Berlusconi Sticking To His Tax Cutting Guns

by Ulrika Lomas, Tax-News.com, Brussels

05 August 2004

Italian Prime Minister Silvio Berlusconi has insisted that tax cuts will form a part of the 2005 budget despite warnings from the nation’s central bank and the International Monetary Fund over Italy’s level of indebtedness.

“Any permanent tax cuts, for businesses or families, shouldn't produce an increase in the deficit,” Bank of Italy Governor Antonio Fazio stated in parliamentary testimony on the government's four-year economic plan, which was approved last Thursday.

Fazio continues to argue that debt and deficit reduction should be the government’s first priority.

At 106% of gross domestic product, Italy has the highest level of national debt in Europe, and the third highest globally.

IMF director Michael Deppler reportedly echoed Fazio’s sentiments on Tuesday, urging Italy to delay tax cuts until appropriate spending cuts can be made.

Berlusconi's government last Thursday approved plans to cut taxes and adopt deficit reduction measures worth €24 billion in 2005 to keep Italy's budget from breaching the European Union’s limit of 3% of GDP.

However, the document failed to detail how €13 billion in promised tax cuts for 2004 and 2005 would be funded.

Nevertheless, after the parliamentary vote on the four year economic plan this week, Berlusconi stated that the tax cuts “will be in the budget”.

Among the measures on which the Italian leader has staked his political future is a reduction in the number of income tax brackets from five to three, involving a cut in the top rate of tax from 45% to 39%.

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