Italian Parliament Agrees Domestic Tax Cut Package

by Ulrika Lomas, Tax-News.com, Brussels

28 March 2003

The Italian parliament gave its approval this week to a programme of tax cuts designed by Silvio Berlusconi's government to give the sluggish economy a much needed boost.

The tax cuts in the 2003 budget will encompass both corporate and personal income tax rates and are expected to cost the government EUR7.5 billion.

The budget has allowed for a 2% cut in corporate tax from 36% to 34% and a simplification of personal income tax with the introduction of just two tax brackets. This will mean families earning under EUR100,000 will pay 23% in tax whilst those earning over this threshold will be charged 33%. This will eliminate the current system of five income brackets. It is expected to be in place by 2006, when corporate tax will undergo a further 1% reduction.

It is hoped the measures will stimulate the eurozone's third largest economy which grew just 0.4% last year - the slowest rate since the recession of the early 1990s.

However, the package of tax cuts has set alarm bells ringing in Brussels, which fears that the government's debt will breach the Eurozone's 3% borrowing to GDP threshold. Nevertheless, the Berlusconi administration hopes that a series of one-off measures in the current budget, such as tax amnesties, will raise enough revenue to bring the deficit down to 1.5% from 2.3% in 2002.

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