Berlusconi Hints At Tax Cuts, Despite Rising Deficit

by Ulrika Lomas, Tax-News.com, Brussels

11 January 2010

Italy’s Premier, Silvio Berlusconi, has again been quoted as suggesting that tax cuts would be introduced in 2010. Although this was later denied, it posed questions on government policy, given the increased budget deficit seen in 2009.

In a recently reported telephone conversation which he held with members of the European parliament, Silvio Berlusconi attempted to explain the Italian government’s future policy programme. His list was revealed to contain a promise of fiscal reform leading to unspecified tax cuts.

His official spokesman, Paolo Bonaiuti, later underlined that the Premier had not actually said that there would be a reduction in taxes in 2010, and that this would be unlikely given the levels of both the budget deficit and public debt. Nevertheless, he has already said that tax cuts remain within the government’s sights before the next elections.

Giulio Tremonti, Italy’s Minister of the Economy, has also previously suggested that tax reforms will be necessary this year. He has, however, never mentioned tax cuts, restricting his comments to stating that there will be an initial phase of study and debate on tax reforms that should have, as their priority, the family, employment, research, and the environment.

In fact, the Ministry of the Economy recently disclosed that the public sector deficit in 2009 reached a provisional total of EUR85.9bn (USD123.7bn), some EUR31.6bn greater than the deficit seen in 2008. It was, however, less than previously revised estimates that had predicted a deficit of EUR88bn.

That improvement against estimates was largely down to the EUR4.7bn received by the government from penalties under the first stage of the latest tax amnesty, which more than compensated for the reduction in personal income tax revenue arising out of the delay granted to payments of IRPEF, the tax charged on small business income.

The government did not include any of the revenue arising out of the amnesty’s first stage within its budgetary programme, prior to confirmation of the amounts finally received.

It is repeating the same policy now, despite the fact that most estimates of the amounts to be repatriated under the amnesty’s second and final stage reveal that it could be expected to lead to additional revenue of between EUR1.5bn and EUR2bn.

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