Against The Odds, Berlusconi’s Tax Cuts Remain On The Agenda

by Ulrika Lomas, Tax-News.com, Brussels

28 April 2005

Emerging victorious from a parliamentary confidence vote yesterday, Italian Prime Minister Silvio Berlusconi reiterated his determination to see through his programme of economic reforms ahead of next year's elections, the centrepiece of which is several billion euros in tax cuts.

"All of our program will be implemented while keeping financial stability in mind, so as to keep investor and market confidence strong," Berlusconi stated ahead of Wednesday's confidence vote.

Included in this programme is a promise to abolish a local business tax known as IRAP over a period of three years. It is calculated that this levy generates some EUR33 billion in annual revenue for Italy's twenty regions.

Last month, an advisor to the European Court of Justice issued an opinion that the tax is illegal, prompting the Italian government to pledge it would change it.

Advocate General Francis Jacobs argued that the tax is too similar in form to the existing value added tax system and therefore contravenes the EU’s sixth directive.

If the European Court of Justice follows the opinion of the advocate general - which it does in the majority of cases - the Italian government could be faced with the problem of refunding business taxpayers to the tune of EUR120 billion.

Berlusconi's determination to see through his treasured tax cuts will be unlikely to impress Brussels. The EU Commission currently projects Italy's deficit at 3.6% of GDP this year and 4.6% in 2006, both above the euro zone's limit of 3.0% of GDP.

However, Berlusconi refutes the EU's projections.

"Despite the hardships, Italy has over the last four years always kept the deficit-to-GDP at 3.0% - something it will continue to do for all of 2005," he stated.

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