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 The 39-year-old Italian prime minister, faced with an economy which
has not grown for three years, has set out an expansionary framework
for 2015 which increases new borrowing and targets only a marginal
reduction in the deficit.
The cabinet will meet at 1600 GMT(1200 EDT) to finalize and approve
the budget, Renzi's first as premier. The former mayor of Florence
says it constitutes "the biggest tax reduction ever attempted" in
Italy, although many details remain unclear.
Renzi says he will maintain an income tax cut for low earners
adopted in April worth 10 billion euros per year, cut a regional
company tax, IRAP, by 6.5 billion euros and scrap social
contributions for new hires on open-ended contracts.
"The difference between the 2014 budget and the 2015 budget is 18
billion euros less taxes," he tweeted on Wednesday.
The Commission wants Italy to reduce the deficit more in order to
tackle a debt burden that has risen steadily to more than 130
percent of national output, the highest in the euro zone after
Greece, EU sources have told Reuters.
Renzi says the rising debt is due to persistent economic weakness
which is only exacerbated by fiscal tightening.
Italy, the euro zone's most chronically sluggish economy, is
forecasting economic output to fall 0.3 percent this year, the third
consecutive year of contraction, before rising a meager 0.6 percent
in 2015.
The tensions play into a wider debate about the future of the euro
zone's budget rules, with France and Italy pushing for changes to
allow more spending, Germany insisting on maintaining fiscal
discipline and the Commission caught in the middle.
France, which has reneged on previous promises to cut its deficit,
will present its own budget on Wednesday and EU sources have told
Reuters both packages risk being rejected by Brussels.
France's position is widely considered to be weaker than Italy's
because although it has a lower public debt its budget deficit is
above the EU's 3 percent of gross domestic product ceiling, while
Italy's is just inside it.
RISING DEFICIT
Data on Wednesday indicated how little room for maneuver Renzi has,
with data for the first half of the year showing a budget deficit of
3.8 percent of GDP.
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While Renzi has trumpeted his tax cutting proposals, it is much less
clear how he will pay for them. He recently discarded a series of
proposals from the Spending Review Commissioner Carlo Cottarelli,
who later announced his resignation.
Renzi said last month the budget would cut spending by 20 billion
euros, but lowered that to 16 billion euros in a speech on Monday.
Italian media reports on Wednesday said spending cuts would come to
no more than 13 billion euros, or just 4 billion in net terms after
taking account of 9 billion euros of extra spending to meet higher
outlays already committed for next year.
"Just one question, where is Renzi going to find the money for his
dreams?" said Renato Brunetta, the lower house leader of Silvio
Berlusconi's center-right Forza Italia (Go Italy!) party.
The precise dispute with Brussels revolves around the technical
issue of Italy's so-called "structural" deficit, adjusted for the
business cycle and one-off factors - which Italy is proposing to
reduce by just 0.1 percent of GDP.
The Commission wants a much bigger cut of "at least 0.7 percent," an
EU source told Reuters on Tuesday.
If neither side budges then Renzi, the Commission and euro zone
governments are likely to open lengthy negotiations before the
Commission delivers its final verdict later this year.
(Additional reporting by Steve Scherer and Isla Binnie; Editing by
Catherine Evans)
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