Berlusconi Unveils Tax-Cutting Package

by Ulrika Lomas, Tax-News.com, Brussels

29 June 2001

Italian Prime Minister Silvio Berlusconi on Thursday presented measures aimed at stimulating the economy, including some tax cuts. But the promised attack on Italy's high personal tax rates did not materialise, because, said Mr Berlusconi, the country's financial position was considerably worse than had been expected. Analysts were still checking the books, he said, but he thought it would be impossible to hold the deficit to the 1% of Gross National Product predicted by the outgoing centre-left administration.

The highlight of the package is the introduction of short-term labour contracts for some groups of workers, which ought to stimulate employment. Tax measures include the so-called 'Tremonti' law, unsuccessfully brought forward in Mr Berlusconi's last, brief period in office. Each Italian company will be asked to establish its the average level of annual investment over the last five years. The company will then pay 50 per cent less tax on any profits that it invests over and above this level. The new package is expected to define investment more broadly than the previous version, covering not just equipment but also training, research and even marketing.

Another significant measure is a plan aimed at encouraging Italy's notoriously evasive black economy companies to enter the official sector. Italy has one of the largest black economies in the European Union, rooted in the south and said to be equivalent to 25-30 per cent of gross domestic product. The government proposes an amnesty for companies that have hitherto evaded tax, which will have until November to declare their entry into the official sector. They will then pay tax and national insurance contributions at a discounted rate for three years before being obliged to pay full rates in year four.

The package also includes the abolition of inheritance and gift taxes, betes noirs of right-wing politicians, but centre-left politicians were predictably highly sceptical about the impact of this measure. "The level of inheritance tax is already extremely low in Italy so it will have little impact on anybody except the very rich," one said. Now where have I heard that before?

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