Tax breaks to boost recovery

Tax breaks to boost recovery

The final draft of the 2021 budget, tabled on Friday in Parliament, provides for measures easing the pressure on households and corporations, such as the reduction of social security contributions by three percentage points and the suspension of the solidarity levy, so as to help the economy recover.

Notably, besides the tax breaks, the draft budget also includes a stock of 3 billion euros to be utilized in tackling the effects of the coronavirus on the economy. The total package of support measures concerning the pandemic amounts to €7.5 billion. If one adds this year’s measures, the pandemic bill runs to €31.3 billion for the state.

It is with those support measures and the contribution of the Next Generation EU fund that the budget foresees an economic rebound of 4.5% in 2021, following an estimated 10.5% contraction this year.

The fiscal burden will be heavy: This year the budget will record a primary deficit of 7.2% of gross domestic product, which will be contained to 3.9% of GDP next year, while the public debt will rise to 208.9% of GDP in 2020 from 180.5% last year, before easing to 199.6% in 2021.

Finance Ministry officials believe it is not at all optimistic; in fact it is quite conservative, as they actually expect the rebound to be stronger in 2021. However, assumptions such as tourism revenues amounting to 60% of those in 2019, a record year, generate concerns, given that this year just 22% of last year’s takings have been recorded. The government is pinning its hopes on the coronavirus vaccine.

As for the assumption of a 23.2% increase in projected investments, ministry sources explained yesterday that this does not depend on the disbursement of the European Union resources, as they can start with the national funds that will later be covered by the EU cash.

There is also an adverse scenario, with GDP losing 1.5 percentage points from the baseline, compounding the deficit by another 0.74% of GDP and taking the primary deficit to 4.5% of GDP.

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