Berlusconi Forced To Trim Proposed Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

12 July 2004

Italian Prime Minister Silvio Berlusconi told the nation’s leading bankers last Thursday that he will press ahead with plans to cut tax, although he conceded that he has been forced to water down the package in the face of pressure from the EU, and to prevent the collapse of his governing coalition.

During a speech to the Italian Banker’s Association, Berlusconi admitted that his proposal to slim down the income tax system by cutting the current five tax bands to just two, levied at 23% and 45%, was now unfeasible.

"I won't be able to do it for fiscal reasons and because of a lack of agreement within the coalition," the Prime Minister said, although he added: "I hope to be able to add just a third bracket for the higher incomes."

While standing in for Finance Minister Giulio Tremonti last week, Berlusconi told EU finance ministers on Monday that amongst other measures, Italy will be scrapping tax breaks for banks and insurance firms. Tremonti recently resigned amid growing disharmony over economic policy within Italy’s governing coalition.

Berlusconi’s problems were compounded last week when ratings agency Standard & Poor’s downgraded Italy’s credit ratings, citing fears that the tax cuts will add to the country’s already worrisome fiscal deficit and public debt situation.

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