Bank Of Italy Lukewarm Over Berlusconi's Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

03 June 2004

Italian Prime Minister Silvio Berlusconi’s plans to cut taxes have received a further setback after the governor of the Bank of Italy, Antonio Fazio, said recently that they would likely increase the country’s debt burden, already the highest in the EU.

"The positive effect of a rise in consumer spending would be offset by the negative effect of higher debt," Fazio observed in a speech for the central bank’s annual assembly in Rome.

Eager to jolt the Italian economy into life after a period of historically low growth rates, and keen to impress the voters ahead of the European elections later this month, Berlusconi has proposed a package of tax cuts that will include a reduction in the top rate of income tax from 45% to 33% and the creation of a uniform lower rate of 23%.

However, Italy narrowly missed a dressing-down from the European Union concerning its worrisome state finances last month and has until July to put together a plan to reduce both budget deficit and government debt levels, or face a ‘yellow card’ from Brussels.

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