And The Budget IS Passed

I don't suppose this issue had been in doubt in recent weeks, but it is at least one more hurdle over.

Italian Prime Minister Romano Prodi's government survived a confidence vote and passed its first spending package as lawmakers approved plans to cut debt and reduce taxes on low incomes by raising them on higher ones.

The Chamber of Deputies voted by 337 to 262 to pass the budget law. Prodi's government would have collapsed had it lost the ballot because a confidence vote was tied to it.

So now the budget is about to become law. The next step will be to see to extent to which it is effective in achieving its objectives. Standard and Poor's don't seem too convinced:

Standard & Poor's and Fitch Rating cut Italy's creditworthiness on Oct. 19, almost three weeks after the government presented the budget proposal. S&P last week said the budget would fail to cut debt.

The big issue is the extent of dependence on increased taxes and more efficient collection of revenue rather than addressing the structural problems in the spending programme.

Confindustria, perhaps expectedly, are not very convinced either, but I was rather surprised by this:

Italy's largest employers' group, Confindustria, this week said the ``restrictive'' budget would hurt growth next year. Confindustria predicted the economy could grow as little as 1.1 percent after expanding 1.8 percent in 2006. The spending plan will shave 0.3 percentage points from a potential growth of 1.4 percent, the lobby said.

and the following point certainly raised an eyebrow here:

"The deficit may reach 6 percent of GDP this year, up from 4.1 percent in 2005, the government says."

6% of GDP. Well if correct this would certainly explain some of the growth spurt. I haven't seen this number mentioned before, in fact the indications had been the exact opposite, that the deficit would be less than anticipated due to the increased revenue. So is this for real, or is it simply Bloomberg. Anyone out there know?