Berlusconi May Be Forced To Shelve Tax Cuts Following S&P Downgrade

by Ulrika Lomas, Tax-News.com, Brussels

17 January 2003

International ratings agency, Standard & Poor's on Wednesday revised its outlook on the Republic of Italy from stable to negative, citing 'the persistence of large structural fiscal deficits and the lack of a well-defined medium-term fiscal strategy'.

Although S&P affirmed the country's AA long-term and A-1+ short-term credit ratings, credit analyst Moritz Kraemer suggested that:

'Complacency about fiscal developments and failure to address budgetary imbalances with lasting structural measures could lead to a lowering of the ratings within one to two years. Conversely, the outlook would be revised to stable if sustainable budgetary improvements were achieved.'

The ratings agency warned against the continuation of Prime Minister, Silvio Berlusconi's tax cutting programme, which was the cornerstone of his 2001 election campaign:

'The Italian authorities have over recent years increased their dependence on onetime revenues to cover recurrent spending items. This is progressively putting a structural and sustainable consolidation of Italy's public finances in jeopardy,' Mr Kraemer observed, coninuing: 'If the government were to follow through on announced tax cuts, the structural fiscal weakening would be further accentuated.'

Recommended