Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Italy and delivering a Council opinion on the 2023 Stability Programme of Italy
Date: 2023-05-24
Institutions: European Commission, Secretariat-General
Subjects: Italy, economic policy, economic recovery, economic reform, energy policy, fiscal policy, improvement of housing, stability pact, stability programme, sustainable mobility

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   EUROPEAN COMMISSION  Brussels, 24.5.2023  COM(2023) 612 final  Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Italy and delivering a Council opinion on the 2023 Stability Programme of Italy {SWD(2023) 612 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2023 National Reform Programme of Italy and delivering a Council opinion on 
the 2023 Stability Programme of Italy 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investments,  entailing  a  fiscal  impulse 
financed  by  the  EU.  In  line  with  the  European  Semester  priorities,  it  contributes  to 
economic  and  social  recovery  and  to  the  implementation  of  sustainable  reforms  and 
investments,  in  particular  to  promote  the  green  and  digital  transition  and  make  the 
Member States’ economies more resilient. It also helps strengthen public finances and 
boost  growth  and  job  creation  in  the  medium  and  long  term,  improve  territorial 
cohesion  within  the  EU  and  support  the  continued  implementation  of  the  European 
Pillar of Social Rights. The maximum financial contribution per Member State under 
the Recovery and Resilience Facility was updated on 30 June 2022, in accordance with 
Article 11(2) of Regulation (EU) 2021/241.  

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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 

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(2) 

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth 
Survey4,  marking  the  start  of  the  2023  European  Semester  for  economic  policy 
coordination. The European Council endorsed the priorities of the  survey  around the 
four  dimensions  of  competitive  sustainability  on  23  March  2023.  On  22  November 
2022,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the  Commission  also  adopted 
the 2023 Alert Mechanism Report, in which it  identified  Italy as one of the Member 
States that may be affected or may be at risk of being affected by imbalances, and for 
which an in-depth review would be needed. On 14 December 2022, the Commission 
adopted an opinion on Italy’s 2023 draft budgetary plan. On 22 November 2022, the 
Commission  also  adopted  a  recommendation  for  a  Council  recommendation  on  the 
economic policy of the euro area, which the Council adopted on 16 May 2023, as well 
as the proposal  for the 2023 Joint Employment  Report analysing the implementation 
of  the  Employment  Guidelines  and  the  principles  of  the  European  Pillar  of  Social 
Rights, which the Council adopted on 13 March 2023.  

(3)  While the EU economies are showing remarkable resilience, the  geopolitical  context 
continues  to  have  a  negative  impact.  As  the  EU  stands  firmly  with  Ukraine,  the  EU 
economic  and  social  policy  agenda  is  focused  on  reducing  the  negative  impact  of 
energy shocks on both vulnerable households and companies in the short term, and on 
keeping  up  efforts  to  deliver  on  the  green  and  digital  transition,  support  sustainable 
and inclusive growth, safeguard macroeconomic stability and increase resilience in the 
medium  term.  It  also  focuses  heavily  on  increasing  the  EU’s  competitiveness  and 
productivity. 

(4) 

On  1  February  2023,  the  Commission  issued  the  Communication  A  Green  Deal 
Industrial  Plan  for  the  Net-Zero  Age5  to  boost  the  competitiveness  of  the  EU’s  net-
zero  industry  and  support  the  fast  transition  to  climate  neutrality.  The  plan 
complements  ongoing  efforts  under  the  European  Green  Deal  and  REPowerEU.  It 
aims to provide a more supportive environment for scaling up the EU’s manufacturing 
capacity  for  the  net-zero  technologies  and  products  required  to  meet  the  EU’s 
ambitious climate targets, as well as ensuring access to relevant critical raw materials, 
including  by  diversifying  sourcing,  properly  exploiting  geological  resources  in 
Member States and maximising the recycling of raw materials. The plan  is  based on 
four pillars:  a predictable and simplified regulatory  environment,  speeding up access 
to finance, enhancing skills, and open trade for resilient supply chains.  On 16 March 
2023,  the  Commission  also  issued  the  Communication  Long-term  competitiveness  of 
the EU: looking beyond 20306, structured along nine mutually reinforcing drivers with 
the objective to work towards a growth enhancing regulatory framework. It sets policy 
improvements,  well  focused 
priorities  aimed  at  actively  ensuring  structural 
investments and regulatory measures for the long-term competitiveness of the EU and 
its Member States. The recommendations below help address those priorities. 

(5) 

In 2023, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  Fully 
implementing  the  recovery  and  resilience  plans  remains  essential  for  delivering  the 
policy priorities under the European Semester, as the plans address all or a significant 
subset  of  the  relevant  country-specific  recommendations  issued  in  recent  years.  The 
2019, 2020 and 2022 country-specific recommendations remain equally relevant also 

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6 

COM(2022) 780 final. 
COM(2023) 62 final.  
COM(2023) 168 final.  

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(7) 

for  recovery  and  resilience  plans  revised,  updated  or  amended  in  accordance  with 
Articles 14, 18 and 21 of Regulation (EU) 2021/241.  
The REPowerEU Regulation7 adopted on 27 February 2023 aims to rapidly phase out 
the  EU’s  dependence  on  Russian  fossil  fuel  imports.  This  will  contribute  towards 
energy security and the diversification of the EU’s energy supply, while increasing the 
uptake of renewables, energy storage capacities and energy efficiency. The Regulation 
enables  Member  States  to  add  a  new  REPowerEU  chapter  to  their  national  recovery 
and  resilience  plans  in  order  to  finance  key  reforms  and  investments  that  will  help 
achieve the REPowerEU objectives. They will also help boost the competitiveness of 
the EU’s net-zero industry as outlined in the Green Deal  Industrial Plan for the Net-
Zero Age and address the energy-related country-specific recommendations issued to 
the  Member  States  in  2022  and,  where  applicable,  in  2023.  The  REPowerEU 
Regulation  introduces  a  new  category  of  non-repayable  financial  support,  made 
available  to  Member  States  to  finance  new  energy-related  reforms  and  investments 
under their recovery and resilience plans.  

