Italy VAT rise update

Italy’s damp economic performance may push it to implement a VAT rate rise clause in its 2016 budget to ensure it complies with the Euro currency membership requirements. The clause provides for a VAT rate rise from the current 22% to up to 25% by 2017 in a series of increases.

Members of the Euro currency must maintain their budgetary deficits at 3% or below of their GDP. This is monitored by the European Commission (EC) on behalf of member states.  The Eurogroup meeting of EU Finance Ministers recently stated the Italy is deviating from its deficit reduction progress of 2015.  The country's growth forecast was recently cut from 1.3% to 1.0% by the credit rating agency, Fitch.  It cited declining foreign investment in the country and internal consumption not meeting the shortfall.

Italy will likely claim the influx of migrants from Syria and the troubled Middle East has put an unreasonable strain on government expenditures, and request additional budget flexibility from the EC.