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Green premiums too expensive: Italy’s deficits are slipping

Italy's "superbonus" tax credit program for energy renovation work has cost the public finances more than expected, with a deficit of 37.7 billion euros. The government's efforts to control public deficits include a reduction in the "super bonus" from 110% to 90% and means testing.

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A tax credit program introduced in Italy to encourage households to renovate their homes has cost the public purse more than expected.

Public deficits revised upwards

The deficits of the last three years have been revised upwards, in particular because of the so-called “super-bonus” scheme, launched in May 2020, which has so far cost the state coffers 61.2 billion euros. Italian households have largely subscribed to this mechanism which allows the State to cover 110% of the cost of energy renovation work. Tax credits were to be accounted for in state budgets at the time they were granted, rather than when they would have an actual impact on tax revenues, which led to slippage in state deficits. The budget estimates had assumed a total cost of 72.3 billion euros, leaving a hole of 37.7 billion euros. The public deficit has risen to 8% of gross domestic product (gdp) by 2022, whereas the government of Giorgia Meloni had planned to reduce it to 5.6%.

A significant budget “hole

The Italian government had to comply with a new Eurostat regulation on tax credits published in mid-February, and thus put an end to the transfer of tax credits, which will no longer be negotiable and cannot be cashed in. This measure is part of the government’s efforts to control public deficits and prevent the already high public debt from rising further. However, the public debt ratio is expected to fall significantly in 2023, to 144.6% of GDP, from 150.3% in 2021, the government forecasts.

A limited effect in 2023

The “superbonus” was launched in May 2020 to stimulate the Italian economy after the recession caused by the coronavirus pandemic. The work ranged from thermal insulation to solar panels to window replacement. The scheme was a victim of its own success, as Italian households rushed to take advantage of the tax credits. The government limited subsidies in the 2023 budget, reducing the “super-bonus” from 110% to 90% and means-testing it. The effects on the public deficit should be “limited” this year, as the “super-bonus” has been reduced. Italy’s economic growth is better than expected, which should also help limit the impact on the public deficit.

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