On 8 March 2023, the Commission adopted a communication providing fiscal policy 
guidance for 2024. It aims to support the preparation of Member States’ stability and 
thereby  strengthen  policy  coordination8.  The 
convergence  programmes  and 
Commission recalled that the general escape clause of the Stability and Growth Pact 
will be deactivated at  the end of 2023.  It  called  for fiscal  policies in  2023-2024 that 
ensure  medium-term  debt  sustainability  as  well  as  raise  potential  growth  in  a 
sustainable manner. Member States were invited to set out in their 2023 stability and 
convergence programmes how their fiscal plans will ensure that the 3% of GDP deficit 
reference value is adhered to as well as plausible and continuous debt reduction, or for 
debt  to  be  kept  at  prudent  levels  in  the  medium  term.  The  Commission  invited 
Member States to phase out national fiscal measures introduced to protect households 
and  firms  from  the  energy  price  shock,  starting  with  the  least  targeted  ones.  It 
indicated that, if support measures needed to be extended because of renewed energy 
price  pressures,  Member  States  should  target  such  measures  much  better  than  in  the 
past  towards  vulnerable  households  and  firms.  The  Commission  proposed  that  the 
fiscal  recommendations would be  quantified and differentiated  and be  formulated on 
the basis of net primary expenditure, as proposed in its Communication on orientations 
for  a  reform  of  the  EU  economic  governance  framework9.  It  recommended  that  all 
Member States should  continue to  protect  nationally  financed investment and ensure 
the  effective  use  of  the  Recovery  and  Resilience  Facility  and  other  EU  funds,  in 
particular  in  light  of  the  green  and  digital  transition  and  resilience  objectives.  The 
Commission  indicated  that  it  will  propose  to  the  Council  to  open  deficit-based 
excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in 
line with existing legal provisions. 

(8) 

On  26  April  2023,  the  Commission  presented  legislative  proposals  to  implement  a 
comprehensive reform of the EU’s economic governance rules. The central objective 
of the proposals is to strengthen public debt sustainability and promote sustainable and 

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Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1). 
COM(2023) 141 final. 
COM(2022) 583 final. 

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inclusive growth in all Member States through reforms and investment. The proposals 
aim at providing Member States with more control over the design of their medium-
term plans, while putting in place a more stringent enforcement regime to ensure that 
Member  States  deliver  on  the  commitments  undertaken  in  their  medium-term  fiscal-
structural plans. The objective is to conclude the legislative work in 2023. 

On  30  April  2021,  Italy  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance with the assessment guidelines of Annex V to that Regulation. On 13 July 
2021,  the  Council  adopted  its  Decision  on  the  approval  of  the  assessment  of  the 
recovery and resilience plan for Italy10. The release of instalments is conditional on a 
decision  by  the  Commission,  taken  in  accordance  with  Article  24(5)  of  Regulation 
(EU) 2021/241, that Italy has satisfactorily reached the relevant milestones and targets 
set out in the Council Implementing Decision. Satisfactory fulfilment presupposes that 
the achievement of preceding milestones and targets has not been reversed. 

(10)  On  2  May  2023,  Italy  submitted  its  2023  National  Reform  Programme  and  its  2023 
Stability Programme, in line with Article 4(1) of Regulation (EC) No 1466/97. To take 
account  of  their  interlinkages,  the  two  programmes  have  been  assessed  together.  In 
accordance with  Article  27 of Regulation  (EU) 2021/241,  the  2023 National  Reform 
Programme also reflects Italy’s biannual reporting on the progress made in achieving 
its recovery and resilience plan.  

(11)  The  Commission  published  the  2023  country  report  for  Italy11  on  24  May  2023.  It 
assessed Italy’s progress in addressing the relevant country-specific recommendations 
adopted  by  the  Council  between  2019  and  2022,  and  took  stock  of  Italy’s 
implementation of the recovery and resilience plan. Based on this analysis, the country 
report identified  gaps with respect  to  those challenges that are not  addressed or only 
partially addressed by the recovery and resilience plan, as well as new and emerging 
challenges.  It  also  assessed  Italy’s  progress  on  implementing  the  European  Pillar  of 
Social  Rights  and  on  achieving  the  EU  headline  targets  on  employment,  skills  and 
poverty reduction, as well as progress in achieving the UN’s Sustainable Development 
Goals.  

(12)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No 1176/2011 for Italy and published its results on 24 May 202312. It concluded that 
Italy is experiencing excessive macroeconomic imbalances.  In particular, while there 
have  been  some  improvements,  vulnerabilities  related  to  high  government  debt  and 
weak  productivity  growth,  in  a  context  of  labour  market  fragilities  and  some 
weaknesses  in  financial  markets,  which  carry  cross-border  relevance,  persist.  Italy’s 
long-standing  vulnerabilities  have  receded  somewhat  over  recent  years  but  remain 
significant and are not expected to unwind quickly. Persistent low productivity growth 
has  been  a  key  factor  behind  Italy’s  protracted  weak  economic  growth,  which  slows 
down  government  debt  deleveraging,  dents  employment  opportunities  and  impacts 
banks’ balance sheets. The government debt ratio further declined in 2022 along with 

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12 

Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Italy (ST 10160/21; ST 10160/21 ADD 1; ST 10160/21 ADD 1 REV 1; ST 10160/21 
ADD 1 REV 2; ST 10160/21 ADD 1 REV 2 COR 1). 
SWD(2023) 612 final. 
SWD(2023) 634 final. 

