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Few Changes Expected To Italian Budget

by Ulrika Lomas,, Brussels

08 December 2011

Prime Minister Mario Monti has stressed that there is very little room, if at all, for unfunded changes to Italy’s latest budget during its passage through parliament, if the target of bringing the Italian budget back into balance by 2013 is to be attained.

In fact, the further package of measures introduced by the new government was an attempt, by taking a further EUR20bn (USD26.75bn) out of the fiscal deficit, to provide additional reassurance to the financial markets that the target will be reached. Monti, in a television interview, said that, in the budget, he has requested taxpayers to make “many sacrifices”, but that the alternative would have been an Italian debt default.

Apart from the pension reforms to reduce future costs (that are strongly opposed by Italy’s trade unions), much of the revenue-raising within the budget is concentrated on the measure which extends local property taxes to primary residences, accompanied by a 60% revaluation in the official value (‘valore catastrale’) of properties.

IMU, the new unified property tax, will be brought forward from 2014 to 2012, with a rate of 0.40% applying to first residences and with all other residences being subject to the expected standard rate of 0.76%. The government has pointed out that a continued exemption from local taxation for primary residences would be an anomaly, as they utilize local services probably the most.

In addition, the budget includes a possible further increase of 2% in the 10% and 21% rates of value added tax (VAT) as a fall-back source of additional revenues; only to enter into effect on September 1 next year if it is foreseen that the balancing of the budget will not be reached in time. However, most forecasters are assuming that the VAT rise will, in the event, be proved necessary.

Within the budget’s measures, Monti noted that the government had not increased the higher rates of individual income tax, as had been presaged almost universally by commentators, and confirmed that they would not be increased in the future.

On the other hand, given that the problem of future fiscal deficits should now have been overcome, Monti promised that the government’s future actions will be concentrated on reducing regulations and stimulating of growth in the economy.

TAGS: tax | economics | value added tax (VAT) | property tax | fiscal policy | budget | Italy | individual income tax

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