*
Meloni's government set to publish new estimates next week
*
Italy sticks to prudent fiscal policy as ECB hikes rates
*
Difficulties in using EU post-COVID funds weigh on GDP
outlook
By Giuseppe Fonte
ROME, April 3 (Reuters) - Italy estimates a 2023 budget
deficit broadly in line with its previous goal of 4.5% of
national output, people familiar with the matter said, as Rome
works to finalise new projections to be published next week.
Under current trends, the Treasury forecasts a fiscal gap
this year somewhat narrower than the 4.5% set last November,
despite the negative impact of higher interest rates set by the
European Central Bank (ECB) to curb inflation and a recent
European Union ruling on the treatment of tax credits.
The final target is still to be decided, and Prime Minister
Giorgia Meloni could confirm or increase the 4.5% goal to allow
leeway for additional spending, the sources said.
It will be published along with a raft of economic
projections in the Treasury's annual Economic and Financial
Document (DEF) to be issued by April 13.
Eurostat's ruling this year on tax credits offering
homeowners incentives to adopt costly energy saving home
improvements forced Italy to revise up its budget deficits from
2020 and 2022.
This led Rome to curtail the programme to ensure it has only
a small impact on this year's state finances.
Last week Economy Minister Giancarlo Giorgetti said that the
outlook for the Italian economy was improving, but ECB rate
hikes could pose a threat to growth. The higher rates also
increase the government's borrowing costs, putting upward
pressure on the deficit.
Italian gross domestic product is now expected to grow by
almost 1% this year, up from the 0.6% target set in November,
the sources said.
A key issue affecting growth prospects and consequently
fiscal revenues is Italy's ability to catch up with the
investment programme funded through the European Union
post-COVID recovery funds.
The European Commission has frozen an overdue 19-billion
euro ($20.65 billion) tranche of these funds for Italy,
requesting clarification over Rome's efforts to meet the
"targets and milestone" needed to unlock the money.
Italy's audit court last week warned that the overall
investment spending at the end of this year was expected to be
almost 15 billion euros less than the initial framework laid out
in 2021 by Meloni's predecessor Mario Draghi.
($1 = 0.9202 euros)
(Editing by Gavin Jones and Hugh Lawson)