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to 

tackle 

imbalances,  but  sustained  efforts  are  warranted  and 

the  economic  recovery.  However,  it  remains  high  and  constitutes  a  substantial  fiscal 
sustainability challenge. The public debt ratio is forecast to further decline by 2024 but 
to  increase  in  the  medium  term  in  the  absence  of  consolidation  measures.  The 
government  has  implemented  further  measures  to  support  the  resilience  of  the 
financial  sector  and  non-performing  loans  have  significantly  declined,  but  banks  are 
still  significantly  exposed  to  the  sovereign.  Some  progress  has  been  made  with 
policies 
the 
implementation  of  the  RRP  remains  the  key  policy  priority  as  it  includes 
comprehensive reforms and significant investments. Putting the high government debt 
on  a  firm  downward  path,  in  a  context  of  rising  debt  servicing  costs  and  rising  age-
related costs, requires a multipronged approach relying on prudent fiscal policies with 
adequate  primary  surpluses,  growth-enhancing  investments  and  reforms,  greater  tax 
compliance  as  well  as  an  efficient  use  of  national  and  European  resources.  Italy  is 
facing  challenges  that,  alongside  a  continued  strong  implementation  of  the  RRP, 
would  benefit  from  additional  policy  efforts,  notably  in  the  areas  of  taxation,  fiscal 
framework and pension systems as well as in the areas of demography, labour market, 
and energy.  

(13)  Based  on  data  validated  by  Eurostat,13  Italy’s  general  government  deficit  decreased 
from 9.0% of GDP in 2021 to 8.0% in 2022, while general government debt fell from 
149.9% of GDP at the end of 2021 to 144.4% at the end of 2022. On 24 May 2023, the 
Commission published a report under Article 126(3) TFEU;14 the report discussed the 
budgetary situation of Italy, as its general government deficit in 2022 exceeded the 3% 
of GDP Treaty reference value, while its general government debt exceeded the 60% 
of GDP Treaty reference value and did not respect the debt-reduction benchmark. The 
report  concluded  that  the  deficit  and  debt  criteria  were  not  fulfilled.  In  line  with  the 
Communication  of  8  March  2023,15  the  Commission  did  not  propose  to  open  new 
excessive  deficit  procedures  in  spring  2023;  in  turn,  the  Commission  stated  that  it 
would  propose  to  the  Council  to  open  deficit-based  excessive  deficit  procedures  in 
spring 2024, on the basis of the outturn data for 2023. Italy should take account of this 
in  the  execution  of  its  2023  budget  and  in  preparing  the  Draft  Budgetary  Plan  for 
2024. 

(14)  The general government balance has been impacted by the new statistical treatment of 
some  housing  renovation  tax  credits,  now  recorded  as  capital  transfers  and  mostly 
accrued to 2021-202216. It was also impacted by the fiscal policy measures adopted to 
mitigate the economic and social impact of the increase in energy prices. In 2022, such 
revenue-decreasing measures included measures to control general system charges in 
the electricity and gas sectors, reduction of the VAT rate on gas, reduction of excise 
duties  on  fuel  prices,  reduction  of  social  security  contributions  for  workers  below  a 
certain  income  threshold;  while  such  expenditure-increasing  measures  included 
subsidies  to  electricity  and  gas  companies,  expansion  of  the  ‘social  bonus’  for 
electricity  and  gas  bills  for  low-income  households,  means  tested  allowances  for 
workers, pensioners and unemployed persons and an increase, by 2% in October 2022 
in advance of the statutory inflation-related indexation normally due in 2023, of old-

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Eurostat-Euro Indicators, 47/2023, 21.4.2023 
COM(2023) 631 final, 24.5.2023. 
COM(2023) 141 final, 8.3.2023. 
The new statistical treatment implied an upward revision of the deficit by 1.8 percentage points of GDP 
in 2021. In 2022, the tax credits involved by the new statistical treatment are estimated to have had a 
deficit increasing impact of 2.6 percentage points of GDP. 

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age pensions. The cost of these measures was partly offset by new taxes on windfall 
profits of energy producers and suppliers and revenues from the offset mechanism on 
the price of electricity produced from renewable sources and from the application of a 
compensation  mechanism  in  the  electricity  sector,  deemed  to  implement  Council 
Regulation on an emergency intervention to address high energy prices adopted on 6 
October 2022. The Commission estimates the net budgetary cost of these measures at 
2.5% of GDP in 2022. The general government balance has also been impacted by the 
budgetary  cost  of  temporary  protection  to  displaced  persons  from  Ukraine,  which  is 
estimated at 0.1% of GDP in 2022. At the same time, the estimated cost of COVID-19 
temporary emergency measures dropped to 1.1% of GDP in 2022, from 3.4% in 2021, 
as  the  government  phased  out  the  majority  of  the  measures  taken  in  response  to  the 
COVID-19 crisis. 

(15)  On 18 June 2021, the Council recommended that in 2022 Italy17 use the Recovery and 
Resilience Facility to finance additional investment in support of the recovery, while 
pursuing a prudent  fiscal policy. Moreover,  Italy  should preserve nationally financed 
investment.  The  Council  also  recommended  Italy  to  limit  the  growth  of  nationally 
financed current expenditure. 

