ROME - Italy's new government will hike its borrowing plans for this year and next to fund support measures for the economy when it unveils its first public finance targets on Friday, two sources close to the matter told Reuters.
Prime Minister Giorgia Meloni, who took office last month at the head of a right-wing coalition, has said her first budget will be centred on softening the impact of sky-high energy costs for firms and families.
The Treasury's annual Economic and Financial Document (DEF), which forms the framework of the 2023 budget, will set the fiscal deficit at 5.6% of gross domestic output in 2022, the sources said.
That is up from a September forecast of 5.1% made by the previous government led by Mario Draghi. The target for 2023 is expected to be hiked to 4.5% from 3.4%.
This gives Meloni room for expansionary measures worth around 0.5% of GDP this year and an additional 1.1% in 2023 to expand the economy while still keeping the deficit-to-GDP ratio on a downward trajectory from one year to the next.
With the cabinet due to meet at 1700 GMT to approve the DEF, the figures could be subject to last minute changes as ministers fight to obtain more spending resources for their departments, the sources said.
Public finances this year have gone better than forecast, with value added tax revenues and excise duties boosted by high inflation and surging energy prices.
Inflation, which under the EU-harmonised index hit 12.8% in October and marked the highest reading since the series was introduced in 1996, has also helped cut Italy's huge public debt.
Moreover, the European Union's fiscal rules are still suspended to help the bloc's economies recover from the COVID-19 pandemic, giving Meloni valuable breathing space.
Nonetheless, with interest rates on an upward trend she will be wary of triggering a negative market reaction by hiking the deficit too much.
Meloni has already said she will push back some of the coalition's more ambitious campaign promises of higher pensions and swingeing tax cuts.
The 2023 budget is expected to detail higher spending and tax breaks worth over 30 billion euros ($29.73 billion), one of the sources said, of which at least 21 billion will be funded by extra borrowing.
To finance the rest, Rome is considering cutting part of almost 9 billion euros earmarked in 2023 for income support for the poor. It will also tighten the terms of incentives aimed at helping people green their homes, the sources said.
Under a contested scheme known as the "superbonus", the state pays an eye-watering 110% of the cost of making buildings more energy-efficient, from insulation to solar panels to replacing old-fashioned boilers and window fittings.
($1 = 1.0091 euros)
(Editing by Alison Williams)