Italy cuts growth, deficit forecast

Italy on Wednesday cut its forecasts for both economic growth and its public finances this year and next year, potentially lining it up for a clash with Brussels.

Italy cuts growth, deficit forecast
Italy's Finance Minister Giovanni Tria at a EU Eurozone Finance Ministers meeting at the European Council last month. Riccardo Pareggiani / AFP

In an interview with the business daily Il Sole 24 Ore, Economy Minister Giovanni Tria said he now expected the country's gross domestic product to expand by 1.2 percent this year, down from the 1.5 percent forecast by the previous government. 

And GDP growth next year was only set to come out at 1.0-1.1 percent, instead of the previous prediction of 1.4 percent, he said. 

The Bank of Italy, the European Commission and the International Monetary Fund (IMF) have already lowered their forecasts for the eurozone's third-biggest economy.

Tria said that slower growth would likely inflate Italy's public deficit, which the previous centre-left administration had predicted would amount to 1.6 percent of GDP in 2018 and 0.8 percent in 2019, with a balanced budget projected for 2020.

Under EU rules, member states are not allowed to run up deficits in excess of 3.0 percent of output.

“The slowdown alone would bring the deficit (ratio) to 1.2 percent in 2019,” Tria said.

“We are in dialogue with the European Commission,” he added. 

When Tria presents his 2019 budget in September or October, he will have to take great care not to scare financial markets, while at the same time appearing to uphold the anti-austerity pledges of the new populist coalition government, made up of the Five-Star Movement and the League parties. 

Tria said it was “in the interests of both Italy and the European Commission not to create financial instability”.

But he insisted Rome would continue to bring down its deficit. 

“There will be a slowdown compared to the trend forecast a few months ago. But what counts is that (deficit) reduction is not in question,” he said.

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KEY POINTS: Is the EU really planning to double the price of Swedish snus?

Claims over the weekend that the EU planned to bring in a new tax which will nearly double the price of Swedish 'snus' tobacco led to the hashtag #Swexit trending over the weekend. But a commission spokesman stressed on Monday that the story was inaccurate.

KEY POINTS: Is the EU really planning to double the price of Swedish snus?

Where does the claim come from? 

The Aftonbladet newspaper on Sunday ran a story based around a “secret, leaked” proposal from the European Commission for a new excise tax on tobacco which the newspaper claimed would be presented at the start of next month, with discussion then taking place between various EU member states. 

The article does not name a source or quote from or show any parts of the document, but it quotes Patrik Hildingsson, the head of communications at the snus producer Swedish Match, who it says has “received the coming report”. 

What was the reaction? 

The story generated a near viral response on Swedish Twitter. The Sweden Democrats party jumped on the story, with the Twitter account for the party’s EU MEPs tweeting using the hashtag #Swexit, which then started to trend. 

According to Charlie Weimers, one of the Sweden Democrats’ MEPs, the commission is proposing a 12.5 percent increase in tax on cigarettes, a 200 percent increase in taxes on snus, and 500 percent increase in taxes on tobacco-free snus.

In a way, this is unsurprising as snus is used by about 17 percent of people in Sweden. The tobacco product is made by grinding up tobacco with flavourings and other ingredients and placing it in small bags which are pushed under the upper lip. It has been linked to a higher incidence of mouth cancer, but is much less dangerous than smoking. 

Why is snus sensitive for Sweden? 

When Sweden joined the European Union in 1995, it was granted an exemption from the ban on oral tobacco products the European Union had brought in back in 1992. Companies are allowed to manufacture snus in Sweden and sell it to their citizens, but they are not allowed to sell snus in other EU counties.  

Is it true that the European Commission plans to force higher tax on snus? 

Dan Ferrie, a European spokesperson on tax issues, told the EU’s daily press briefing on Monday that the commission’s coming proposals on tobacco taxation would not affect Sweden’s freedom to tax the product. 

“Sweden has had an exemption since it entered the EU when it comes to the sale of snus,” he said. “The proposal that we are working on right now is not going to change that situation because the sale of snus is not permitted outside Sweden. Sweden ill as a result continue to have full freedom to set its own tax rate and tariffs for snus.” 

Already on Sunday, Sweden’s EU commissioner Ylva Johansson said that she had stressed to the commission developing the new proposals the “unreasonable consequences for Swedish snus” if it were to force a higher tax rate. 

“My judgement is that this proposal has not yet been developed to the level where it can be proposed,” she said in an sms to Swedish state TV broadcaster SVT. “Tax questions require unanimity within the Ministerial Council.”