(16)  According  to  the  Commission  estimates,  the  fiscal  stance18  in  2022  was  supportive, 
at  -3.2%  of  GDP.  As  recommended  by  the  Council,  Italy  continued  to  support  the 
recovery  with  investments  financed  by  the  Recovery  and  Resilience  Facility. 
Expenditure financed by Recovery and Resilience Facility grants and other EU funds 
amounted  to  0.9%  of  GDP  in  2022  (0.4%  of  GDP  in  2021).  Nationally  financed 
investment  provided  a  neutral  contribution    to  the  fiscal  stance.19  Italy  therefore 
preserved  nationally  financed  investment,  as  recommended  by  the  Council.  At  the 
same time, the growth in nationally financed primary current expenditure (net of new 
revenue measures) provided an expansionary contribution of 2.4 percentage points to 
the  fiscal  stance.  This  significant  expansionary  contribution  included  the  additional 
impact  of  fiscal  policy  measures  to  mitigate  the  economic  and  social  impact  of  the 
increase in energy prices (additional net budgetary cost of 2.2% of GDP), as well as 
the  costs  to  offer  temporary  protection  to  displaced  persons  from  Ukraine  (0.1%  of 
GDP).  Italy  therefore  sufficiently  kept  under  control  the  growth  in  national  financed 
current expenditure. 

(17)  The macroeconomic scenario underpinning the budgetary projections in  the Stability 
Programme is realistic in both 2023 and 2024. The government projects real GDP to 
grow by 1.0% in 2023 and 1.5% in 2024. By comparison, the Commission 2023 spring 
forecast  projects  a  slightly  higher  real  GDP  growth  of  1.2%  in  2023  and  somewhat 
lower, at 1.1%, in 2024, mainly due to a smaller contribution of investment, which the 

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Council  Recommendation  of  18  June  2021  delivering  a  Council  opinion  on  the  2021  Stability 
Programme of Italy, OJ C 304, 29.7.2021, p. 53.  
The  fiscal  stance  is  measured  as  the  change  in  primary  expenditure  (net  of  discretionary  revenue 
measures), excluding Covid-19 crisis-related temporary emergency measures but including expenditure 
financed  by  non-repayable  support  (grants)  from  the  Recovery  and  Resilience  Facility  and  other  EU 
funds, 
in 
to  medium-term  potential  growth.  For  more  details 
the Fiscal Statistical Tables.   
Other  nationally  financed  capital  expenditure  is  projected  to  provide  an  expansionary  contribution  of 
0.3 percentage points of GDP. This is explained by the increase in expenditure related to tax credits for 
building renovation works, which is recorded as a capital transfer.  

see  Box 1 

relative 

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government projects to grow by 3.4% year-on-year while the Commission forecasts to 
grow by 1.8%. 

In its 2023 Stability Programme, the government expects that the general government 
deficit  ratio  will  decrease  to  4.5%  of  GDP  in  2023.  The  decrease  in  2023  mainly 
reflects  the  reduction  in  capital  transfers  related  to  tax  credits  supporting  private 
investment in housing efficiency, a decrease in compensation of employees due to the 
retroactive  renewal  of  public  contracts  for  the  period  2019-2021,  for  which  a 
substantial  part  of  the  arrears  was  recorded  in  2022,  a  reduction  in  subsidies  on 
production  in  conjunction  to  lower  tax  credits  to  electricity  and  gas  companies  and 
lower  interest  expenditure  mainly  explained  by  lower  yields  on  government  bonds 
indexed  to  inflation.  According  to  the  Programme,  the  general  government  debt-to-
GDP ratio is  expected to decrease from  144.4% at  the end of 2022  to 142.1% at  the 
end  of  2023.  The  Commission  2023  spring  forecast  projects  a  government  deficit  of 
4.5%  of  GDP  for  2023.  This  is  in  line  with  the  deficit  projected  in  the  Stability 
Programme.  The  Commission  2023  spring  forecast  projects  a  lower  general 
government debt-to-GDP ratio, of 140.4% at the end of 2023. The difference is due to 
higher nominal GDP growth in the Commission forecast. 

(19)  The  government  balance  in  2023  is  expected  to  continue  to  be  impacted  by  the 
measures adopted to mitigate the economic and social impact of the increase in energy 
prices.  They  consist  of  measures  extended  from  2022  (in  particular:  subsidies  to 
electricity  and  gas  companies,  measures  to  control  general  system  charges  in  gas 
sector, reduction of the VAT rate on gas and reduction of social security contributions 
for  workers  below  a  certain  income  threshold)  and  new  measures  such  as  a  heating 
bonus  for  all  households  for  the  period  October-December  2023.  The  cost  of  these 
measures continues to be partly offset by taxes on windfall profits of energy producers 
and  suppliers.  Taking  these  revenues  into  account,  the  net  budgetary  cost  of  the 
support measures is projected in the Commission 2023 spring forecast at 1.0% of GDP 
in  202320.  Most  measures  in  2023  are  targeted  to  the  most  vulnerable  households  or 
firms, although the majority of the energy support measures do not fully preserve the 
price signal to reduce energy demand and increase energy efficiency. As a result, the 
amount  of  targeted  support  measures,  to  be  taken  into  account  in  the  assessment  of 
compliance with the recommendation for 2023, is estimated in the Commission 2023 
spring forecast at 0.7% of GDP in 2023 (compared to 1.2% of GDP in 2022). Finally, 
the 2023 government balance is expected to benefit from the complete phasing out of 
COVID-19 temporary emergency measures of 1.1% of GDP. 

