New Berlusconi Budget Includes 7.5 Billion Tax Cut

by Ulrika Lomas, Tax-News.com, Brussels

02 October 2002

Italian Prime Minister, Silvio Berlusconi on Monday announced that his government's 2003 budget contains measures to reduce the country's deficit and placate the European Union, in addition to some 7 billion euros in tax cuts.

Emerging from a meeting which lasted through the night, Mr Berlusconi suggested that the tax cutting measures, primarily aimed at low income households and corporations, will mean that: 'There will be many Italians who will have more money to spend. This will encourage consumption and investments, and support the economy.'

Although the deadline by which Eurozone countries are required to balance their budgets was recently extended by two years, to 2006, the draft budget contains provisions to reduce the Italian deficit to around 1.5% of GDP next year, compared to 2% in 2002.

However, the measures contained within this budget are unlikely to be enough to permanently soothe the EU's fears with regard to the Italian economy, due to the country's high debts (which stand at around 110% of GDP) and the fact that many of the revenue raising solutions are temporary.

Speaking to Reuters this week, Fabio Scacciavilliani, a London-based Goldman Sachs economist explained that: '(It) hinges mostly on one-off measures, for example a tax, and property securitisation. In other words, a permanent revenue shortfall will be covered by a temporary increase in revenues.'

However, the tax cutting programme is likely to be welcomed by Italian taxpayers, as it goes some way towards fulfilling election promises made by Mr Berlusconi before he was elected to government.

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