EU Unhappy At Berlusconi's Tax Cut Proposals

by Ulrika Lomas, Tax-News.com, Brussels

05 April 2004

Italian Prime Minister Silvio Berlusconi was warned by the European Union last week that his proposed tax cuts must only go ahead if enacted as part of a broader package of structural reform.

Gerassimos Thomas, EU spokesman on economic and monetary affairs, stated that:

"In principle tax cuts are positive for member states that can afford them. Given the current state of public finances of member states, for example Italy, they have to be fully financed so any loss of revenue has somehow to be replaced from somewhere else."

"We cannot afford to pretend to solve today's problems by creating problems for the future when certain policies can lead to higher deficits and higher debts," he added.

According to the EU spokesman, Italy is expected to continue to run the highest debt levels in the EU. He estimated that the country’s public debt amounts to EUR24,000 per head of population.

Berlusconi has staked his political future on the successful passage of tax reforms, the centre-piece of which is a plan to reduce the current three income tax brackets to two, effectively cutting the top rate of tax from 45% to 33%, and creating a uniform lower tax rate of 23%.

The Prime Minister has indicated that he will not stand in the general election, due in 2006, if he fails to see the reform through.

However, Berlusconi has also faced vociferous opposition from within his own governing coalition to elements of his tax and spending cuts plan, and coalition partner the National Alliance, headed by deputy prime minister Gianfranco Fini, has threatened to pull out of the government if its concerns are not met.

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