(20)  On  12  July  2022,  the  Council  recommended21  that  Italy  ensures  in  2023  a  prudent 
fiscal  policy,  in  particular  by  limiting  the  growth  of  nationally  financed  primary 
current expenditure below medium-term potential output growth22, taking into account 
continued temporary and targeted support to households and firms most vulnerable to 
energy price hikes and to people fleeing Ukraine. At the same time, Italy should stand 
ready to adjust current spending to the evolving situation. Italy was also recommended 
to  expand  public  investment  for  the  green  and  digital  transitions,  and  for  energy 

20 

21 

22 

The  figure represents the level of annual budgetary cost of those  measures, including current revenue 
and expenditure as well as – where relevant – capital expenditure measures. 
Council Recommendation of 12 July 2022 on the National Reform Programme of Italy and delivering a 
Council opinion on the 2022 Stability Programme of Italy, OJ C 334, 1.0.2022, p. 96.  
Based  on  the  Commission  2023  spring  forecast,  the  medium-term  (10-year  average)  potential  output 
growth of Italy is estimated at 6.4% in nominal terms.  

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(21) 

security taking into account the REPowerEU initiative, including by making use of the 
Recovery and Resilience Facility and other Union funds. 

In  2023,  the  fiscal  stance  is  projected  in  the  Commission  2023  spring  forecast  to  be 
contractionary  (+2.6%  of  GDP),  in  a  context  of  high  inflation.  This  follows  an 
expansionary fiscal stance in 2022 (-3.2% of GDP). The growth in nationally financed 
primary  current  expenditure  (net  of  discretionary  revenue  measures)  in  2023  is 
projected to provide a contractionary contribution of 0.9% of GDP to the fiscal stance. 
Therefore, the projected growth of nationally financed primary current expenditure is 
in line with the Council recommendation. The projected contractionary contribution of 
nationally  financed  primary  current  expenditure  is  due,  in  substance,  to  the  reduced 
costs  (by  1.5  percentage  points  of  GDP)  of  the  support  measures  (targeted  and 
untargeted)  to  households  and  firms  in  response  to  energy  price  hikes.  The  main 
drivers  of  growth  in  nationally  financed  primary  current  expenditure  (net  of  new 
revenue  measures)  are  the  increase  in  pension  expenditure  due  to  the  indexation  to 
previous-year inflation and the further recently  adopted cuts  to  the labour tax wedge 
for  low-  and  medium-income  earners.  Expenditure  financed  by  Recovery  and 
Resilience Facility grants and other EU funds is projected to amount to 1.4% of GDP 
in 2023, while nationally financed investment is projected to provide an expansionary 
contribution  to  the  fiscal  stance  of  0.1  percentage  points23.  Therefore,  Italy  plans  to 
finance additional investment through the Recovery and Resilience Facility and other 
EU  funds,  and  it  is  projected  to  preserve  nationally  financed  investment.  It  plans  to 
finance public investment for the green and digital transitions, and for energy security, 
such as investments in the rail network, renewable energy, hydrogen, electricity grids 
and  sustainable  mobility,  the  protection  of  land  and  water  resources  as  well 
investments related to the cloud infrastructure for the public administration, which are 
partly funded by the Recovery and Resilience Facility and other EU funds. In light of 
the devastating floods that hit Italy in May 2023, the cost of direct emergency support 
related  to  those  floods  will  be  taken  into  account  in  subsequent  assessments  of 
compliance and will in principle be considered as one-off and temporary measures.24 

(22)  According  to  the  Stability  Programme  the  general  government  deficit  is  expected  to 
decline to 3.7% of GDP in 2024. The decrease in 2024 mainly reflects a reduction in 
expenditure  for  intermediate  consumption  and  for  tax  credits  to  electricity  and  gas 
companies.  The  programme  expects  the  general  government  debt-to-GDP  ratio  to 
decrease to 141.4% at the end of 2024. Based on policy measures known at the cut-off 
date  of  the  forecast,  the  Commission  2023  spring  forecast  projects  a  government 
deficit  of  3.7%  of  GDP  in  2024.  This  is  in  line  with  the  deficit  projected  in  the 
programme,  although  the  Commission  forecast  does  not  include  planned  deficit-
increasing  measures  amounting  to  0.2%  of  GDP,  for  which  the  details  are  not  yet 
known.  The  Commission  2023  spring  forecast  projects  a  lower  general  government 
debt-to-GDP  ratio,  of  140.3%  at  the  end  of  2024.  The  difference  is  due  to  higher 
nominal GDP growth in the Commission forecast. 

(23)  The  Stability  Programme  envisages  the  phasing  out  of  all  of  the  energy  support 
measures in  2024. The  Commission  also  assumes full  phasing out  of energy support 

23 

24  

Other nationally financed capital expenditure is projected to provide a contractionary contribution of 2.3 
percentage points of GDP.  This is explained by the expected reduction in  spending for tax credits for 
building renovation works. 

See for the definition of a one-off measure the 2015 Public finance report. 

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measures  in  2024.  This  hinges  upon  the  assumption  of  no  renewed  energy  price 
increases. 

