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EU Tells Italy To Reduce Budget Deficit

by Ulrika Lomas,, Brussels

24 January 2017

On January 17, the Italian Minister of the Economy and Finance, Pier Carlo Padoan, received a letter from the European Commission's Vice-President, Valdis Dombrovskis, and Tax Commissioner Pierre Moscovici, in which they said that Italy will need to introduce additional budgetary measures for 2017.

They indicated that there is a "significant" risk that Italy will breach its "required adjustment path" under the European Union's medium-term budgetary objectives. The letter added that additional budgetary measures "representing at least 0.2 percent" of Italy's gross domestic product, or EUR3.2bn (USD3.4bn), will be required to reduce the fiscal deficit "to broad compliance."

According to the Commission, the Italian Government will need to provide their reply, "with a sufficiently detailed set of specific commitments," by February 1.

While the Government is officially studying its options, Padoan has pointed out that the reasons for the slower-than-expected reduction in Italy's fiscal deficit – global uncertainty and slow economic growth rates – still persist. The Government, he said, is balancing the need for fiscal consolidation with measures to launch an economic recovery.

The Government will be keen to protect the tax cuts contained in its 2017 Budget, which has already received parliamentary approval. For example, a significant corporate tax rate reduction next year, from 27.5 percent to 24 percent, has been part of the Government's tax reform plans for some time.

A reduced business tax rate is also being provided for small businesses, including sole traders and artisans, who are currently taxed under the Italian individual income tax code, while there are increases in the research and development tax credit and the tax deduction for investors in start-ups.

TAGS: individuals | artisans | compliance | tax | small business | business | European Commission | fiscal policy | budget | corporation tax | tax credits | tax rates | Italy | tax breaks | European Union (EU) | research and development | Europe | Tax

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