Draghi Bows Out With Big Aid Package for Inflation-Hit Italians

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(Bloomberg) -- Italy’s government approved an aid package worth about 17 billion euros ($17.4 billion) to cushion families and businesses from inflation -- one of Prime Minister Mario Draghi’s final acts before he leaves office.

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“Today’s decree is of considerable proportions,” Draghi told reporters during a joint press conference in Rome with other ministers. “Our aim is to protect families and companies in an international context that is worsening.”

The measures, signed off by Draghi’s cabinet on Thursday, include a 15 billion euro package plus 2 billion euros in extra aid, Draghi said. The country’s budget deficit won’t widen as costs will be covered by stronger than expected economic growth and higher tax revenues, Finance Minister Daniele Franco told reporters.

Measures include tax cuts to offset surging energy costs, and the extension into the fourth quarter of reductions on energy bills for lower-income households. A cut to duties on fuel at the pump will also be extended.

Draghi is heading a caretaker government until snap elections in September following the breakup of his coalition last month. Italy’s leader has been managing the economy by attempting to continue spending to protect Italians hit by inflation, as well as to support growth, while being careful not to increase the nation’s mammoth pile of debt.

Italy’s inflation rate was 8.4% in July, driven by the spike in energy and fuel prices following Russia’s invasion of Ukraine. So far, the government has earmarked about 35 billion euros to help Italians cope with the resulting surge in costs, Draghi said.

Italy’s economy grew 1% in the second quarter from the previous three months, a sixth consecutive quarter of growth. The government’s deficit forecast for this year remains at 5.6% of output.

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That expansion has given Draghi the leeway to continue supporting families and to address other issues important to Italians. Other measures in the latest package include the extension of a 200-euro bonus to help lower-income earners, and an increase in pensions to protect the purchasing power of the elderly.

The government also plans to begin reducing the tax wedge, or the difference between the salary paid by an employer and what workers take home. That’s a key issue in Italy given high income tax, which can hover close to 50% including regional levies.

(Updates with cabinet approval, quotes, details from first paragraph.)

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