(24)  Council Regulation (EC) No 1466/97 calls for an annual improvement in the structural 
budget balance toward the medium-term objective by 0.5% of GDP as a benchmark25. 
Taking  into  account  fiscal  sustainability  considerations26  and  the  need  to  reduce  the 
deficit  to  below  the  3%  of  GDP  reference  value,  an  improvement  in  the  structural 
balance  of  at  least  0.7%  of  GDP  for  2024  would  be  appropriate.  To  ensure  such  an 
improvement,  the  growth  in  net  nationally  financed  primary  expenditure  in  2024 
should  not  exceed  1.3%,  as  reflected  in  this  recommendation.  At  the  same  time,  the 
remaining  energy support  measures (currently estimated by the Commission  at  1.0% 
of GDP in 2023) should be phased out, contingent on energy market developments and 
starting from the least targeted ones, and the related savings should be used to reduce 
the government deficit. Based on Commission estimates, this would lead to a growth 
in net primary expenditure lower than recommended for 2024. 

(25)  Assuming  unchanged  policies,  the  Commission  2023  spring  forecast  projects  net 
nationally financed primary expenditure to grow at 0.8% in 2024, which is below the 
recommended growth rate. In light of the devastating floods that hit Italy in May 2023, 
the cost of direct emergency support related to those floods will be taken into account 
in subsequent  assessments of compliance and will in principle be considered as one-
off and temporary measures. 

(26)  According  to  the  programme,  government  investment  is  expected  to  increase  from 
3.3%  of  GDP  in  2023  in  to  3.8%  of  GDP  in  2024.  The  higher  investment  reflects 
higher  nationally  financed  investment  and  investment  financed  by  the  EU,  including 
through  the  Recovery  and  Resilience  Facility.  The  programme  refers  to  reforms  and 
investments, that are expected to contribute to fiscal sustainability and sustainable and 
inclusive growth. These include the reform of the procurement code, which is also part 
of the Recovery and Resilience Plan and the tax system included in the enabling law 
of March 2023. 

(27)  The Stability Programme outlines a medium-term fiscal path until 2026. According to 
the programme, the general government deficit is expected to decline to 3.0% of GDP 
in 2025 and to 2.5% by 2026. The general government deficit is therefore planned to 
not  exceed  3%  of  GDP  from  2025.  According  to  the  programme,  the  general 
government debt-to-GDP ratio is expected to decrease from 141.4% at the end of 2024 
to 140.4% by the end of 2026. 

(28) 

Italy’s tax wedge on labour has remained high at all income levels compared to other 
EU  Member  States,  despite  the  reduction  of  personal  income  taxes  implemented  in 
2022.  In  addition,  the  extension  of  the  flat-rate  regime  to  the  self-employed  raises 
concerns over the equity and efficiency of the tax system. The introduction of a new 
flat-rate regime on earning increases for 2023 also raised complexity. In March 2023, 
the government adopted a new enabling law for a general reform of the tax system. It 

25 

26 

Cf. Article 5 of Council Regulation (EC) No 1466/97, which also requires an adjustment of more than 
0.5%  of  GDP  for  Member  States  with  a  government  debt  exceeding  60%  of  GDP,  or  with  more 
pronounced debt sustainability risks. 
The Commission estimated that Italy  would need an average annual increase in the structural primary 
balance as a share of GDP of 0.85 percentage points to achieve a plausible debt reduction or ensure that 
government  debt  is  kept  at  prudent  levels  in  the  medium  term.  This  estimate  was  based  on  the 
Commission autumn 2022 forecast. The starting point  for this estimate  was the projected government 
deficit and debt for 2024 which assumed the withdrawal of energy support measures in 2024.  

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(29) 

is expected to tackle some long-standing weaknesses, including by reducing taxes on 
labour and rationalising and streamlining tax expenditures and corporate taxes. When 
implementing this reform, it is crucial to preserve the progressivity of the tax system, 
reduce complexity, increase incentives to work, strengthen tax compliance and ensure 
budget  neutrality.  In  this  regard,  there  is  potential  to  increase  revenues  from  other 
sources  that are  less detrimental to  growth,  such  as property, VAT and  authorisation 
for the use of state-owned coastal assets, in order to reduce the tax burden on labour in 
a  budget-neutral  way.  There  is  also  scope  to  improve  the  design  of  environmental 
taxes,  which,  despite  relatively  high  revenues,  does  not  sufficiently  promote  the 
transition  to  cleaner  technologies,  also  due  to  the  extensive  use  of  environmentally 
harmful  subsidies.  Furthermore,  it  is  important  to  address  a  long-standing  challenge 
that is not included in the enabling law, namely the largely outdated cadastral values, 
which serve as a basis for calculating property tax. 

In accordance with Article 19(3), point (b) and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. The implementation 
of  Italy’s  recovery  and  resilience  plan  is  underway,  however  with  increasing  risk  of 
delays.  Italy  submitted  3  payment  requests,  corresponding  to  151  milestones  and 
targets  in  the  plan  and  resulting  in  an  overall  disbursement  of  EUR  42  billion  (the 
amount  refers  to  the  first  two  payment  requests,  while  the  third  one  is  under 
assessment).  Proceeding  swiftly  with  the  implementation  of  the  plan  and  the 
negotiation of its amendment is essential due to the temporary nature of the Recovery 
and  Resilience  Facility  in  place  until  2026.  It  is  important  for  Italy  to  strengthen 
administrative  capacity,  particularly  at  subnational 
the 
commitments  of  the  plan,  while  an  effective  and  fully  operational  governance 
framework  remains  key  for  a  smooth  and  timely  implementation  of  the  plan.  It 
continues to be crucial to identify potential delays and implementation issues early on 
and  to  take  timely  action  to  address  them.  In  accordance  with  Article  14(6)  of 
Regulation (EU) 2021/241, on 31 March 2023, Italy expressed its intention to request 
additional loan support under the Recovery and Resilience Facility. The negotiation on 
the  addendum  and  the  REPowerEU  chapter  is  ongoing,  although  Italy  has  not 
submitted any official proposal.  The swift inclusion of the new REPowerEU chapter 
in the recovery and resilience plan will allow additional reforms and investments to be 
financed in support of Italy’s strategic objectives in the field of energy and the green 
transition. The systematic and effective involvement of local and regional authorities, 
social  partners  and  other  relevant  stakeholders  remains  important  for  the  successful 
implementation  of  the  recovery  and  resilience  plan,  as  well  as  other  economic  and 
employment policies going beyond the plan, to ensure broad ownership of the overall 
policy agenda.  

