Italian Government Backs Income Tax Cuts

by Ulrika Lomas, Tax-News.com, London

29 November 2004

Following hints last week from Italy’s Prime Minister Silvio Berlusconi that he would resign unless taxes were cut, his governmental allies have finally agreed to measures which will reduce taxes by around EUR6.5 billion next year.

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.

If approved, the 39% rate will apply on salaries between EUR33,500 and EUR100,000, the 33% rate on incomes between EUR26,000 and EUR33,500 and the 23% rate on incomes between EUR7,500 and EUR26,000.

In all, income tax cuts are said to account for about EUR6 billion of the total tax cutting package next year, with regional company tax breaks making up the remainder.

“There's a historic change because for the first time in decades and decades in Italy, taxes are being cut,” Berlusconi told reporters in Rome last week, after calling his ministers’ bluff by threatening to resign and force an election unless the long awaited tax cuts made it into the 2005 budget.

Berlusconi's cabinet is due to submit a finalised plan to parliament today, with the aim of passing the entire 2005 budget before December 31, as required by Italian law.

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