ROME (Reuters) – The Italian cabinet on Monday approved a 2021 budget targeting a budget deficit of 7% of national production, down from 10.8% this year, but two government sources said next year’s target would be soon to be increased to allow further economic recovery.

FILE PHOTO: The skyline of the Porta Nuova district is seen in Milan, northern Italy, March 5, 2015. REUTERS / Stefano Rellandini

The government has already allocated around 100 billion euros ($ 118 billion) this year to try to cushion the impact of one of the world’s worst coronavirus outbreaks.

Rome is preparing a new spending package worth 15-20 billion euros which may be presented this week, which will increase the deficit in 2021, one of the sources said, asking not to be named.

Much of the additional spending this year has been on temporary support measures such as business grants, loan guarantees and leave programs that were due to expire in the coming months, paving the way for reduced borrowing. in 2021.

However, with COVID-19 infections on the rise in recent weeks, Prime Minister Giuseppe Conte has said supporting the economy is now paramount, undermining plans for modest fiscal consolidation.

Italy’s public debt, proportionally the highest in the euro zone after Greece’s, is currently expected to fall next year to 155.6% of GDP from 158% in 2020.

The expansionary measures in the 2021 budget total around 40 billion euros, including 15 billion euros in subsidies from the European Union Recovery Fund.

The budget includes 4 billion euros in subsidies to compensate the companies hardest hit by the coronavirus lockdowns, and extends until June a moratorium on repayments of bank loans to small and medium-sized businesses.

An additional 5.3 billion euros will fund leave schemes in the first half of next year, while a dismissal ban that expires in January is extended until the end of March.

The finance law will now be submitted to Parliament for debate and amendment, and must be approved by both chambers before December 31.

Reporting by Giuseppe Fonte and Gavin Jones; Additional reporting by Angelo Amante; Editing by Hugh Lawson

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