Berlusconi Wins Fight To Cut Tax In 2005

by Ulrika Lomas, Tax-News.com, Brussels

03 January 2005

Italian Prime Minster Silvio Berlusconi emerged triumphant on Wednesday after the Senate approved the 2005 budget, which contains some EUR6 billion in income tax cuts.

"This budget can be called epochal and signals a profound change," declared Mr Berlusconi following the vote in the upper house.

“It will turn Italy into a more dynamic, efficient and less burdensome country, with cuts to redundant costs. It is a breach with the past government strategies of increasing taxation,” he added.

Under the planned tax package, Italy’s five-tier personal income tax system will be reduced to four brackets at 23%, 33%, 39% and 43%, meaning an effective 2% cut in the top rate of tax, which will kick in on incomes above EUR100,000 per year.

However, many economists have expressed scepticism that the tax cuts - the lynchpin of Berlusconi’s economic policies - will have the desired effect of dragging the Italian economy out of a long period of stagnation.

Nevertheless, the Prime Minster intends to follow up next year’s tax cuts with an additional package of tax reductions in 2006, the year that he will face re-election - provided his centre-right coalition holds together long enough for him to achieve this ambition.

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