to  deliver  on 

level, 

(30)  The Commission approved most of Italy’s cohesion policy programming documents in 
2022  and  some  in  2023.  Proceeding  with  the  swift  implementation  of  the  cohesion 
policy programmes in  complementarity and synergy with the  recovery and resilience 
plan,  including  the  REPowerEU  chapter,  is  key  to  achieving  the  green  and  digital 
transition,  increasing  economic  and  social  resilience  as  well  as  achieving  balanced 
territorial development in Italy. 

(31)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan,  Italy  faces  a  number  of  additional  challenges  related  to  energy  policy  and  the 
green  transition,  particularly  on  the  uptake  of  renewables,  gas  transmission,  energy 
efficiency, the provision and acquisition of green skills and sustainable mobility.  

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(32)  Renewable capacity grew very slowly over the past year, and the share of fossil fuels 
in  the  energy  mix  remains  significant.  To  accelerate  the  uptake  of  renewables,  Italy 
has adopted some amendments to the existing framework that regulates the permitting 
and  authorisation  process  for  renewables.  Further  efforts  are  needed  to  ensure 
coherence between the administrative and legislative framework at both  national and 
regional level and their relevance to state-of-the-art energy technology.  For example, 
all related norms could  be consolidated into a unique text  (Testo  unico); at  the same 
time, the guidelines that subnational authorities follow to evaluate projects need to be 
updated.  Lastly,  further  investments  are  needed  to  upgrade  the  national  grid  and 
construct interconnections between the mainland, Sicily and Sardinia to allow for the 
expected  higher  generation  capacity  and  absorb  the  related  increase  in  renewable 
output. 

(33)  Bottlenecks in the gas network remain. Italy is discussing investments with partners in 
North  Africa  to  increase  the  import  capacity  of  existing  pipelines  and  gas 
interconnectors. This would help diversify imports and therefore strengthen security of 
supply. However, further investments are needed to remove bottlenecks in the existing 
domestic network, which does not have the transmission capacity to distribute new gas 
intake  from  the  south  to  the  north  of  the  country.  Investment  into  fossil  fuel 
infrastructure needs to be limited to the strictly necessary and be designed to be future-
proof,  to  avoid  lock-in  into  technologies  that  are  not  consistent  with  the  climate 
objectives or increasing the cost of the energy transition. 

(34) 

Italy’s consumption of natural gas has dropped by 19% in the period between August 
2022  and  March  2023,  compared  with  the  average  gas  consumption  over  the  same 
period in the last 5 years, beyond the 15% reduction target. Italy could keep pursuing 
efforts to temporarily reduce gas demand until 31 March 202427. Measures to improve 
the  energy  efficiency  of  buildings  need  to  be  targeted.  Italy’s  building  stock  has 
considerable energy efficiency potential, in particular with regard to the large share of 
old  and  energy-intensive  buildings.  Existing  measures  in  the  recovery  and  resilience 
plan  could  be  complemented  by  measures  such  as  targeted  incentive  schemes  to 
increase  energy  efficiency  in  worst-performing  buildings,  including  commercial 
buildings  and  public  housing,  while  ensuring  that  vulnerable  households  are  reached 
and  avoiding  regressive  effects.  These  measures  would  benefit  in  particular  small, 
medium  and  microenterprises  that  often  lack  the  technical  and  financial  capacity  to 
improve  their  energy  efficiency.  The  same  measures  would  also  help  reduce  energy 
poverty,  which  could  be further  tackled  by  other measures, for instance  via one-stop 
shops  that  provide  personalised  services  for  energy  savings.  Energy  efficiency  gains 
would also  benefit from an increase in market surveillance on ecodesign and  energy 
labelling. 

(35) 

Infrastructure  gaps  and  environmentally  harmful  subsidies,  including  road  transport, 
remain  substantial  and  discourage  the  transition  towards  more  sustainable  transport 
solutions. For instance, the average number of charging outlets remains below the EU 
average. Environmentally harmful subsidies include the flat-rate taxation of company 
cars available for private use and the reimbursement of excise duty on diesel used in 
freight. Continuing efforts to roll out charging stations and remove those subsidies is 
key to consolidating the market for zero-emission vehicles. 

27 

Council Regulation (EU) 2022/1369 and Council Regulation (EU) 2023/706. 

