to reduce its debt this year and next and has opposed wide tax cuts if they are not offset by new revenues or spending reductions – options that Rome has so far dismissed.

Emboldened by his League party’s strong showing in European parliamentary and local elections, Salvini has made reducing a high tax burden a priority for the government.

The polls have reversed the balance of power within the ruling coalition made up of the League and the anti-establishment 5-Star Movement, which holds a majority of parliamentary seats and cabinet ministers.

With the League votes doubled since the 2018 parliamentary election, Salvini has been acting as de facto prime minister, creating concerns among the 5-Star he could push for an early election.

He has said repeatedly that the government would last its full mandate as long as it was able to push through key measures, starting with tax cuts.

“There are no serious tax cuts that could be worth less than 10 billion euros,” Salvini told the Corriere della Sera daily.

“Italy needs a bold tax reform. It’s my duty to see it through … if they won’t let me do that, I’m going to say goodbye and leave.”

Difficult Choices

Italy faces difficult choices over its 2020 budget which government sources have said is the sticking point in negotiations with Brussels.

The government has promised to avoid a scheduled increase in the value-added tax from which 23 billion euros ($26.2m) in additional revenues are expected next year.

The EU Commission fears that a significant tax cut next year might increase Italy’s debt pile, the eurozone’s second biggest in proportion to output after bailed out Greece.

Speaking in Milan in the afternoon, Salvini told journalists that he was open to begin discussing the 2020 budget law as soon as possible but added that Rome should not seek a compromise with the Commission at any cost.

On a more conciliatory tone, Salvini, who leads the far-right League party, said that he did not want an early election.

Conte, who is conducting the negotiations with Brussels to avert the disciplinary action, appeared to share Salvini’s view when speaking to the press at the end of the EU summit.

“Salvini’s ideas [on tax cuts] are the same as mine, but I am perhaps more ambitious,” Conte said, adding the reform should be based on the principle that taxes should be lower, but everybody should pay them.

In another blow to his EU partners, Conte said he could not conceive of progress in eurozone reforms unless Italy’s interests were properly taken into account.

Earlier in the day, Conte, an academic with no previous political experience, challenged the European Commission’s forecasts and said he was confident Italy would be able to avoid disciplinary action.

The government, made up of the League and 5-Star, will present its new deficit targets on Wednesday.

Rome, several government sources said, is banking on possible savings of at least three billion euros this year to reduce the 2019 budget deficit from a 2.4 percent initial target to 2.1-2.2 percent. Conte’s predictions are below EU Commission forecasts, but above commitments made to Brussels back in December.