Italy Becomes Next to Rock The EU Stability Boat

by Ulrika Lomas, Tax-News.com, Brussels

10 July 2002

It seems that Italy may become the next country to rock the European Union's Stability and Growth boat, following Prime Minister Silvio Berlusconi's promise last week to implement 'the largest tax cut in Italy's history'.

According to a Financial Times report, the Italian government last week unveiled long-awaited corporate and individual tax cut plans designed to boost the country's economy. However it admitted that as a result of the tax cutting programme, the budget deficit would likely stand at around 0.5% of GDP in 2004, the date by which Mr Berlusconi had agreed, alongside other eurozone countries, to balance the budget.

Speaking to the FT on Sunday, government officials defended the shift in policy, arguing that the Stability and Growth Pact permits a deficit if economic output is below expectation:

'We are well within the stability pact. Structurally, we will be close to balance beginning this year,' Treasury Director, Domenico Siniscalo told the newspaper.

However, there have been grave concerns expressed as to whether the Italian government has overestimated the country's growth prospects and underestimated the potential size of its budget deficit over the next few years.

The Financial Times clearly believes this to be the case, and predicted on Monday that:

'Italy's targets could test the limits of the European Commission's patience. Mr Berlusconi revealed them only two days after the Commission ordered Italy to correct its accounting methods...(which) led to a restatement of the 2001 budget deficit of 2.2% of GDP rather than 1.6%.'

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