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(36)  Labour  and  skills  shortages  in  sectors  and  occupations  key  for  the  green  transition, 
including  manufacturing,  deployment  and  maintenance  of  net-zero  technologies,  are 
creating  bottlenecks  in  the  transition  to  a  net-zero  economy.  High-quality  education 
and  training  systems  that  respond  to  changing  labour  market  needs  and  targeted 
upskilling and reskilling measures are key to reducing skills shortages and promoting 
labour inclusion and reallocation.  To unlock untapped labour supply,  these  measures 
need  to  be  accessible,  in  particular  for  individuals  and  in  sectors  and  regions  most 
affected by the green transition.  In Italy, both high- and low-skilled occupations that 
are key for the  green transition  are affected by shortages. At the same time,  training 
support  often  does  not  reach  the  workers  most  likely  to  be  affected  by  the  green 
transition. The lack of  green skills in the public sector, in particular at local level, is 
also  holding  back  green  investments.  Italy  faces  wide  regional  disparities  that  risk 
being exacerbated if local labour markets are not able to grasp the opportunities of the 
green  transition.  Moreover,  boosting  green  skills,  including  for  sustainable  soil 
management,  would  be  key  in  fighting  the  effects  of  climate  change,  in  particular 
aggravated flooding and persistent droughts. 

(37) 

(38) 

(39) 

In light of the Commission’s assessment, the Council has examined the 2023 Stability 
Programme and its opinion28 is reflected in recommendation (1) below.  

In view of the close interlinkages between the economies of euro area Member States 
and  their  collective  contribution  to  the  functioning  of  the  Economic  and  Monetary 
Union,  the  Council  recommended  that  the  euro  area  Member  States  take  action, 
including through their recovery and resilience plans, to (i) preserve debt sustainability 
and refrain from broad-based support to aggregate demand in 2023, better target fiscal 
measures taken to mitigate the impact of high energy prices and reflect on appropriate 
ways to wind down support as energy price pressures diminish; (ii) sustain high public 
investment and promote private investment to support the green and digital transition; 
(iii)  support  wage  developments  that  mitigate  the  loss  in  purchasing  power  while 
limiting  second-round  effects  on  inflation,  further  improve  active  labour  market 
policies  and  address  skills  shortages;  (iv)  improve  the  business  environment  and 
ensure that energy support to companies is cost-effective, temporary, targeted to viable 
firms  and  that  it  maintains  incentives  for  the  green  transition;  and  (v)  preserve 
macro-financial  stability  and  monitor  risks  while  continuing  to  work  on  completing 
the  Banking  Union.  For  Italy,  recommendations  (1),  (2)  and  (3)  contribute  to  the 
implementation of the first, second, third and fourth euro area recommendations.  

In  light  of  the  Commission’s  in-depth  review  and  this  assessment,  the  Council  has 
examined  the  2023  National  Reform  Programme  and  the  2023  Stability  Programme. 
Its recommendations under Article 6 of Regulation (EU) No 1176/2011  are reflected 
in recommendation (1) below. Policies referred to in recommendation (1) help address 
vulnerabilities  linked  to  high  government  debt  and  weak  productivity  growth. 
Recommendation (2) contributes to addressing recommendation (1). Policies referred 
to in recommendation (1) contribute to both addressing imbalances and implementing 
the recommendations for the euro area, in line with recital 38. 

HEREBY RECOMMENDS that Italy take action in 2023 and 2024 to:  

1. 

Wind  down  the  energy  support  measures  in  force  by  the  end  of  2023,  using  the 
related  savings  to  reduce  the  government  deficit.  Should  renewed  energy  price 
increases  necessitate  support  measures,  ensure  that  these  are  targeted  at  protecting 

28 

Under Articles 5(2) and 9(2) of Council Regulation (EC) No 1466/97. 

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vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings.  

Ensure  prudent  fiscal  policy,  in  particular  by  limiting  the  nominal  increase  in 
nationally financed net primary expenditure in 2024 to not more than 1.3%. 

Preserve nationally financed public investment and ensure the effective absorption of 
RRF  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  

For  the  period  beyond  2024,  continue  to  pursue  a  medium-term  fiscal  strategy  of 
gradual  and  sustainable  consolidation,  combined  with  investments  and  reforms 
conducive  to  improved  productivity  and  higher  sustainable  growth,  to  achieve  a 
prudent medium-term fiscal position. 

Further reduce taxes on labour and make the tax system more efficient by adopting 
and  duly  implementing  the  enabling  law  on  tax  reform  while  preserving  the 
progressivity of the tax system and improving fairness, in particular by streamlining 
and  reducing  tax  expenditures,  including  VAT  and  environmentally  harmful 
subsidies, and by reducing the complexity of the tax code. Align the cadastral values 
with current market values. 

Ensure  an  effective  governance  and  strengthen  the  administrative  capacity, 
particularly  at  subnational  level,  to  allow  for  a  continued  swift  and  steady 
implementation of the recovery and resilience plan. Swiftly finalise the REPowerEU 
chapter with a view to rapidly starting its implementation. Proceed with the speedy 
implementation  of  cohesion  policy  programmes,  in  close  complementarity  and 
synergy with the recovery and resilience plan. 

Reduce  the  reliance  on  fossil  fuels.  Streamline  the  permitting  procedures  to 
accelerate  the  production  of  additional  renewable  energy  and  develop  electricity 
interconnections  to  absorb  it.  Increase  the  capacity  for  internal  gas  transmission  to 
diversify  energy  imports  and  strengthen  security  of  supply.  Increase  energy 
efficiency in  the residential  and corporate sectors, including  through  better targeted 
incentive schemes,  addressing in  particular the most vulnerable households and the 
worst-performing  buildings.  Promote  sustainable  mobility,  including  by  removing 
environmentally harmful subsidies and speeding up the roll-out of charging stations. 
Step up policy efforts aimed at the provision and acquisition of the skills needed for 
the green transition. 

2. 

3. 

Done at Brussels, 

For the Council 
The President 

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